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the company raised $ 106.5 million in aggregate gross proceeds , resulting in aggregate net proceeds to the company of approximately $ 104.8 million after deducting sales commissions and offering expenses . indebtedness on february 25 , 2019 , the company closed on a $ 41.0 million loan secured by a first mortgage lien on the canyon park property in seattle , washington . the mortgage loan anticipated repayment date is march 2027. interest is payable at a fixed rate of 4.30 % per annum . on june 13 , 2019 , the company assumed a $ 22.5 million loan secured by a first mortgage lien on the cascade station property in portland , oregon . the mortgage loan matures in may 2024. interest is payable at a fixed rate of 4.55 % per annum . on august 30 , 2019 , the company closed on a loan modification agreement reducing the interest rate from 4.60 % to 3.15 % per annum on the greenwood blvd property in orlando , florida . the modification has the same maturity of december 2025 and loan amount of $ 22.4 million as the original agreement . on august 30 , 2019 , the company closed on a loan modification agreement reducing the interest rate from 3.85 % to 3.10 % per annum on the frp collection property in orlando , florida . the modification has the same maturity of september 2023 and loan amount of $ 30.9 million as the original agreement . on august 30 , 2019 , the company closed on a loan modification agreement reducing the interest rate from 3.50 % to 3.10 % per annum on the carillon property in tampa , florida . the modification has the same maturity of october 2023 and loan amount of $ 17.1 million as the original agreement . on september 24 , 2019 , the company closed on a loan modification agreement reducing the interest rate from 4.00 % to 3.15 % per annum on the central fairwinds property in orlando , florida . the modification has the same maturity of june 2024 and loan amount of $ 18.0 million as the original agreement . 37 on september 27 , 2019 , the company entered into a five-year $ 50 million term loan ( the term loan ) , increasing its authorized borrowings under the company 's unsecured credit facility ( the unsecured credit facility ) from $ 250 million to $ 300 million . borrowings under the term loan bear interest at a rate equal to the libor rate plus a margin between 125 to 215 basis points depending upon the company 's consolidated leverage ratio . in conjunction with the term loan , the company also entered into a five-year interest rate swap for a notional amount of $ 50 million ( the interest rate swap ) . pursuant to the interest rate swap , the company will pay a fixed rate of approximately 1.27 % of the notional amount annually , payable monthly , and receive floating rate 30-day libor payments . for additional information regarding these mortgage loans , the unsecured credit facility , the term loan and the interest rate swap , please refer to liquidity and capital resources below . revenue base as of december 31 , 2019 , we owned 25 properties comprised of 65 office buildings with a total of approximately 5.8 million square feet of net rentable area ( nra ) . as of december 31 , 2019 , our properties were approximately 91.9 % leased . office leases historically , most leases for our properties were on a full-service gross or net lease basis , and we expect to continue to use such leases in the future . a full-service gross lease generally has a base year expense stop , whereby we pay a stated amount of expenses as part of the rent payment while future increases ( above the base year stop ) in property operating expenses are billed to the tenant based on such tenant 's proportionate square footage in the property . the property operating expenses are reflected in operating expenses ; however , only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations . in a triple net lease , the tenant is typically responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expenses , but rather all such expenses are billed to or paid by the tenant . the full amount of the expenses for this lease type is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . all tenants in the lake vista pointe , 2525 mckinnon , sorrento mesa and canyon park properties have triple net leases . certain tenants at amberglen , cherry creek , superior pointe , florida research park , circle point , the quad , cascade station and denver tech have leases on a triple net basis . we are also a lessor for a fee simple ground lease at the amberglen property . all of our remaining leases are full-service gross leases . factors that may influence our operating results and financial condition business and strategy we focus on owning and acquiring office properties in our target markets . our target markets generally possess what we believe are favorable economic growth trends , growing populations with above-average employment growth forecasts , a large number of government offices , large international , national and regional employers across diversified industries , are generally low-cost centers for business operations , and exhibit favorable occupancy trends . we utilize our management 's market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation . story_separator_special_tag rental revenue and tenant recoveries the amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations . the amount of rental revenue generated also depends on our ability 38 to maintain or increase rental rates at our properties . we believe that the average rental rates for our portfolio of properties are generally in-line or slightly below the current average quoted market rates . negative trends in one or more of these factors could adversely affect our rental revenue in future periods . future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years ( until the base year is reset at expiration ) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties . conditions in our markets positive or negative changes in economic or other conditions in the markets we operate in , including state budgetary shortfalls , employment rates , natural hazards and other factors , may impact our overall performance . while we generally expect a trend of positive economic growth and increasing interest rates to continue , there is no way for us to predict whether these trends will continue , especially in light of the potential changes in tax policy , fiscal policy and monetary policy . summary of significant accounting policies basis of preparation the accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the united states ( gaap ) and include the financial position and results of operations of the company , the operating partnership and its subsidiaries . all significant intercompany transactions and balances have been eliminated on consolidation . use of estimates the company has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with gaap . significant estimates made include the recoverability of accounts receivable , allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed , the determination of impairment of long-lived assets and the useful lives of long-lived assets . these estimates and assumptions are based on our best estimates and judgment . we evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors , including the current economic environment . the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions . management adjusts such estimates when facts and circumstances dictate . actual results could differ materially from those estimates . business combinations the fair value of the real estate acquired , which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions , is allocated to the acquired tangible assets , consisting of land , building and improvements and identified intangible assets and liabilities , consisting of the value of above-market and below-market leases , other value of in-place leases and value of tenant relationships , based in each 39 case on their fair values . for acquisitions that do not meet the business combination accounting criteria , these are accounted for as asset acquisitions . the company allocates the cost of the acquisition , which includes any associated acquisition costs to individual assets and liabilities assumed on a relative fair value basis . also , non-controlling interests acquired are recorded at estimated fair market value . the fair value of the tangible assets of an acquired property ( which includes land , building and improvements and fixtures and equipment ) is determined by valuing the property as if it were vacant . the as-if-vacant value is then allocated to land and building and improvements based on our determination of relative fair values of these assets . factors considered by us in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand . we also estimate costs to execute similar leases including leasing commissions . the fair value of above-market and below-market lease values are recorded based on the difference between the current in place lease rent and our estimate of current market rents . below-market lease intangibles are recorded as part lease intangibles liability and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases . above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases . the fair value of acquired in place leases are recorded based on the costs we estimate we would have incurred to lease the property to the occupancy level of the property at the date of acquisition . such estimates include the fair value of leasing commissions and legal costs that would be incurred to lease the property to this occupancy level .
| partially offsetting these increases , washington group plaza decreased overall revenue by $ 1.7 million due to the sale of the property in march 2018 , plaza 25 decreased overall revenue by $ 2.4 million due to the sale of the property in february 2019 and logan tower decreased overall revenue by $ 0.2 million due to the sale of the property in december 2019. revenue from cherry creek decreased by $ 0.5 million due to a property tax refund received during the year which correspondingly decreased the expense reimbursement . revenue from 7595 tech ( formerly dtc crossroads ) , part of our denver tech property , decreased $ 0.9 million as a result of decreased occupancy over the prior year and sorrento mesa also decreased by $ 1.5 million as a result of the termination fee payment received in the prior year . the remaining properties ' revenues were modestly higher in comparison to the prior year primarily as a result of modest mark-to-market increases in rents upon renewal . other revenues benefited from a one-time payment of $ 2.6 million received as consideration for the assignment of a purchase contract . the assignment fee originated through our administrative services relationship . upon adoption of topic 842 , prior year amounts disclosed in rental income , expense reimbursement , and other have been combined into a single line to conform to current period presentation . operating expenses total operating expenses . total operating expenses consist of property operating expenses , general and administrative expenses and depreciation and amortization . total operating expenses increased by $ 13.6 million , 42 or 12 % , to $ 127.5 million for the year ended december 31 , 2019 , from $ 113.9 million for the year ended december 31 , 2018 , primarily due to the acquisitions described above . total operating expenses increased by $ 1.7 million , $ 4.1 million , $ 2.1 million , $ 2.9 million , $ 4.2 million , $ 2.4 million , $ 1.5 million and $ 1.3 million , respectively , from the acquisitions of pima center , circle point , the quad , greenwood blvd , camelback square , canyon park , cascade station and 7601 tech properties . park tower operating expenses also increased by $ 0.8 million due to the higher occupancy at that property . washington group plaza operating expenses decreased by
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the four reportable segments are as follows : global integrated agencies - this segment is comprised of the company 's six global , integrated partner firms with broad marketing communication capabilities , including advertising , branding , digital , social media , design and production services , serving multinational clients around the world . domestic creative agencies - this segment is comprised of four partner firms that are national advertising agencies leveraging creative capabilities at their core . specialist communications - this segment is comprised of seven partner firms that are each communications agencies with core service offerings in public relations and related communications services . media services - this segment is comprised of a single operating segment with media buying and planning as its core competency . the all other category consists of the company 's remaining partner firms that provide a range of diverse marketing communication services , but are not eligible for aggregation with the reportable segments . in addition , mdc reports its corporate office expenses incurred in connection with the strategic resources provided to the partner firms , as well as certain other centrally managed expenses that are not fully allocated to the partner firms as corporate . corporate provides client and business development support to the partner firms as well as certain strategic resources , including accounting , administrative , financial , real estate , human resource and legal functions . additional expenses managed by the corporate office that are directly related to the partner firms are allocated to the appropriate reportable segment and the all other category . the partner firms earn revenue from agency arrangements in the form of retainer fees or commissions ; from short-term project arrangements in the form of fixed fees or per diem fees for services ; and from incentives or bonuses . additional information about revenue recognition appears in note 2 of the notes to the consolidated financial statements included herein . mdc classifies operating expenses in two distinct cost categories : cost of services sold , and office and general expenses . cost of services sold is primarily comprised of employee compensation related costs and direct costs related primarily to providing services . office and general expenses are primarily comprised of rent and occupancy costs and administrative service costs including related employee compensation costs . also included in office and general expenses are the changes of the estimated value of our contingent purchase price obligations , including the accretion of present value and acquisition related costs . depreciation and amortization are also included in operating expenses . because we are a service business , we monitor these costs on a percentage of revenue basis . cost of services sold tend to fluctuate in conjunction with changes in revenues , whereas office and general expenses and depreciation and amortization , which are not directly related to servicing clients , tend to decrease as a percentage of revenue as revenues increase as a significant portion of these expenses are relatively fixed in nature . we measure capital expenditures as either maintenance or investment related . maintenance capital expenditures are primarily composed of general upkeep of our office facilities and equipment that are required to continue to operate our businesses . investment capital expenditures include expansion costs , the build out of new capabilities , technology , and other growth initiatives not related to the day to day upkeep of the existing operations . growth capital expenditures are measured and approved based on the expected return of the invested capital . certain factors affecting our business overall factors affecting our business and results of operations . the most significant factors include national , regional and local economic conditions , our clients ' profitability , mergers and acquisitions of our clients , changes in top management of our clients and our ability to retain and attract key employees . new business wins and client losses occur due to a variety of factors . the two most significant factors are ( i ) our clients ' desire to change marketing communication firms , and ( ii ) the creative product that our partner firms offer . a client may choose to change marketing communication firms for a number of reasons , such as a change in top management and the new management wants to retain an agency that it may have previously worked with . in addition , if the client is merged or acquired by another company , the marketing communication firm is often changed . further , global clients are trending to consolidate the use of numerous marketing communication firms to just one or two . another factor in a client changing firms is the agency 's campaign or work product is not providing results and they feel a change is in order to generate additional revenues . 18 clients will generally reduce or increase their spending or outsourcing needs based on their current business trends and profitability . acquisitions and dispositions . the company 's strategy includes acquiring ownership stakes in well-managed businesses with world class expertise and strong reputations in the industry . the company provides post-acquisition support to partner firms in order to help accelerate growth , including in areas such as business and client development ( including cross-selling ) , corporate communications , corporate development , talent recruitment and training , procurement , legal services , human resources , financial management and reporting , and real estate utilization , among other areas . as most of the company 's acquisitions remain as stand-alone entities post acquisition , integration is typically implemented promptly , and new partner firms can begin to tap into the full range of mdc 's resources immediately . often the acquired businesses may begin to tap into certain mdc resources in the pre-acquisition period , such as talent recruitment or real estate . the company engaged in a number of acquisition and disposition transactions during the 2009 to 2017 period , which affected revenues , expenses , operating income and net income . story_separator_special_tag additional information regarding acquisitions and dispositions is provided in note 4 of the notes to the consolidated financial statements included herein for further information . foreign exchange fluctuation . our financial results and competitive position are affected by fluctuations in the exchange rate between the u.s. dollar and non-u.s. dollar , primarily the canadian dollar . see also “ item 7a - quantitative and qualitative disclosures about market risk - foreign exchange. ” seasonality . historically , with some exceptions , we generate the highest quarterly revenues during the fourth quarter in each year . the fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , or 3.1 % , including growth of $ 4.9 million from organic revenue growth , partially offset by a negative impact from dispositions of $ 10.6 million , or 0.8 % . revenue growth was attributable to net new client wins , increased spending as well as expanded scopes of services by existing clients , and increased pass-through costs . there was broad based growth by client sector , with particular strength in communications , food & beverage , financials , and consumer products , partially offset by declines within technology and retail . revenue growth was driven by the company 's business in the united states with growth of $ 68.7 million , or 6.2 % , due to net new client wins , increased spending as well as expanded scopes of services by existing clients , and increased pass-through costs . in canada , revenue declined $ 1.0 million , or 0.8 % , due to lower pass-through costs . outside of north america , revenue growth was $ 60.4 million , or 38.2 % , including contributions from acquired partner firms of $ 43.5 million , or 27.6 % . this growth was partially offset by a negative impact from dispositions of $ 3.5 million , or 2.2 % . revenue contributions from existing partner firms consisted of revenue growth of $ 18.9 million , or 12.0 % , due to net new client wins , increased client spending , and higher pass-through costs , as well as a positive impact from foreign exchange of $ 1.4 million , or 0.9 % . the company also utilizes a non-gaap metric called organic revenue growth ( decline ) , defined in item 7. for the year ended december 31 , 2017 , organic revenue growth was $ 96.4 million , or 7.0 % , of which $ 91.5 million , or 6.6 % , pertained to partner firms which the company has held throughout each of the comparable periods presented . the remaining $ 4.9 million , or 0.4 % , was generated through acquired partner firms . the other components of non-gaap activity include non-gaap acquisitions ( dispositions ) , net adjustments of $ 30.4 million , or 2.2 % , and a positive foreign exchange impact of $ 1.2 million , or 0.1 % . the components of the change in revenues in the advertising and communications group for the year ended december 31 , 2017 were as follows : replace_table_token_8_th the below is a reconciliation between the revenue in the advertising and communications group from acquired businesses in the statement of operations to non-gaap acquisitions ( dispositions ) , net for the year ended december 31 , 2017 : replace_table_token_9_th ( 1 ) operating segments not impacted by revenue from acquired partner firms in the current and prior period were excluded . in addition , no acquisitions were completed during 2017. refer to note 4 of the notes to the consolidated financial statements included herein for further information pertaining to the current year dispositions . ( 2 ) contributions to organic revenue growth ( decline ) represents the change in revenue , measured on a constant currency basis , relative to the comparable pre-acquisition period for acquired businesses that is included in the company 's organic revenue growth ( decline ) calculation . 22 the geographic mix in revenues in the advertising and communications group for the years ended december 31 , 2017 and 2016 was as follows : replace_table_token_10_th organic revenue growth in the advertising and communications group was driven by the company 's business in the united states with growth of $ 74.3 million , or 6.7 % , due to net new client wins , increased spending as well as expanded scopes of services by existing clients , and higher pass-through costs . in canada , organic revenue declined $ 1.7 million , or 1.4 % , due to a decrease in pass-through costs . organic revenue growth from outside of north america was $ 23.8 million , or 15.1 % , consisting of contributions from existing partner firms due to net new client wins , partially offset by an organic revenue decline of $ 4.9 million from acquired partner firms . the positive foreign exchange impact of $ 1.2 million , or 0.1 % , was primarily due to the strengthening of the canadian dollar and the european euro against the u.s. dollar , partially offset by the weakening of the british pound against the u.s. dollar . the change in expenses as a percentage of revenue in the advertising and communications group for the years ended december 31 , 2017 and 2016 was as follows : replace_table_token_11_th 23 the change in the categories of expenses as a percentage of revenue in the advertising and communications group for the years ended december 31 , 2017 and 2016 was as follows : replace_table_token_12_th ( 1 ) excludes staff costs . ( 2 ) excludes stock-based compensation and is comprised of amounts reported in both cost of services sold and office and general expenses .
| billion for the year ended december 31 , 2017 , compared to revenue of $ 1.39 billion for the year ended december 31 , 2016 , representing an increase of $ 128.0 million , or 9.2 % . the change in revenue was driven by revenue growth from existing partner firms of $ 91.5 million , or 6.6 % , and a positive foreign exchange impact of $ 3.6 million , or 0.3 % . revenue from acquired partner firms was $ 43.5 million or 3.1 % , including growth of $ 4.9 million from organic revenue growth , partially offset by a negative impact from dispositions of $ 10.6 million , or 0.8 % . operating profit for the year ended december 31 , 2017 was $ 132.0 million , compared to $ 48.4 million for the year ended december 31 , 2016 , representing an increase of $ 83.5 million , or 172.5 % . operating profit increased by $ 80.3 million , or 86.7 % in the advertisement and communication group , while corporate operating expenses decreased by $ 3.3 million , or 7.4 % . income from continuing operations was $ 257.2 million for the year ended december 31 , 2017 , compared to a loss of $ 40.6 million for the year ended december 31 , 2016 . the increase of $ 297.8 million was primarily attributable to ( 1 ) an increase in income tax benefit of $ 158.7 million , ( 2 ) an increase in operating profit of $ 83.5 million , ( 3 ) a loss on redemption of notes of $ 33.3 million recognized in the first quarter of 2016 , ( 4 ) a foreign exchange gain of $ 18.1 million for the year ended december 31 , 2017 compared to a foreign exchange loss of $ 0.2 million for the year ended december 31 , 2016 and ( 5 ) an equity
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a discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the provision for credit losses section of this management 's discussion and analysis of financial condition and results of operations ( md & a ) . for a discussion of concentrations of credit risk , see item 1 , under the caption of loan concentrations in this form 10-k. investment securities accounting estimates are used in the presentation of the investment portfolio and these estimates impact the presentation of united 's financial condition and results of operations . united classifies its investments in debt and equity securities as either held to maturity or available for sale . securities held to maturity are accounted for using historical costs , adjusted for amortization of premiums and accretion of discounts . securities available for sale are accounted for at fair value , with the net unrealized gains and losses , net of income tax effects , presented as a separate component of stockholders ' equity . when available , fair values of securities are based on quoted prices or prices obtained from third party vendors . third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data . prices obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management . where prices reflect forced liquidation or distressed sales , as is the case with united 's portfolio of pooled trust preferred securities , management estimates fair value based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks . due to the subjective nature of this valuation process , it is possible that the actual fair values of these securities could differ from the estimated amounts , thereby affecting united 's financial position , results of operations and cash flows . the potential impact to united 's financial position , results of operations or cash flows for changes in the valuation process can not be reasonably estimated . if the estimated value of investments is less than the cost or amortized cost , the investment is considered impaired and management evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment . if such an event or change has occurred , management must exercise judgment to determine the nature of the potential impairment ( i.e. , temporary or other-than-temporary ) in order to apply the appropriate accounting treatment . if united intends to sell , or is more likely than not will be required to sell an impaired debt security before recovery of its amortized cost basis less any current period credit loss , other-than-temporary impairment is recognized in earnings . the amount recognized in earnings is equal to the entire difference between the security 's amortized cost basis and its fair value at the balance sheet date . if united does not intend to sell , and is not more likely than not they will be required to sell the impaired debt security prior to recovery of its amortized cost basis less any current-period credit loss , the other-than-temporary impairment is separated into the following : 1 ) the amount representing the credit loss , which is recognized in earnings , and 2 ) the amount related to all other factors , which is recognized in other comprehensive income . given the recent disruptions in the financial markets , the decision to recognize other-than-temporary impairment on investment securities has become more difficult as complete information is not always available and market conditions and 27 other relevant factors are subject to rapid changes . therefore , the other-than-temporary impairment assessment has become a critical accounting policy for united . for additional information on management 's consideration of investment valuation and other-than-temporary impairment , see note c and note t , notes to consolidated financial statements . income taxes united 's calculation of income tax provision is inherently complex due to the various different tax laws and jurisdictions in which we operate and requires management 's use of estimates and judgments in its determination . the current income tax liability also includes income tax expense related to our uncertain tax positions as required in asc topic 740 , income taxes. changes to the estimated accrued taxes can occur due to changes in tax rates , implementation of new business strategies , resolution of issues with taxing authorities and recently enacted statutory , judicial and regulatory guidance . these changes can be material to the company 's operating results for any particular reporting period . the analysis of the income tax provision requires the assessments of the relative risks and merits of the appropriate tax treatment of transactions , filing positions , filing methods and taxable income calculations after considering statutes , regulations , judicial precedent and other information . united strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense . united is also subject to audit by federal and state authorities . because the application of tax laws is subject to varying interpretations , results of these audits may produce indicated liabilities which differ from united 's estimates and provisions . united continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances . the potential impact to united 's operating results for any of the changes can not be reasonably estimated . see note l , notes to consolidated financial statements for information regarding united 's asc topic 740 disclosures . story_separator_special_tag use of fair value measurements united determines the fair value of its financial instruments based on the fair value hierarchy established in asc topic 820 , whereby the fair value of certain assets and liabilities is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . asc topic 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable . observable inputs reflect market-based information obtained from independent sources ( level 1 or level 2 ) , while unobservable inputs reflect management 's estimate of market data ( level 3 ) . for assets and liabilities that are actively traded and have quoted prices or observable market data , a minimal amount of subjectivity concerning fair value is needed . prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management . when quoted prices or observable market data are not available , management 's judgment is necessary to estimate fair value . at december 31 , 2012 , approximately 8.65 % of total assets , or $ 728.46 million , consisted of financial instruments recorded at fair value . of this total , approximately 90.86 % or $ 661.91 million of these financial instruments used valuation methodologies involving observable market data , collectively level 1 and level 2 measurements , to determine fair value . approximately 9.14 % or $ 66.55 million of these financial instruments were valued using unobservable market information or level 3 measurements . most of these financial instruments valued using unobservable market information were pooled trust preferred investment securities classified as available-for-sale . at december 31 , 2012 , only $ 4.28 million or less than 1 % of total liabilities were recorded at fair value . this entire amount was valued using methodologies involving observable market data . united does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on united 's results of operations , liquidity , or capital resources . see note t for additional information regarding asc topic 820 and its impact on united 's financial statements . any material effect on the financial statements related to these critical accounting areas is further discussed in this management 's discussion and analysis of financial condition and results of operations . 28 2012 compared to 2011 financial condition summary united 's total assets as of december 31 , 2012 were $ 8.42 billion which was a decrease of $ 31.46 million or less than 1 % from december 31 , 2011. the decrease was primarily the result of a $ 203.93 million or 32.06 % decrease in cash and cash equivalents , a $ 94.82 million or 11.50 % decrease in investment securities and a $ 22.71 million or 6.45 % decrease in other assets . partially offsetting these decreases in total assets was an increase in portfolio loans of $ 280.64 million or 4.50 % and an increase of $ 13.86 million or 355.20 % in loans held for sale . the decrease in total assets is reflected in a corresponding decrease in total liabilities of $ 54.86 million or less than 1 % while shareholders ' equity increased $ 23.41 million or 2.42 % . the decrease in total liabilities was due mainly to a $ 66.02 million decrease in deposits , and a $ 60.44 million decrease in long-term borrowings , which were partially offset by increases of $ 60.20 million and $ 11.60 million in short-term borrowings and accrued expenses and other liabilities , respectively . the following discussion explains in more detail the changes in financial condition by major category . cash and cash equivalents cash and cash equivalents at december 31 , 2012 decreased $ 203.93 million or 32.06 % from year-end 2011. of this total decrease , interest-bearing deposits with other banks decreased $ 232.85 million or 45.98 % as united placed less excess cash in an interest-bearing account with the federal reserve . partially offsetting this decrease in interest-bearing deposits with other banks is a $ 28.91 million or 22.48 % increase in cash and due from banks and a $ 12 thousand or 1.19 % increase in federal funds sold . during the year of 2012 , net cash of $ 129.44 million was provided by operating activities . net cash of $ 208.14 million and $ 125.22 million were used in investing activities and financing activities , respectively . further details related to changes in cash and cash equivalents are presented in the consolidated statements of cash flows . securities total investment securities at december 31 , 2012 decreased $ 94.82 million or 11.50 % from year-end 2011. securities available for sale decreased $ 70.89 million or 10.18 % . this change in securities available for sale mainly reflects $ 2.00 billion in sales , maturities and calls of securities , $ 1.93 billion in purchases , and an increase of $ 5.46 million in market value . securities held to maturity decreased $ 15.82 million or 26.69 % from year-end 2011 due primarily to calls and maturities of securities . other investment securities decreased $ 8.10 million or 11.84 % from year-end 2011 due to the redemption of federal home loan bank ( fhlb ) stock . the following is a summary of available for sale securities at december 31 : replace_table_token_5_th 29 the following is a summary of held to maturity securities at december 31 : replace_table_token_6_th at december 31 , 2012 , gross unrealized losses on available for sale securities were $ 58.72 million .
| this change in securities available for sale reflects $ 1.49 billion in sales , maturities and calls of securities , $ 1.42 billion in purchases , and a $ 9.50 million increase in market value . securities held to maturity decreased $ 7.75 million or 11.56 % from year-end 2010 due to calls and maturities of securities . other investment securities decreased $ 5.99 million or 8.05 % from year-end 2010. in addition , goodwill increased $ 63.85 million or 20.48 % , other assets increased $ 37.17 million or 11.81 % , and bank premises and equipment increased $ 21.06 million or 38.04 % mainly the result of the centra acquisition . the increase in total assets is reflected in a corresponding increase in total liabilities of $ 1.12 billion or 17.60 % from year-end 2010. the increase in total liabilities was due mainly to an increase of $ 1.11 billion or 19.35 % and $ 20.46 million or 3.53 % in deposits and borrowings , respectively , mainly due to the centra acquisition . in terms of composition , noninterest-bearing deposits increased $ 415.91 million or 34.57 % while interest-bearing deposits increased $ 689.57 million or 15.29 % from december 31 , 2010. since year-end 2010 , short-term borrowings increased $ 61.55 million or 31.86 % due to a $ 64.55 million increase in securities sold under agreements to repurchase . long-term borrowings decreased $ 41.09 million or 10.63 % since year-end 2010 as long-term fhlb advances decreased $ 60.37 million or 29.86 % due to repayments . partially offsetting this decrease in long-term fhlb advances , united assumed $ 20 million of junior subordinated debt securities in the centra merger . accrued expenses and other liabilities at december 31 , 2011 decreased $ 5.86 million or 8.69 % from year-end 2010 mainly as a result of a $ 9.08 million decrease in income taxes payable due to a timing difference in payments . partially offsetting this decrease was an increase of $ 2.48 million in dividends payable . shareholders equity increased $ 175.83 million or 22.17 % from year-end 2010 mainly as a result of the centra acquisition . the centra
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this additional 20.9 % interest gave us a controlling interest in the center and so accordingly , we will be consolidating its financial statements in the first quarter of 2013. on february 28 , 2013 , we completed our acquisition of a multi-modality imaging center located in brooklyn , new york by exercising a $ 1.00 purchase option to acquire an initial 50 % interest ( we acquired this option through our december 31 , 2012 acquisition of lenox hill radiology ) and then by purchasing the remaining 50 % interest from the existing partner for approximately $ 2.7 million in cash . 35 on december 3 , 2012 , we completed our acquisition of a multi-modality imaging center , clinical radiologists medical imaging located in silver spring , maryland , for $ 2.8 million in cash . we have made a fair value determination of the acquired assets and assumed liabilities and approximately $ 65,000 of working capital , $ 1.8 million of fixed assets , $ 71,000 of other assets , $ 1.8 million of goodwill and the assumption of approximately $ 938,000 of capital lease debt was recorded with respect to this transaction . on november 5 , 2012 , we completed our acquisition of a multi-modality imaging center , vanowen radiology located in van nuys , california , for cash consideration of $ 550,000. we have made a fair value determination of the acquired assets and approximately $ 164,000 of fixed assets and $ 386,000 of goodwill was recorded with respect to this transaction . on november 9 , 2012 , we completed our acquisition of a multi-modality imaging center , pueblo radiology located in ventura , california , for cash consideration of $ 750,000. this center is located in an area of ventura where we operate an existing center and compete directly with pueblo radiology . we plan on closing our existing center and serving this location from this acquired center . we have made a fair value determination of the acquired assets and approximately $ 1.6 million of fixed assets and no goodwill was recorded with respect to this transaction . in accordance with accounting standards , any excess of fair value of acquired net assets over the acquisition consideration results in a gain on bargain purchase . prior to recording a gain , the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid , assets acquired , and liabilities assumed have been properly valued . we undertook such a reassessment , and as a result , have recorded a gain on bargain purchase of approximately $ 810,000 , which is included in other income within our consolidated statement of income for the year ended december 31 , 2012. we believe that the gain on bargain purchase resulted from various factors that impacted the sale . the seller , a group of radiologists some of whom own the building where the imaging center is based , were planning to close the imaging center , which was facing competition pressure from our existing radnet center , and were facing possible expenses to renovate the building to make it available for a non-imaging center tenant . they saw the sale of these assets to radnet and radnet 's assumption of an operating lease for the building as a way to avoid costly renovation expense , get out of a location where they were competing directly with a radnet center and immediately establish a rental revenue stream . we believe that the seller was willing to accept a bargain purchase price from us in return for our ability to enter into a long-term lease agreement for the facility and establish an immediate rental revenue stream with no investment on their part . on october 1 , 2012 we acquired a 100 % controlling interest in one of our non-consolidated joint venture imaging centers in which we previously held a 50 % non-consolidated equity investment . as a result of this transaction , we began consolidating this imaging center , recording all of its assets and liabilities at their fair value at october 1 , 2012. we have made a fair value determination of the acquired assets and assumed liabilities and $ 2.1 million of fixed assets and $ 1.8 million of goodwill was recorded with respect to this transaction . we also assumed approximately $ 1.9 million of capital lease debt and $ 200,000 of other liabilities . on august 6 , 2012 we formed a limited liability company with barnabas health , a new jersey owner and operator of a large new jersey hospital system , for the purpose of creating a new jersey imaging network under our management . our first endeavor was to establish a multi-modality imaging center located in cedar knolls , new jersey , of which we own 49 % . our initial investment of approximately $ 1.8 million was recorded to investment in non-consolidated joint ventures . on july 23 , 2012 , we completed our acquisition of a multi-modality imaging center , orthopedic imaging center , llc . located in redlands , california , for cash consideration of $ 700,000. we have made a fair value determination of the acquired assets and approximately $ 373,000 of fixed assets , $ 25,000 of other assets and $ 302,000 of goodwill was recorded with respect to this transaction . on july 1 , 2012 , we completed the sale of a 41 % portion of our ownership interest of one of our consolidated joint ventures to our existing partner in that joint venture for $ 1.8 million . after the sale , we retained a 49 % ownership interest in this joint venture . as a result of this transaction we de-consolidated this joint venture and recorded the fair value of our remaining interest as an investment in non-consolidated joint venture accounted for under the equity method . we recorded a gain on de-consolidation of a joint venture of approximately $ 2.8 million with respect to this transaction . story_separator_special_tag approximately $ 1.4 million of this gain is related to the re-measurement to current fair value of our remaining 49 % interest , using a market based valuation approach . the main input used in our valuation model was the $ 1.8 million sale price of a 41 % interest . on may 1 , 2012 , we completed our acquisition of advanced medical imaging of stuart , l.p. , which consists of two multi-modality imaging centers located in stuart , florida , for cash consideration of $ 1.0 million . we have made a fair value determination of the acquired assets and approximately $ 39,000 of fixed assets , $ 88,000 of other current assets and $ 923,000 of goodwill was recorded with respect to this transaction . on april 1 , 2012 , we completed our acquisition of west coast radiology , which consists of five multi-modality imaging centers in orange county , california , for cash consideration of $ 8.1 million . the centers are located in anaheim , santa ana/tustin , irvine and mission viejo/laguna niguel and operate a combination of mri , ct , ultrasound , mammography , x-ray and other related modalities . we have made a fair value determination of the acquired assets and assumed liabilities and approximately $ 715,000 of working capital , $ 3.1 million of fixed assets , $ 5.4 million of goodwill , $ 200,000 of intangible assets and the assumption of approximately $ 1.3 million of capital lease debt was recorded with respect to this transaction . 36 on february 29 , 2012 , we completed the acquisition of a multi-modality imaging center from todic , l.p. located in camarillo , california for cash consideration of $ 350,000. the facility provides mri , ct , mammography , ultrasound and x-ray services . we have made a fair value determination of the acquired assets and assumed liabilities and approximately $ 425,000 of fixed assets and $ 86,000 of goodwill was recorded with respect to this transaction as well as the assumption of approximately $ 40,000 of accrued liabilities and approximately $ 121,000 of capital lease debt . on february 29 , 2012 , we completed the acquisition of a multi-modality imaging center from progressive mri , llc located in frederick , maryland for cash consideration of $ 230,000. the facility provides mri , ct , mammography , ultrasound and x-ray services . we have made a fair value determination of the acquired assets and approximately $ 230,000 of fixed assets was recorded with respect to this transaction . story_separator_special_tag collapse '' > · building and equipment rental building and equipment rental expenses increased $ 7.4 million , or 13.8 % , to $ 60.6 million for the year ended december 31 , 2012 , compared to $ 53.2 million for the year ended december 31 , 2011 . 38 building and equipment rental expenses , including only those centers which were in operation throughout the full fiscal years of both 2012 and 2011 , increased $ 1.2 million , or 2.5 % . this 2.5 % increase is primarily due to equipment lease buy-outs occurring in the third quarter of 2012. this comparison excludes contributions from centers that were acquired subsequent to january 1 , 2011. for the year ended december 31 , 2012 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2011 , and excluded from the above comparison , was $ 8.8 million . for the year ended december 31 , 2011 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2011 , and excluded from the above comparison , was $ 2.6 million . · medical supplies medical supplies expense increased $ 4.9 million , or 14.3 % , to $ 38.9 million for the year ended december 31 , 2012 , compared to $ 34.0 million for the year ended december 31 , 2011. medical supplies expenses , including only those centers which were in operation throughout the full fiscal years of both 2012 and 2011 , decreased $ 441,000 , or 1.4 % . this 1.4 % decrease is in line with our decrease in service fee revenue . this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2011. for the year ended december 31 , 2012 , medical supplies expense from centers that were acquired subsequent to january 1 , 2011 , and excluded from the above comparison was $ 7.6 million . for the year ended december 31 , 2011 , medical supplies expense from centers that were acquired subsequent to january 1 , 2011 , and excluded from the above comparison was $ 2.3 million . · depreciation and amortization expense depreciation and amortization expense increased $ 259,000 , or 0.4 % , to $ 57.7 million for the year ended december 31 , 2012 when compared to the same period last year . the increase is due to property and equipment additions for existing centers as well as newly acquired centers . offsetting this is a catch-up reduction to depreciation of approximately $ 1.4 million recorded in september of 2012 related to our finalization of purchase accounting for our acquisition of raven holdings u.s. , inc. · loss ( gain ) on sale and disposal of equipment loss on sale of equipment was approximately $ 456,000 for the year ended december 31 , 2012 and resulted primarily from the sale of imaging equipment for scrap value upon acquisition of upgraded equipment . gain on sale of equipment was approximately $ 2.2 million for the year ended december 31 , 2011 and was primarily related to the difference between the net book value of certain equipment damaged in a fire at one of our imaging facilities and insurance proceeds we received from claims filed on this damaged equipment .
| operating expenses cost of operations for the year ended december 31 , 2012 increased approximately $ 65.2 million , or 13.6 % , from $ 477.8 million for the year ended december 31 , 2011 to $ 543.0 million for the year ended december 31 , 2012. the following table sets forth our operating expenses for the years ended december 31 , 2012 and 2011 ( 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 $ 33.9 million , or 12.8 % , to $ 298.4 million for the year ended december 31 , 2012 , compared to $ 264.5 million for the year ended december 31 , 2011. salaries and professional reading fees , including only those centers which were in operation throughout the full fiscal years of both 2012 and 2011 , increased $ 3.8 million , or 1.5 % . this 1.5 % increase is primarily due to the fact that there was one additional work day during the year ended december 31 , 2012 when compared to the prior year . there were also bonuses paid to certain members of management during the year ended december 31 , 2012 that were not paid in the prior year . this comparison excludes contributions from centers that were acquired subsequent to january 1 , 2011. for the year ended december 31 , 2012 , salaries and professional reading fees from centers that were acquired subsequent to january 1 , 2011 and excluded from the above comparison was $ 40.4 million . for the year ended december 31 , 2011 , salaries and professional reading fees from centers that were acquired subsequent to january 1 , 2011 , and excluded from the above comparison was $ 10.2 million . · stock-based compensation stock-based compensation decreased $ 374,000 , or 12.0 % , to $ 2.7 million for the year ended december 31 , 2012 compared to $ 3.1 million for the year ended december 31 , 2011. the decrease is due to fewer equity compensation instruments being issued in 2012 compared to the prior year .
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the long-term impact of covid-19 on the economy and on our business remains uncertain , the duration and scope of which can not currently be predicted . please refer to the matters discussed under the caption “ risk factors ” beginning on page 17. key metrics the following are key metrics by which we evaluate our business and make strategic decisions : same store sales we use the measure of same store sales to evaluate the performance of our store base , which excludes the impact of new stores and closed stores , in both periods under comparison . we include a restaurant in the calculation of same store sales once it has been in operation after 14 months . a restaurant which is temporarily closed , is included the same store sales computation . a restaurant which is closed permanently , such as upon termination of the lease , or other permanent closure , is immediately removed from the same store sales computation . employee complimentary meals are excluded from the computation . our calculation of same store sales may not be comparable to others in the industry . systemwide restaurant sales systemwide restaurant sales is presented as informational data in order to understand the aggregation of company-owned stores and franchised stores . systemwide restaurant sales for the twelve months ended december 31 , 2020 were $ 129.3 million as compared to $ 145.8 million in the prior year . the decrease is primarily attributable to the impacts of covid-19 on the company 's business . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > royalties – brand development and co-op advertising decreased $ 205,000 , or 11.9 % for the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. this is primarily due to the covid-19 outbreak which began in mid-march 2020 and impacted the remaining months through december 31 , 2020. since our royalties – brand development and co-op revenue is 1.5 % of franchisee sales , any fluctuation in franchisee sales directly affected our royalties – brand development revenue . our franchisees ' sales decreased approximately $ 16,700,000 for the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. initial franchise fees initial franchise fees decreased $ 71,000 , or 15.5 % for the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. effective on december 16 , 2020 , the closing date of the business combination , the deferred franchise fees balance was re-evaluated for fair value ( “ fv ” ) . the fv of the deferred franchise fees was determined to be $ 3,053,000 , or $ 993,000 less than the carrying value of $ 4,046,000. this $ 993,000 reduction in fv is being amortized over the remaining lives of the franchise agreements in place as of december 31 , 2020. the decrease in initial franchise fees was primarily due to this amortization for the period beginning december 16 , 2020 and ending december 31 , 2020. this was partially offset by the eight new franchise openings during 2020 , which resulted in revenue of approximately $ 15,000 per location for distinct services recognized upon opening of these restaurants plus the amortization of the deferred initial franchise fees for franchise agreements entered into in prior periods . for the year ended december 31 , 2019 , we had 5 new openings which resulted in the carryforward amortization plus the recognition for distinct services performed by the company at store opening date for these new locations . food , beverage and paper costs food , beverage , and paper costs increased approximately $ 621,000 , or 9.8 % for the s/p combined twelve-month period ended december 31 , 2020 , versus the year ended december 31 , 2019. this was primarily due to commodity cost inflation as well as three new company-owned store openings subsequent to december 31 , 2019. as a percentage of company restaurant sales , food , beverage , and paper costs were 26.8 % for the s/p combined twelve-month period ended december 31 , 2020 versus 26.5 % for the year ended december 31 , 2019. the percentage increase resulted primarily from commodity cost increases during the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. labor and related expenses labor and related expenses decreased by $ 577,000 , or 8.1 % for the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. this decrease was due primarily to less employees in our company locations relevant to the covid-19 outbreak which occurred beginning in mid-march 2020 and continued through december 31 , 2020. this decrease was partially offset by three new company restaurants in operation during 2020. as a percentage of company restaurant sales , labor and related expenses were 26.0 % for the s/p combined twelve-month period ended december 31 , 2020 versus 30.9 % for the year ended december 31 , 2019. this decrease was primarily due to the increased take-out and third-party delivery business resulting from the covid-19 breakout which required less staff in our company operated restaurants , which resulted in less labor costs as a percentage of total company restaurant sales but is somewhat offset by delivery fees incurred in other operating costs . story_separator_special_tag other operating expenses other operating expenses increased $ 1,059,000 , or 20.1 % for the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. this increase was primarily due to the three new company restaurants opened and operating in 2020 , as well as an increase in delivery fees due to the significant increase in delivery business due to the covid-19 outbreak in 2020. as a percentage of total company restaurant sales , other operating expenses were 25.0 % of total restaurant sales for the s/p combined twelve-month period ended december 31 , 2020 compared to 22.7 % for the year ended december 31 , 2019. this increase was primarily due to the increase in delivery fees and software fees during the s/p combined twelve-month period ended december 31 , 2020 versus the comparable period in 2019. in 2020 , we began to implement more cloud-based software solutions . as a result of this re-positioning , software costs include additional cloud-based services such as our new point of sale , micros simphony , and our new general ledger software , restaurant 365 , for which we make monthly periodic payments and , accordingly , expense as period costs beginning in 2020 and continuing into future periods . 40 occupancy and related expenses occupancy and related expenses increased $ 591,000 , or 27.5 % during the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. this is due primarily to the additional three new company restaurants during the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. general and administrative expenses general and administrative expenses increased by $ 552,000 , or 7.6 % during the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. this increase was due primarily to professional fees and transaction related expenses due to the business combination . as a percentage of total company revenue , general and administrative expenses were 22.3 % during the s/p combined twelve-month period ended december 31 , 2020 and 21.1 % for the year ended december 31 , 2019. stock compensation expense stock compensation expense was $ 818,000 for the s/p combined twelve-month period ended december 31 , 2020 compared to $ 0 for the year ended december 31 , 2019. on december 16 , 2020 , the company entered into employment agreements with executive chairman and chief executive officer , which included grants of the company 's common stock , subject to certain performance conditions for vesting . the value of these restricted shares was determined to total $ 818,000 for 2020. there were no such employment agreements in 2019. depreciation and amortization depreciation and amortization expenses increased by $ 585,000 , or 70.9 % during the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019 . $ 300,000 of this increase was due to the amortization of the intangible assets for the period beginning december 16 , 2020 and ending december 31 , 2020. these intangible assets acquired in connection with the business combination totaled $ 116,889,000. additionally , we opened three new company operated restaurants during the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. as a percentage of total company revenue , depreciation and amortization expense was 4.0 % versus 2.4 % for the s/p combined twelve-month period ended december 31 , 2020 , and the year ended december 31 , 2019 respectively . brand development and co-op advertising expense brand development and co-op advertising expense increased $ 585,000 , or 33.8 % for the s/p combined twelve-month period ended december 31 , 2020 versus the s/p combined twelve-month period ended december 31 , 2019. this is primarily due to the company spending an additional amount of approximately $ 475,000 during the s/p combined twelve-month period ended december 31 , 2020 on production for burgerfi commercials versus the year ended december 31 , 2019. gain on extinguishment of debt the company recognized a gain on extinguishment of debt of $ 791,000 during the s/p combined twelve-month period ended december 31 , 2020 due to the termination of the asset purchase and management agreement and the franchise agreements of the two restaurants which resulted in the deconsolidation on december 31 , 2020. see discussion in note 1 of the consolidated financial statements . interest expense interest expense increased by $ 52,000 during the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. this is primarily due to the net increase in our line of credit by $ 695,000 during the year ended december 31 , 2020. the remaining difference pertains to the notes payable at our two jacksonville locations , as well as the interest on our seller note related to our purchase of the burgerfi restaurant in boca raton , fl . 41 warrant liability the private placement warrants , consisting of the warrants exercisable under the pipe transaction ( 3,000,000 shares ) , the private placement warrants ( 445,000 shares ) and the working capital warrants ( 150,000 shares ) , include provisions that affect the settlement amount . such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument , and as such , the warrants are accounted for as liabilities in accordance with asc 815-40 , with changes in fair value included in the consolidated statement of operations . the liability classified warrants were priced using a dynamic black scholes model . this process relies upon inputs such as shares outstanding , estimated stock prices , strike price , risk free interest rate and volatility assumptions .
| management believes reviewing our operating results for the twelve-months ended december 31 , 2020 by combining the results of the predecessor and successor periods ( “ s/p combined ” ) is more useful in discussing our overall operating performance when compared to the same period in the current year . accordingly , in addition to presenting our results of operations as reported in our consolidated financial statements in accordance with gaap , the tables below present the non-gaap combined results for the year . replace_table_token_2_th 38 comparison of the years ended december 31 , 2020 and december 31 , 2019 company restaurant sales for the s/p combined twelve months ended december 31 , 2020 , the company 's restaurant sales increased $ 2,133,000 or 9.2 % compared to the prior year . this increase was primarily due to three new company restaurants opened and operating subsequent to december 31 , 2019 , as well as the two restaurants ( dania pointe and pembroke pines city center ) which opened late in 2019 being open for the full year in 2020. this accounted for approximately $ 2,576,000 of the increase . this increase was partially offset by the covid-19 outbreak which had a considerable impact on our business beginning in mid-march 2020. same store sales were down $ 3,102,000 or 15 % for the year ended december 31 , 2020 versus the year ended 2019. there was no such outbreak in the comparable year period ended december 31 , 2019. royalty and other fees royalty and other fees decreased $ 998,000 , or 13.5 % for the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. this is primarily due to the covid-19 outbreak which began in mid-march 2020 and continued through december 31 , 2020. since our royalty revenue primarily consists of fees charged as a percentage of franchisee restaurant sales , any fluctuation in franchisees ' sales directly affected our royalty revenue . our franchisees ' sales decreased approximately $ 16,700,000 for the s/p combined twelve-month period ended december 31 , 2020 versus the year ended december 31 , 2019. terminated franchise fees
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for 2014 , sg & a as a percentage of net sales increased to 14.8 % compared to 14.4 % of net sales in the same period of the prior year due primarily due to higher expenses during the current year . in 2013 , our sg & a expenses increased approximately 7 % or $ 23.1 million compared to the same period a year ago . excluding changes in foreign currency rates , sg & a increased by approximately $ 20.3 million compared to the same period a year ago . part of the increase is related to the stelmi acquisition . in the first half of 2013 , the stelmi group contributed approximately $ 9.9 million to our sg & a expense totals , while in 2012 , we recorded $ 5.9 million of professional fees related to the acquisition . also contributing to the increase were additional personnel costs and professional fees related to our north american enterprise system rollouts along with facility start-up costs in latin america . for 2013 , sg & a as a percentage of net sales decreased to 14.4 % compared to 14.7 % of net sales in the same period of the prior year due primarily to the increase in sales noted above . 16 /atr 2014 form 10-k depreciation and amortization depreciation and amortization expense increased approximately 2 % or $ 2.3 million in 2014. excluding changes in foreign currency rates , depreciation and amortization increased by approximately $ 3.6 million compared to the same period a year ago . the investments in our new products and the continued roll-out of our global enterprise resource planning system mentioned above exceeded exceptional charges incurred in 2013. depreciation and amortization as a percentage of net sales decreased slightly to 5.8 % compared to 6.0 % for the same period a year ago mainly due to the increase in sales in the current year . in 2013 , depreciation and amortization expense increased approximately 9 % or $ 12.9 million . excluding changes in foreign currency rates , depreciation and amortization increased by approximately $ 11.1 million compared to the same period a year ago . incremental stelmi depreciation and amortization for the first six months of 2013 represented $ 4.8 million of this increase while the accelerated depreciation on certain corporate assets and the european restructuring plan represented $ 4.2 million . additional investments in our business make up the remaining increase . excluding acquisitions , depreciation and amortization as a percentage of net sales increased slightly to 6.0 % compared to 5.9 % for the same period a year ago mainly due to the increase in expenses noted above . restructuring initiatives on november 1 , 2012 , the company announced a plan to optimize certain capacity in europe . due to increased production efficiencies and to better position the company for future growth in europe , aptargroup transferred and consolidated production capacity involving twelve facilities . under the plan , two facilities closed which impacted approximately 170 employees . during 2013 , we recognized $ 11.8 million of restructuring expenses along with $ 2.7 million accelerated depreciation of assets mentioned above . the plan was substantially completed at the end of 2013 with total costs of approximately $ 19.5 million . operating income operating income increased approximately $ 21.8 million or 8 % to $ 306.4 million in 2014. excluding changes in currency rates , operating income increased by approximately $ 22.7 million in 2014 . 2013 results included the negative impact of the european restructuring plan charges of $ 11.8 million . the remaining $ 10.9 million increase in operating income over the prior year is due to additional operating income from our sales growth , primarily from the pharma and food + beverage segments . reported operating income as a percentage of net sales increased to 11.8 % in 2014 compared to 11.3 % for the same period in the prior year due to the costs associated with our european restructuring plan in 2013. in 2013 , operating income increased approximately $ 25.7 million or 10 % to $ 284.6 million . excluding acquisitions and restructuring costs operating income increased by $ 11.3 million . the increase is mainly related to the sales growth across all three segments as discussed above . in 2013 , the positive impact of stelmi , which had operating income of $ 14.4 million in the first six months of 2013 , was offset by the negative impact related to restructuring plan charges of $ 14.6 million . the 2012 results were negatively impacted by restructuring plan charges of $ 4.9 million , $ 5.9 million of stelmi acquisition costs and $ 3.8 million related to stelmi inventory fair value adjustments as mentioned above . reported operating income , as a percentage of sales , increased slightly to 11.3 % in 2013 compared to 11.1 % in 2012 mainly due to the increase in sales discussed above . net other expenses net other expenses in 2014 decreased slightly to $ 20.1 million compared to $ 20.2 million in 2013. higher interest income and lower hedging costs were mostly offset by the recognition of a $ 1.5 million write-down on a non-controlling investment taken during the first quarter of 2014 to align with the current fair value . in 2013 , net other expenses increased to $ 20.2 million compared to $ 17.5 million in 2012. this increase is mainly due to $ 1.6 million higher interest expense and increased losses in the fourth quarter on foreign currency transactions mainly due to the significant devaluation of the argentine peso , brazilian real and indian rupee when compared to the u.s. dollar . effective tax rate the reported effective tax rate on net income for 2014 and 2013 was 33.1 % and 35.0 % , respectively . the company did not repatriate any earnings from foreign jurisdictions to the u.s. in 2014 and this reduced our reported effective tax rate compared to the prior year . story_separator_special_tag the reported effective tax rate on net income for 2013 and 2012 was 35.0 % and 32.7 % , respectively . the higher tax rate for 2013 is primarily the result of tax regulation changes enacted in france , offset partially by the tax benefits resulting from an italian tax law change as well as the expected use of a brazilian net operating loss . net income attributable to aptargroup , inc. we reported net income of $ 191.7 million compared to $ 172.0 million reported in 2013 and $ 162.6 million reported in 2012 . 17 /atr 2014 form 10-k beauty + home segment replace_table_token_6_th ( 1 ) segment income is defined as earnings before net interest expense , certain corporate expenses , restructuring initiatives and income taxes . the company evaluates performance of its business units and allocates resources based upon segment income . for a reconciliation of segment income to income before income taxes , see note 17 to the consolidated financial statements in item 8. net sales increased approximately 1 % in 2014 to $ 1.50 billion compared to $ 1.49 billion in 2013. changes in foreign currency negatively impacted reported sales for 2014 by 2 % . excluding changes in exchange rates , sales increased 3 % in 2014 compared to the prior year . sales of our products , excluding foreign currency changes , to the beauty market increased approximately 4 % while sales to the personal care and home care markets increased approximately 3 % and 4 % , respectively , in 2014 compared to 2013. the increase in beauty sales is primarily due to growth of our prestige fragrance and skin care products . personal care increased over the prior year due to stronger sales to our personal cleansing and sun care customers while the home care market increased mainly due to improved laundry care sales . geographically , all four regions reported increases in net sales with strong core sales growth in our emerging markets along with moderate growth in europe and the u.s. customer tooling sales , excluding foreign currency changes , decreased in 2014 to $ 33.9 million compared to $ 37.7 million in the prior year . in 2013 , net sales increased approximately 2 % to $ 1.49 billion compared to $ 1.45 billion in 2012. changes in foreign currency rates did not have a material impact on reported sales for 2013. sales of our products , excluding foreign currency changes , to the beauty market increased approximately 2 % while sales to the personal care market increased approximately 4 % in 2013 compared to 2012. softer sun care sales due to cooler weather conditions were offset by strong sales growth in asia and latin america . sales of our home care products , excluding foreign currency changes , decreased approximately 4 % mainly due to exiting certain unprofitable businesses in europe . geographically , increases in europe , asia and latin america offset the softness in north america . customer tooling sales , excluding foreign currency changes , decreased in 2013 to $ 38.6 million compared to $ 42.8 million in the prior year . segment income for 2014 decreased approximately 10 % to $ 98.4 million from $ 109.3 million reported in 2013. soft demand in certain product lines negatively impacted our north american region . we also recognized approximately $ 3.0 million in one-time costs related to the start-up of our colombian operations . due to the significant devaluation of certain latin american currencies , we recognized approximately $ 3.3 million of negative transaction effects related to the importing of components from different regions . in addition , we incurred $ 1.3 million of expense related to a fire that occurred in one of our brazilian facilities . the expenses related to the fire are expected to be reimbursed in future periods by insurance proceeds which will be recognized in the period they are realizable . in 2013 , segment income decreased approximately 12 % to $ 109.3 million from $ 123.5 million reported in 2012. increased earnings from the strong sales in europe , asia and latin america were not able to offset the higher labor costs and operational inefficiencies brought on by softness in the north american region and facility start-up costs in brazil and colombia . additional personnel costs and professional fees related to our north american enterprise system rollouts also negatively impacted segment income in 2013. pharma segment replace_table_token_7_th net sales increased 6 % in 2014 to $ 751.2 million compared to $ 708.8 million in 2013. foreign currency changes negatively impacted total segment sales by 1 % . excluding changes in exchange rates , sales increased 7 % in 2014 compared to the prior year . excluding foreign currency rate changes , sales of our products increased in each end market and geographic region we serve . sales to the prescription drug market increased 6 % on strong demand for our metered dose inhaler valves for various asthma and copd treatments , including new generic launches in developing regions . we also continued to see 18 /atr 2014 form 10-k strong demand for our consumer health care products , which increased 12 % partially due to preservative free eye care launches in europe using our innovative ophthalmic squeeze dispenser along with strong sales of our products used for nasal decongestant . excluding foreign currency rate changes , sales to the injectables market increased 1 % . customer tooling sales , excluding foreign currency changes , decreased in 2014 to $ 16.9 million compared to $ 21.1 million in the prior year . in 2013 , net sales increased 20 % to $ 708.8 million compared to $ 588.7 million in 2012. stelmi sales were $ 74.0 million during the first half of 2013 and represented 12 % of the increase . foreign currency changes had a positive impact of 2 % on total segment sales . excluding acquisitions and changes in exchange rates , sales increased 6 % in 2013 compared to the prior year .
| in 2013 , we reported net sales of $ 2.5 billion for 2013 , 8 % above 2012 reported net sales of $ 2.3 billion . stelmi , which was acquired in july of 2012 , reported sales for the first six months of 2013 of $ 74.0 million which contributed 3 % to the reported increase in 2013 net sales . the negative translation effect from weakening latin american and asian currencies was offset by the stronger euro compared to prior year . this resulted in a 1 % positive impact from changes in exchange rates on our reported sales growth . although all three operating segments saw core sales increases in 2013 , the 4 % core sales growth was mainly driven by the strong results of our food + beverage and pharma segments . replace_table_token_4_th foreign currency effects are approximations of the adjustment necessary to state the prior year earnings per share using current period exchange rates . for further discussion on net sales by reporting segment , please refer to the segment analysis of net sales and operating income on the following pages . the following table sets forth , for the periods indicated , net sales by geographic location : replace_table_token_5_th cost of sales ( exclusive of depreciation shown below ) our cost of sales as a percentage of net sales decreased in 2014 to 67.6 % compared to 67.8 % in 2013 . 15 /atr 2014 form 10-k the following factors positively impacted our cost of sales percentage in 2014 : mix of products sold . our pharma segment sales represented a higher percentage of our overall sales in 2014 compared to 2013. this positively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall company average . incremental cost savings from restructuring plan . on november 1 , 2012 , the company announced a plan to optimize certain capacity in europe . due to increased production efficiencies and to better position the company for future growth in europe ,
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pppm fees can fluctuate throughout the contract based on the health status ( acuity ) of each 64 individual enrollee . in certain contracts , pppm fees also include “ risk adjustments ” for items such as perf ormance incentives , performance guarantees and risk shares . the capitated revenues are recognized based on the estimated pppm earned net of projected performance incentives , performance guarantees , risk shares and rebates because we are able to reasonably estimate the ultimate pppm payment of these contracts . we recognize revenue in the month in which eligible members are entitled to receive healthcare benefits . subsequent changes in pppm fees and the amount of revenue to be recognized are reflected through subsequent period adjustments to properly recognize the ultimate capitation amount . we also assess the profitability of our capitation arrangements to identify contracts where current operating results or forecasts indicate probable future losses . if anti cipated future variable costs exceed anticipated future revenues , a premium deficiency reserve is recognized . certain third party payor contracts include a medicare part d payment related to pharmacy claims , which is subject to risk sharing through accepted risk corridor provisions . under certain agreements the fund risk allocation is established whereby we , as the contracted provider , receive only a portion of the risk and the associated surplus or deficit . we estimate and recognize an adjustment to part d capitated revenues related to these risk corridor provisions based upon pharmacy claims experience to date , as if the annual risk contract were to terminate at the end of the reporting period . for our capitated revenue arrangements , we evaluate whether we are the principal , and report revenues on a gross basis , or an agent , and report revenues on a net basis . in this assessment , we consider if we obtain control of the specified services before they are transferred to our customers , as well as other indicators such as the party primarily responsible for fulfillment . medical claims expense medical claims expenses are costs for third party healthcare service providers that provide medical care to our patients for which we are contractually obligated to pay through our full-risk capitation arrangements . the estimated reserve for our liability for incurred and not reported claims is included in the liability for unpaid claims in the consolidated balance sheets . actual claims expense will differ from the estimated liability due to factors in estimated and actual member utilization of health care services , the amount of charges and other factors . we assess our estimates with an independent actuarial expert to ensure our estimates represent the best , most reasonable estimate given the data available to us at the time the estimates are made . the actuarial models consider factors such as time from date of service to claim processing , seasonal variances in medical care consumption , health care professional contract rate changes , medical care utilization and other medical cost trends , membership volume and demographics , the introduction of new technologies and benefit plan changes . goodwill goodwill represents the excess of consideration paid over the fair value of net assets acquired through business acquisitions . goodwill is not amortized but is tested for impairment at least annually . we test goodwill for impairment annually on october 1 st or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability . these events or circumstances would include a significant change in the business climate , legal factors , operating performance indicators , competition , sale , disposition of a significant portion of the business or other factors . asc 350 , intangibles—goodwill and other ( “ asc 350 ” ) allows entities to first use a qualitative approach to test goodwill for impairment . asc 350 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not ( a likelihood of greater than 50 % ) that the fair value of a reporting unit is less than its carrying value . when the reporting units where we perform the quantitative goodwill impairment are tested , we compare the fair value of the reporting unit , which we primarily determine using an income approach based on the present value of discounted cash flows , to the respective carrying value , which includes goodwill . if the fair value of the reporting unit exceeds its carrying value , the goodwill is not considered impaired . if the carrying value is higher than the fair value , the difference would be recognized as an impairment loss . there were no goodwill impairments recorded during the years ended december 31 , 2020 , 2019 and 2018. stock and unit based compensation stock-based compensation is recognized for our stock options and restricted stock units ( “ rsus ” ) in the income statement utilizing the grant date fair value . we estimate the fair value of our stock options using the black-scholes option pricing model . assumptions for volatility , expected option life and risk free interest rate are used in the model . we estimate the fair value of our rsus based on the fair value of the underlying common stock . prior to the ipo , under our unit-based incentive plan , we rewarded employees with various types of awards , including but not limited to profits interests on a service-based or performance-based schedule . these awards also contained market conditions . we used a combination of the income and market approaches to estimate the fair value of each award as of the grant date . for performance-vesting units , we recognized unit-based compensation expense when it was probable that the performance condition would be achieved . we analyzed if a performance condition was probable for each reporting period through the settlement date for awards subject to performance vesting . for service-vesting units , we story_separator_special_tag pppm fees can fluctuate throughout the contract based on the health status ( acuity ) of each 64 individual enrollee . in certain contracts , pppm fees also include “ risk adjustments ” for items such as perf ormance incentives , performance guarantees and risk shares . the capitated revenues are recognized based on the estimated pppm earned net of projected performance incentives , performance guarantees , risk shares and rebates because we are able to reasonably estimate the ultimate pppm payment of these contracts . we recognize revenue in the month in which eligible members are entitled to receive healthcare benefits . subsequent changes in pppm fees and the amount of revenue to be recognized are reflected through subsequent period adjustments to properly recognize the ultimate capitation amount . we also assess the profitability of our capitation arrangements to identify contracts where current operating results or forecasts indicate probable future losses . if anti cipated future variable costs exceed anticipated future revenues , a premium deficiency reserve is recognized . certain third party payor contracts include a medicare part d payment related to pharmacy claims , which is subject to risk sharing through accepted risk corridor provisions . under certain agreements the fund risk allocation is established whereby we , as the contracted provider , receive only a portion of the risk and the associated surplus or deficit . we estimate and recognize an adjustment to part d capitated revenues related to these risk corridor provisions based upon pharmacy claims experience to date , as if the annual risk contract were to terminate at the end of the reporting period . for our capitated revenue arrangements , we evaluate whether we are the principal , and report revenues on a gross basis , or an agent , and report revenues on a net basis . in this assessment , we consider if we obtain control of the specified services before they are transferred to our customers , as well as other indicators such as the party primarily responsible for fulfillment . medical claims expense medical claims expenses are costs for third party healthcare service providers that provide medical care to our patients for which we are contractually obligated to pay through our full-risk capitation arrangements . the estimated reserve for our liability for incurred and not reported claims is included in the liability for unpaid claims in the consolidated balance sheets . actual claims expense will differ from the estimated liability due to factors in estimated and actual member utilization of health care services , the amount of charges and other factors . we assess our estimates with an independent actuarial expert to ensure our estimates represent the best , most reasonable estimate given the data available to us at the time the estimates are made . the actuarial models consider factors such as time from date of service to claim processing , seasonal variances in medical care consumption , health care professional contract rate changes , medical care utilization and other medical cost trends , membership volume and demographics , the introduction of new technologies and benefit plan changes . goodwill goodwill represents the excess of consideration paid over the fair value of net assets acquired through business acquisitions . goodwill is not amortized but is tested for impairment at least annually . we test goodwill for impairment annually on october 1 st or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability . these events or circumstances would include a significant change in the business climate , legal factors , operating performance indicators , competition , sale , disposition of a significant portion of the business or other factors . asc 350 , intangibles—goodwill and other ( “ asc 350 ” ) allows entities to first use a qualitative approach to test goodwill for impairment . asc 350 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not ( a likelihood of greater than 50 % ) that the fair value of a reporting unit is less than its carrying value . when the reporting units where we perform the quantitative goodwill impairment are tested , we compare the fair value of the reporting unit , which we primarily determine using an income approach based on the present value of discounted cash flows , to the respective carrying value , which includes goodwill . if the fair value of the reporting unit exceeds its carrying value , the goodwill is not considered impaired . if the carrying value is higher than the fair value , the difference would be recognized as an impairment loss . there were no goodwill impairments recorded during the years ended december 31 , 2020 , 2019 and 2018. stock and unit based compensation stock-based compensation is recognized for our stock options and restricted stock units ( “ rsus ” ) in the income statement utilizing the grant date fair value . we estimate the fair value of our stock options using the black-scholes option pricing model . assumptions for volatility , expected option life and risk free interest rate are used in the model . we estimate the fair value of our rsus based on the fair value of the underlying common stock . prior to the ipo , under our unit-based incentive plan , we rewarded employees with various types of awards , including but not limited to profits interests on a service-based or performance-based schedule . these awards also contained market conditions . we used a combination of the income and market approaches to estimate the fair value of each award as of the grant date . for performance-vesting units , we recognized unit-based compensation expense when it was probable that the performance condition would be achieved . we analyzed if a performance condition was probable for each reporting period through the settlement date for awards subject to performance vesting . for service-vesting units , we
| we may in the future enter into arrangements to acquire or invest in complementary businesses , services and technologies , including intellectual property rights . we have based this estimate on assumptions that may prove to be wrong , and we could use our available capital resources sooner than we currently expect . we may be required to seek additional equity or debt financing . in the event that additional financing is required from outside sources , we may not be able to raise it on terms acceptable to us or at all . if we are unable to raise additional capital when desired , or if we can not expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital , our business , results of operations , and financial condition would be adversely affected . cash flows the following table presents a summary of our consolidated cash flows from operating , investing and financing activities for the periods indicated . replace_table_token_12_th replace_table_token_13_th operating activities for the year ended december 31 , 2020 , net cash used in operating activities was $ ( 77,219 ) , an increase of $ ( 21,673 ) compared to net cash used in operating activities of $ ( 55,546 ) for the year ended december 31 , 2019. the principal contributors to the year-over-year change in the operating cash flows were as follows : a net increase in cash outflows of $ ( 1,661 ) related to our net loss and non-cash charges and credits , primarily due to an increase in net loss for the business , as noted above under “ results of operations ” offset by increased stock and unit-based compensation , amortization of debt issuance costs and depreciation and amortization ; and a net increase of $ ( 20,012 ) in cash outflows related to operating assets and liabilities resulting from o changes in accrued compensation and benefits due to the timing of payments of employee bonuses
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in addition , in 2016 , henkel entered the u.s. market with persil , its leading worldwide premium laundry detergent , and on september 1 , 2016 completed its acquisition of sun products , the maker of all , wisk , sun , and private label laundry detergents . while it is too early to assess what impact this will have on the company 's laundry detergent business , the introduction of persil and henkel 's increased scale and market share could precipitate greater price competition in the category and distribution pressure with a potential adverse impact on the company 's laundry detergent business . moreover , the unit dose laundry detergent segment is the fastest growing segment in the laundry detergent category , having grown to approximately 16 % of the category since its introduction in 2012 , and the company faces pressure to achieve its proportionate share of the segment with a potential adverse impact on its share of the laundry detergent category . the company continues to evaluate and vigorously combat these pressures through , among other things , new product introductions and increased marketing and trade spending . additionally , while the category grew 3.3 % for the 52 weeks ended december 17 , 2016 and 1.6 % for the 52 weeks ended december 19 , 2015 , after experiencing declines in 2013 and 2014 , there is no assurance the category will not decline in the future and that the company will be able to offset any such decline . the company has responded to these competitive pressures by , among other things , focusing on strengthening its key brands , including increased focus on the arm & hammer , oxiclean , trojan , l'il critters and vitafusion and batiste brands through the launch of innovative new products , which span various product categories , including premium and value household products supported by increased marketing and trade spending . there can be no assurance that these measures will be successful . in 2016 , the company was able to grow market share in four of 10 of its “ power brands ” in measured channels . the company 's global product portfolio consists of both premium ( 60 % of total worldwide consumer revenue in 2016 ) and value ( 40 % of total worldwide consumer revenue in 2016 ) brands , which it believes enables it to succeed in a range of economic environments . the company intends to continue to develop a portfolio of appealing new products to build loyalty among cost-conscious consumers . over the past 16 years , the company has diversified from an almost exclusively u.s. business to a global company with approximately 16 % of sales derived from foreign countries in 2016. the company has operations in six countries ( canada , mexico , u.k. , france , australia and brazil ) and exports to over 90 other countries . in 2016 , the company benefited from its concentration in north america in light of the economic downturn in europe ; however , the company has focused and will continue to focus on selectively expanding its global business . net sales generated outside of the united states are exposed to foreign currency exchange rate fluctuations as well as political uncertainty which could impact future operating results . the company also continues to focus on controlling its costs . historically , the company has been able to mitigate the effects of cost increases primarily by implementing cost reduction programs and , to a lesser extent , by passing along some of these cost 35 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) increases to customers . the company has also entered into set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel . additionally , maintaining tight controls on overhead co sts has been a hallmark of the company and has enabled it to effectively navigate recent challenging economic conditions . the identification and integration of strategic acquisitions are an important component of the company 's overall strategy . acquisitions have added significantly to company sales and profits over the last decade . this is evidenced by the company 's 2015 acquisition of certain assets of varied industries corporation ( the “ vi-cor acquisition ” ) and 2016 acquisitions of spencer forrest , inc. , the maker of toppik , and the anusol and rectinol businesses from johnson & johnson in the anusol acquisition . however , the failure to effectively integrate any acquisition or achieve expected synergies may cause the company to incur material asset write-downs . the company actively seeks acquisitions that fit its guidelines , and its strong financial position provides it with flexibility to take advantage of acquisition opportunities . in addition , the company 's ability to quickly integrate acquisitions and leverage existing infrastructure has enabled it to establish a strong track record in making accretive acquisitions . since 2001 , the company has acquired nine of its ten “ power brands ” . the company believes it is positioned to meet the ongoing challenges described above due to its strong financial condition , experience operating in challenging environments and continued focus on key strategic initiatives : maintaining competitive marketing and trade spending , managing its cost structure , continuing to develop and launch new and differentiated products , and pursuing strategic acquisitions . this focus , together with the strength of the company 's portfolio of premium and value brands , has enabled the company to succeed in a range of economic environments , and is expected to position the company to continue to increase stockholder value over the long-term . story_separator_special_tag moreover , the generation of a significant amount of cash from operations , as a result of net income and effective working capital management , combined with an investment grade credit rating provides the company with the financial flexibility to pursue acquisitions , drive new product development , make capital expenditures to support organic growth and gross margin improvements , return cash to stockholders through dividends and share buy backs , and reduce outstanding debt , positioning it to continue to create stockholder value . for information regarding risks and uncertainties that could materially adversely affect the company 's business , results of operations and financial condition , see “ risk factors ” in item 1a of this annual report . recent developments stock split on august 4 , 2016 , the company announced a two-for-one stock split of the company 's common stock ( “ common stock ” ) . the stock split was structured in the form of a 100 % stock dividend , payable on september 1 , 2016 to stockholders of record as of august 15 , 2016. all applicable amounts in the consolidated financial statements and related disclosures have been retroactively adjusted to reflect the stock split . share repurchase program on november 2 , 2016 , the board authorized a new share repurchase program , under which the company may repurchase up to $ 500.0 in shares of common stock ( the “ 2016 share repurchase program ” ) . the 2016 share repurchase program replaced the 2015 share repurchase program and does not have an expiration . the company will continue its evergreen share repurchase program , under which the company may repurchase , from time to time , common stock to reduce or eliminate dilution associated with issuances of common stock under the company 's incentive plans . toppik acquisition on january 4 , 2016 , the company acquired spencer forrest , inc. , the maker of toppik , the leading brand of hair building fibers for people with thinning hair in the toppik acquisition . the total purchase price was $ 175.3. the company financed the acquisition with short-term borrowings . this brand is managed within the consumer domestic and consumer international segments . anusol and rectinol acquisitions on december 22 , 2016 , the company acquired the anusol and rectinol businesses from johnson & johnson , inc. for $ 130. these are the number one or number two hemorrhoid care brands in each market in which they operate , primarily in the u.k. , canada , australia and south africa with total annual sales of $ 24 in 2016. the acquisition was funded with short-term borrowings and will be managed in the consumer international segment . 36 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) viviscal acquisition on january 17 , 2017 , the company acquired the viviscal business from lifes2good holdings limited for approximately $ 160. viviscal is the number one hair care supplement brand both in the u.s. and the u.k. with global annual sales of $ 44 in 2016. this brand is complementary to the company 's global batiste dry shampoo and toppik hair care business . the acquisition was funded with short-term borrowings and will be managed in the consumer domestic and consumer international segments . dividend increase on february 7 , 2017 , the board of directors declared a 7 % increase in the regular quarterly dividend from $ 0.1775 to $ 0.19 per share , equivalent to an annual dividend of $ 0.76 per share payable to stockholders of record as of february 21 , 2017. the increase raises the annual dividend payout from $ 183 to approximately $ 195 , and maintains the company 's payout of dividends relative to net income at approximately 40 % . brazil 's chemical business during fourth quarter of 2016 , the company decided to sell its brazilian chemical business to focus on its brazilian consumer business , resulting in a plant impairment charge of $ 4.9 recognized in the fourth quarter of 2016 based upon an anticipated selling price . during the first quarter of 2017 , the company signed an agreement to sell the business , resulting in an approximate $ 5.0 expense for severance and other charges . sales for the brazilian chemical business in 2016 were approximately $ 22.0. the company anticipates the transaction to close during the first quarter . international pension plan termination in 2016 the company authorized the termination of an international defined benefit pension plan under which approximately 336 participants , including 53 active employees , have accrued benefits . the company anticipates completing the termination of this plan by the end of the second quarter of 2017 , once regulatory approvals are obtained . in addition to plan assets , the company will need to make a one-time payment of $ 20.0 to $ 26.0 ( $ 14.0 to $ 19.0 after tax ) to purchase annuities for participants . the company estimates that it will incur a one-time expense of $ 49.0 to $ 55.0 ( $ 40.0 to $ 45.0 after tax ) in 2017 when the plan settlement is completed . this expense primarily includes the effect of the additional cash payment required at settlement and pension settlement accounting rules which require accelerated recognition of actuarial losses that were to be amortized over the expected benefit lives of participants . the estimated expense is subject to change based on valuations at the actual date of settlement . upon the termination of these plans in 2017 , the company will have no further obligations with respect to material defined benefit pension plans . 37 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) critical accounting policies and estimates the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the u.s. ( gaap ) .
| operating costs marketing expenses for 2016 were $ 427.2 , an increase of $ 9.7 compared to 2015. marketing expenses as a percentage of net sales decreased 10 bps to 12.2 % in 2016 as compared to 2015 due to 40 bps of leverage on higher net sales partially offset by 30 bps on higher expenses . selling , general and administrative expenses ( “ sg & a ” ) expenses for 2016 were $ 439.2 , an increase of $ 19.1 or 4.5 % compared to 2015. the increase is primarily due to costs associated with the toppik acquisition and higher compensation costs , partially offset by a pension plan charge recorded in 2015. sg & a as a percentage of net sales increased 30 bps to 12.6 % in 2016 compared to 12.3 % in 2015. the increase is due to higher costs of 60 bps , partially offset by 30 bps of leverage associated with higher sales . 40 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) other income and expenses equity in earnings of affiliates increased by $ 15.0 in 2016 as compared to 2015. the increase in earnings during 2016 was due primarily to a $ 17.0 impairment charge in 2015 associated with the company 's remaining investment in natronx . interest expense in 2016 was $ 27.7 , a decrease of $ 2.8 compared to 2015 due to a lower amount of average debt outstanding . taxation the 2016 tax rate was 35.0 % compared to 35.4 % in 2015. the 2015 tax rate was negatively impacted by a valuation allowance recorded in connection with the natronx impairment charge . 2015 compared to 2014 net sales net sales for the year ended december 31 , 2015 were $ 3,394.8 , an increase of $ 97.2 , or approximately 2.9 % compared to 2014 net sales . the components of the net sales increase are as follows : net sales - consolidated december 31 , 2015 product volumes sold 3.1 % pricing/product mix 0.5 % foreign exchange rate fluctuations / other ( 2.7 % ) acquired product lines ( 1 ) 2.0 % net sales increase 2.9 % ( 1 ) on september 19 , 2014 , the company acquired certain brands in the lil '
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gross margins increased in fiscal 2015 by 80 basis points from fiscal 2014 , to 19.7 % of sales compared to 18.9 % in fiscal 2014. increases occurred in both the branded and basics segments , and across all operating units with the exception of soffe . gross margins improved due to customer and product mix along with improved manufacturing efficiencies and lower costs . our gross margins may not be comparable to other companies , because some companies include costs related to their distribution network in cost of goods sold and we exclude them from gross profit and include them in selling , general and administrative expenses . fiscal year 2015 selling , general and administrative expenses were $ 81.1 million , or 18.1 % of sales , compared to $ 86.3 million , or 19.0 % of sales , in fiscal year 2014. the decrease in selling , general and administrative expenses is primarily due to lower fixed compensation and benefit costs , along with a decrease in variable selling costs and lower legal costs . fiscal 2014 included $ 2.2 million of severance related expenses associated with our strategic initiatives during the fourth quarter of fiscal year 2014 . 20 the change in fair value of contingent consideration is the remeasurement of the fair value of the contingent consideration related to the salt life acquisition . based upon the current operating results and future projections , a $ 0.5 million reduction in contingent consideration was recorded . our gain on sale of business was $ 7.7 million for fiscal year 2015. the gain on sale of business in fiscal year 2015 includes the $ 14.9 million in proceeds from the sale of the game business less the assets sold , the direct liabilities resulting from , and the selling costs related to this transaction . associated with the disposition of the game , $ 2.1 million of indirect expenses were also recorded , resulting in a net gain , including indirect expenses , of $ 5.6 million . see note 3 - sale of the game , for more information on this transaction . other income increased to $ 0.7 million in fiscal year 2015 from $ 0.9 million of expense in fiscal year 2014. this increase was due to an increase in income from our honduran joint venture of $ 0.3 million , as well as a $ 0.1 million increase in sublease income . fiscal year 2015 operating income was $ 16.1 million , or 3.6 % of sales , compared to an operating loss of $ 1.7 million , or 0.4 % of sales , in fiscal year 2014. operating income was $ 9.7 million in the basics segment and $ 6.4 million in the branded segment . interest expense for fiscal year 2015 was $ 6.0 million compared to $ 5.8 million in fiscal year 2014. the increase is due primarily to the higher interest rate on our u.s. credit facility compared to the imputed interest on the salt life promissory note related to the $ 9.0 million salt life payment made at the beginning of the fiscal year , along with higher debt levels in the first half of the fiscal year . our fiscal year 2015 effective income tax rate was 19.9 % compared to an effective tax rate of 87.1 % in the prior fiscal year . the prior year rate was driven from a small overall loss encompassing foreign profits in non-tax jurisdictions and losses in the united states . we benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates lower than the united states . net income for fiscal year 2015 was $ 8.1 million , or $ 1.00 per diluted share , compared with a net loss in the prior fiscal year of $ 1.0 million or $ 0.12 per diluted share . liquidity and capital resources credit facility and other financial obligations on may 10 , 2016 , we amended our u.s. revolving credit facility and entered into a fifth amended and restated credit agreement ( the `` amended credit agreement '' ) with wells fargo bank , national association ( `` wells fargo '' ) , as administrative agent , the sole lead arranger and the sole book runner , and the financial institutions named therein as lenders , which are wells fargo , pnc bank , national association and regions bank . our subsidiaries , m.j. soffe , llc , junkfood clothing company , salt life , llc , and art gun , llc ( together with the company , the `` companies '' ) , are co-borrowers under the amended credit agreement . the amended credit agreement allows us to borrow up to $ 145 million ( subject to borrowing base limitations ) , including a maximum of $ 25 million in letters of credit . provided that no event of default exists , we have the option to increase the maximum credit to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the administrative agent 's ability to secure additional commitments and customary closing conditions . the credit facility matures on may 10 , 2021. we paid $ 1.0 million in financing costs associated with the amended credit agreement . at october 1 , 2016 , we had $ 92.1 million outstanding under our u.s. revolving credit facility at an average interest rate of 2.7 % , and had the ability to borrow an additional $ 32.8 million . for further information regarding our u.s. asset-based secured credit facility , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . story_separator_special_tag in august 2013 , we acquired salt life and issued two promissory notes in the aggregate principal amount of $ 22.0 million , which included a one-time installment of $ 9.0 million that was due and paid as required on september 30 , 2014 , and quarterly installments commencing on march 31 , 2015 , with the final installment due on june 30 , 2019. the promissory notes are zero-interest notes and state that interest will be imputed as required under section 1274 of the internal revenue code . we have imputed interest at 1.92 % and 3.62 % on the promissory notes that mature on june 30 , 2016 , and june 30 , 2019 , respectively . at october 1 , 2016 , the discounted value of the promissory note was $ 8.1 million . refer to note 9 - long term debt to the consolidated financial statements for further information on these promissory notes . we have loan agreements with banco ficohsa , a honduran bank . this credit facility is secured by a first-priority lien on the assets of our honduran operations and the loans are not guaranteed by our u.s. entities . as of october 1 , 2016 , we had a total of $ 15.5 million outstanding on these loans . for further information regarding our honduran loans , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . our primary cash needs are for working capital and capital expenditures , as well as to fund share repurchases under our stock repurchase program . in addition , in the future we may use cash to pay dividends . 21 derivative instruments from time to time we may use derivative instruments to manage our exposure to interest rates . these financial instruments are not used for trading or speculation purposes . when we enter into a derivative instrument , we determine whether hedge accounting can be applied . where hedge accounting can be applied , a hedge relationship is designated as either a fair value hedge or cash flow hedge . the hedge is documented at inception , detailing the particular risk objective and strategy considered for undertaking the hedge . the documentation identifies the specific asset or liability being hedged , the risk being hedged , the type of derivative used and how effectiveness of the hedge will be assessed . during fiscal years 2016 , 2015 , and 2014 , the interest rate swap agreements had minimal ineffectiveness and were considered highly-effective hedges . changes in the derivatives ' fair values are deferred and are recorded as a component of accumulated other comprehensive income ( “ aoci ” ) , net of income taxes , until the underlying transaction is recorded . when the hedged item affects income , gains or losses are reclassified from aoci to the consolidated statements of operations as interest income/expense . any ineffectiveness in our hedging relationships is recognized immediately in the consolidated statement of operations . the changes in fair value of the interest rate swap agreements resulted in an aoci gain , net of taxes , of $ 0.3 million for the year ended october 1 , 2016 , an aoci loss , net of taxes , of $ 0.2 million for the year ended october 3 , 2015 , an aoci gain , net of taxes of $ 0.3 million for the year ended september 27 , 2014. operating cash flows cash provided by operating activities in fiscal year 2016 was $ 2.2 million compared to $ 22.3 million for fiscal year 2015. the decrease from the prior year is primarily due to increasing our inventory positions in order to better service our customers with immediate shipping in our basics segment and weekly replenishments to retailers . investing cash flows cash used in investing activities in fiscal year 2016 was $ 10.8 million compared to $ 7.6 million provided by investing activities in fiscal year 2015. capital expenditures during fiscal year 2016 were $ 12.3 million and included expenditures for the expansion of our textile operations that should decrease reliance on purchased fabric and reduce costs by leveraging internal operations . during fiscal year 2015 , investing cash flows also included the $ 14.9 million in proceeds received from the sale of the game assets . see note 3 - sale of the game , for further information on this transaction . in fiscal year 2015 , we used $ 7.8 million in cash primarily related to the expansion of our textile operations . we expect to spend approximately $ 10 million in capital expenditures in fiscal year 2017 , primarily on manufacturing equipment , along with information technology , and direct-to-consumer investments . financing activities cash provided by financing activities was $ 8.7 million in fiscal year 2016 compared to $ 30.2 million used in financing activities in fiscal year 2015. in fiscal year 2016 , we utilized the cash proceeds from our credit facility as well as a new $ 5 million honduran loan to fund the expansion of our offshore operations , as well as the repurchase of stock throughout the year . future liquidity and capital resources based on our current expectations , we believe that our credit facility should be sufficient to satisfy our foreseeable working capital needs , and that the cash flow generated by our operations and funds available under our credit facility should be sufficient to service our debt payment requirements , to satisfy our day-to-day working capital needs and to fund our planned capital expenditures . any material deterioration in our results of operations , however , may result in our losing the ability to borrow under our revolving credit facility and to issue letters of credit to suppliers , or may cause the borrowing availability under our facility to be insufficient for our needs . availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory , as well as the uses of cash in our operations .
| per diluted share . adjusted earnings per diluted share were $ 1.41 , a 147.4 % increase from the prior year 's $ 0.57 adjusted earnings per diluted share . 18 branded segment net sales in the branded segment were $ 148.1 million in fiscal year 2016 compared to $ 166.7 million in the prior year . sales in the branded segment declined $ 2.3 million , or 1.5 % , when excluding the $ 16.3 million in sales related to since-divested the game business and the since-discontinued kentucky derby license and the additional week of sales in 2015. salt life continued its sales growth , up nearly 27 % for the year on a comparable 52-week basis , driven from its new product lines and expanded distribution . the salt life sales growth was offset by sales declines in our other branded business units . operating income for the segment increased year-over-year to $ 7.0 million , when excluding the prior year $ 5.6 million gain , including related expenses , from the sale of the game business . basics segment net sales in our basics segment were $ 277.1 million in fiscal year 2016 compared with $ 282.5 million in fiscal year 2015. net sales were flat with the prior year adjusted net sales , after reducing for the additional week of sales in fiscal 2015. excluding the expenses associated with the manufacturing initiative , gross margins as a percent of sales increased by 480 basis points to 16.5 % of sales , compared to 11.7 % of sales for the prior fiscal year . operating income increased by $ 9.2 million , to 8.0 % of sales , compared to $ 13.1 million , or 4.6 % of sales , in fiscal year 2015. adjusted for the $ 2.8 million of manufacturing realignment expenses , adjusted operating income for fiscal year 2016 was $ 25.1 million , or 9.1 % of sales . quarterly financial data for information regarding quarterly financial data , refer
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after we demonstrate measurable improvements , we work with our customers to expand the utilization of our solution to other use cases or enterprise-wide . the average sales cycle for a new customer is approximately 11 months and generally ranges from 4 to 17 months . because of our vertical focus on the healthcare industry , we believe our sales and marketing resources can be deployed more efficiently than at horizontally-focused companies that provide technology and services to multiple industries . over the past few years , we have invested heavily in growth infrastructure by adding to our sales operations and marketing teams , which are built to help us scale over the long term . 56 we have demonstrated a consistent track record of innovation through research and development over time as evidenced by our new product features and new product offerings . this innovation is driven by feedback we glean from our customers , professional services teams , and the market generally . our investments in product development have been focused on increasing the capabilities of our solution and expanding the number of use cases we address for our customers . key business metrics we regularly review a number of metrics , including the following key financial metrics , to manage our business and evaluate our operating performance compared to that of other companies in our industry : replace_table_token_14_th we monitor the key metrics set forth in the preceding table to help us evaluate trends , establish budgets , measure the effectiveness and efficiency of our operations , and determine employee incentives . we discuss adjusted gross profit , adjusted gross margin , and adjusted ebitda in more detail below . adjusted gross profit and adjusted gross margin adjusted gross profit is a non-gaap financial measure that we define as revenue less cost of revenue , excluding depreciation and amortization and excluding stock-based compensation , tender offer payments deemed compensation , and post-acquisition restructuring costs . we define adjusted gross margin as our adjusted gross profit divided by our revenue . we believe adjusted gross profit and adjusted gross margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other non-recurring operating expenses . we believe these non-gaap measures are useful in evaluating our operating performance compared to that of other companies in our industry , as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability . see above for information regarding the limitations of using our adjusted gross profit and adjusted gross margin as financial measures and for a reconciliation of revenue to our adjusted gross profit , the most directly comparable financial measure calculated in accordance with gaap . adjusted ebitda adjusted ebitda is a non-gaap financial measure that we define as net loss adjusted for interest and other expense , net , loss on debt extinguishment , income tax provision ( benefit ) , depreciation and amortization , stock-based compensation , tender offer payments deemed compensation , and post-acquisition restructuring costs . we believe adjusted ebitda provides investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial performance . we believe adjusted ebitda is useful in evaluating our operating performance compared to that of other companies in our industry , as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance . see “ selected consolidated financial and other data - reconciliation of non-gaap financial measures ” for information regarding the limitations of using our adjusted ebitda as a financial measure and for a reconciliation of our net loss to adjusted ebitda , the most directly comparable financial measure calculated in accordance with gaap . 57 other key metrics we also regularly monitor and review the number of dos subscription customers and dollar-based retention rate as shown in the following tables : replace_table_token_15_th dos subscription customers since 2016 , our primary contracting model is a subscription-based contract to our dos platform , analytics applications , and professional services . given how fundamental dos is to our solution and because the vast majority of our total revenue is derived from dos subscription customers , we believe our dos subscription customer count , which represents customers with active subscriptions at period end , is the best representation of our market penetration and the growth of our business . replace_table_token_16_th dollar-based retention rate we calculate our dollar-based retention rate as of a period end by starting with the sum of the annual recurring revenue ( arr ) from customers as of the date 12 months prior to such period end ( prior period arr ) . we then calculate the sum of the arr from these same customers as of the current period end ( current period arr ) . current period arr includes any upsells and also reflects contraction or attrition over the trailing twelve months but excludes revenue from new customers added in the current period . we then divide the current period arr by the prior period arr to arrive at our dollar-based retention rate . we calculate arr for each customer as the expected monthly recurring revenue of our customers as of the last day of a period multiplied by 12. because we acquired medicity in 2018 , and because our primary business model is to contract for our dos platform , analytics applications , and professional services , medicity customers are not included in the dollar-based retention rate metrics . key factors affecting our performance we believe that our future growth , success , and performance are dependent on many factors , including those set forth below . while these factors present significant opportunities for us , they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations . add new customers . story_separator_special_tag we believe that our ability to increase our customer base will enable us to drive growth . our potential customer base is generally in the early stages of data and analytics adoption and maturity . we expect to further penetrate the market over time as potential customers invest in commercial data and analytics solutions . as one of the first data platform and analytics vendors focused specifically on healthcare organizations , we have an early-mover advantage and strong brand awareness . our customers are large , complex organizations who typically have long procurement cycles which may lead to declines in the pace of our new customer additions . leverage recent product and services offerings to drive expansion . we believe that our ability to expand within our customer base will enable us to drive growth . over the last few years , we have developed and deployed several new analytics applications including corus , touchstone , patient safety monitor , population builder , and others . because we are in the early stages of certain of our applications ' lifecycles and maturity , we do not have enough information to know the impact on revenue growth by upselling these applications and associated services to current and new customers . impact of medicity acquisition on growth . our customer base includes over 50 health systems and regional healthcare information exchanges added in the medicity acquisition , representing an opportunity for us to cross-sell our solution to medicity customers . we are in the early phases of that cross-selling initiative and do not have full visibility into the incremental growth opportunities from that effort . historically , medicity customers have generated a lower dollar-based retention rate than dos subscription customers and we expect flat to declining revenue from medicity customers in the foreseeable future . if our cross-sell efforts and technology integration strategies are successful , this could offset revenue declines from medicity customers . overall , the impact of the medicity acquisition could negatively impact our revenue growth rates over time . 58 changing revenue mix . our technology and professional services offerings have materially different gross margin profiles . while our professional services help our customers achieve measurable improvements and make them stickier , they have lower gross margins than technology revenue . in 2019 , our technology revenue and professional services revenue represented 54 % and 46 % of total revenue , respectively . changes in our revenue mix between the two offerings would impact future total adjusted gross margin . furthermore , changes within the types of professional services we offer over time can have a material impact on our adjusted professional services gross margin , impacting our future total adjusted gross margin . see “ selected consolidated financial and other data—reconciliation of non-gaap financial measures ” for more information . transitions to microsoft azure as dos hosting provider . we incur hosting fees related to providing dos through a cloud-based environment hosted by microsoft azure . we also operate a private data center where we host dos for certain customers and we maintain a small number of customers that have deployed dos on-premise . we are in the process of transitioning customers we host in our private data center and who deployed dos on-premise to azure-hosted environments . the azure cloud provides customers with more advanced dos product functionality and a more seamless customer experience ; however , hosting customers in azure is more costly than our private data center and on-premise deployments on a per-customer basis . this transition will result in higher cost of technology revenue and provide a headwind against increases in adjusted technology gross margin . refinement of pricing for our solution . in the past , we have adjusted our prices as a result of offering new applications and services and customer demand . in the fourth quarter of 2018 , we began to introduce new pricing for our solution for new customers to account for the addition of new analytics applications and associated services . we expect to realize fully the effect of this pricing adjustment in future years as new customers renew their technology and services subscription contracts . because these price adjustments were primarily related to new applications and services added to our solution , our prior experience pricing these offerings is limited . as we gain more experience marketing and delivering these new analytics applications and associated services , we may need to further refine our pricing , which could result in either increases or decreases to the price of our solution . during the years ended december 31 , 2019 and 2018 , there were no material revenue increases from the pricing adjustments made in 2018 as the increase in technology revenue from current customers is primarily attributable to contractual , annual escalators as opposed to pricing changes . medicity acquisition in june 2018 , we acquired 100 % of the llc interests in medicity from aetna , inc. ( aetna ) . the acquisition of medicity was one element of an integrated transaction whereby we also issued 707,613 shares of our series e redeemable convertible preferred stock to aetna in exchange for $ 15.0 million in cash . the acquisition was accounted for as a business combination as specified under asc 805 , business combinations . as part of the post-acquisition activities , we agreed to pay $ 2.6 million in cash as involuntary termination payments to certain medicity team members . the termination expense was recognized as compensation expense when management committed to the plan and the severance terms were communicated to the team members . medicity 's customer base is comprised of large health systems and regional healthcare information exchanges . we have invested in sales and marketing resources tasked with cross-selling our solution to the medicity customer base . we are in the early phases of that cross-selling initiative and do not have full visibility into additional revenue growth opportunities from that customer base .
| professional services revenue was $ 71.0 million , or 46 % of total revenue , for the year ended december 31 , 2019 , compared to $ 55.4 million , or 49 % of total revenue , for the year ended december 31 , 2018 . the professional services revenue growth is primarily due to implementation , analytics , and improvement services being provided to new dos subscription customers and expanded services with existing customers . cost of revenue , excluding depreciation and amortization replace_table_token_23_th cost of technology revenue , excluding depreciation and amortization , was $ 27.8 million for the year ended december 31 , 2019 , compared to $ 19.4 million for the year ended december 31 , 2018 , an increase of $ 8.4 million , or 43 % . the increase in cost of technology revenue was primarily due to an increase of $ 6.4 million in salary and related personnel costs from an increase in cloud services and support headcount , an increase of $ 4.9 million in cloud computing and hosting costs largely from the expanded use of microsoft azure , and an increase of $ 1.4 million in subscription costs to serve existing and new customers . these increases in cost of technology revenue were partially offset by a $ 4.1 million decrease in outside contractor fees . cost of professional services revenue was $ 47.5 million for the year ended december 31 , 2019 , compared to $ 40.4 million for the year ended december 31 , 2018 , an increase of $ 7.1 million , or 18 % . this increase is primarily due to an increase in salary and related personnel costs from an increase in our professional services headcount . 64 operating expenses sales and marketing replace_table_token_24_th sales and marketing expenses were $ 47.3 million for the year ended december 31 , 2019 , compared to $ 44.1 million for the year ended december 31 , 2018 , an increase of $ 3.2 million , or 7 % . this increase was primarily due to an increase of $ 3.7 million in salary and related personnel costs from additional sales , marketing , and account management headcount . there was a
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share repurchase program in fiscal 2015 , our board of directors authorized a share repurchase program of up to 300,000 shares of our outstanding common stock . the shares may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations . the primary objective of the share repurchase program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program . during fiscal 2016 we repurchased 127,852 shares of common stock with an aggregate purchase price of $ 4.8 million , and during fiscal 2015 we repurchased 59,602 shares of common stock with an aggregate purchase price of $ 2.2 million . the remaining balance of shares available to be purchased under the current share repurchase program is 112,546 shares . financial overview an overview of our financial performance in fiscal 2016 is provided below : sales of $ 414.0 million , a 13.7 % increase from fiscal 2015 ; gross profit of $ 80.3 million , an increase of $ 14.5 million , or 22.0 % , from fiscal 2015 ; and net cash provided by operating activities of $ 36.3 million . we seek to maintain relatively constant gross profit dollars per unit sold on each of our products as the cost of our raw materials increase or decrease , subject to competitive pricing pressures that may negatively impact our gross profit dollars per unit sold . since we expect that we will continue to experience fluctuations in our raw material costs and resulting prices in the future , we 15 believe that gross profit dollars is the best measure of our profitability from the sale of our products , as opposed to gross profit as a percentage of sales . we use the last in , first out ( “ lifo ” ) method of valuing the majority of our inventory , which causes the most recent product costs to be recognized in our income statement . the valuation of lifo inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs . the lifo inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices . our lifo reserve decreased by $ 1.4 million in fiscal 2016 due to a decrease in certain inventory volumes on hand , along with lower commodity prices , resulting in an increase to our reported gross profit for the year . our lifo reserve increased by $ 0.4 million in fiscal 2015 due to an increase in inventory volumes on hand , resulting in a decrease to our reported gross profit for the year . we disclose the sales of our bulk commodity products as a percentage of total sales dollars for our industrial and water treatment segments . our definition of bulk commodity products includes products that we do not modify in any way , but receive , store , and ship from our facilities , or direct ship to our customers in large quantities . we review our sales reporting on a periodic basis to ensure we are including all products that meet this definition . the disclosures in this document referring to sales of bulk commodity products have been updated for all periods presented based on the most recent review . story_separator_special_tag gross profit as discussed above . interest ( expense ) income , net interest expense increased by $ 0.8 million for fiscal 2016 due to the interest costs on the debt added in fiscal 2016 to partially fund the stauber acquisition . income tax provision our effective income tax rate was 40.2 % for fiscal 2016 compared to 36.9 % for fiscal 2015 . our effective tax rate for fiscal 2016 was negatively impacted by income tax expense of approximately $ 0.5 million associated with $ 1.4 million of stauber acquisition related expenditures which are not deductible for tax purposes and were recorded as discrete items during fiscal 2016. our effective tax rate for 2016 was also negatively impacted by $ 0.2 million related to a preliminary audit finding by a state income tax jurisdiction covering multiple years . the effective tax rate is generally impacted by projected levels of taxable income , permanent items , and state taxes . 17 fiscal 2015 compared to fiscal 2014 sales sales increased $ 15.8 million , or 4.5 % , to $ 364.0 million for fiscal 2015 , as compared to sales of $ 348.3 million for fiscal 2014. sales of bulk commodity products were approximately 22 % of sales in fiscal 2015 and 23 % in fiscal 2014. industrial segment . industrial segment sales increased $ 4.2 million , or 1.7 % , to $ 249.1 million for fiscal 2015. volumes increased year-over-year ; however , lower raw material prices and competitive pricing pressures in certain product lines resulted in lower per-unit selling prices . water treatment segment . water treatment segment sales increased $ 11.6 million , or 11.2 % , to $ 115.0 million for fiscal 2015. our recently acquired florida and oklahoma locations accounted for $ 7.9 million of the total increase . in addition , growth in our newer branches and increased sales of specialty chemicals were partially offset by the impact of lower raw material prices . gross profit gross profit was $ 65.8 million , or 18.1 % of sales , for fiscal 2015 , as compared to $ 61.6 million , or 17.7 % of sales , for fiscal 2014. the lifo method of valuing inventory decreased gross profit by $ 0.4 million for fiscal 2015 , while it increased gross profit by $ 1.9 million for fiscal 2014. industrial segment . story_separator_special_tag gross profit for the industrial segment was $ 33.6 million , or 13.5 % of sales , for fiscal 2015 , an increase of $ 1.6 million from $ 32.0 million , or 13.1 % of sales , for fiscal 2014. the increase in gross profit dollars was driven by higher sales volumes in fiscal 2015 as compared to fiscal 2014 , partially offset by lower per-unit margins due to continued competitive pricing pressures in certain product lines . gross profit for fiscal 2015 as compared to fiscal 2014 was favorably impacted by $ 0.3 million , as costs incurred in fiscal 2014 to exit a leased facility were partially offset by accelerated depreciation on assets incurred in fiscal 2015 in connection with a construction project . the lifo method of valuing inventory decreased gross profit in our industrial segment by $ 0.3 million in fiscal 2015 , while it increased gross profit by $ 1.6 million in fiscal 2014. water treatment segment . gross profit for the water treatment segment increased $ 2.6 million to $ 32.2 million , or 28.0 % of sales , for fiscal 2015 , as compared to $ 29.6 million , or 28.6 % of sales , for fiscal 2014. the increase in gross profit dollars was a result of higher sales volumes across most of our branches , in particular the addition of our recently acquired florida and oklahoma locations , along with increased sales of specialty chemicals . gross profit as a percentage of sales decreased primarily due to the addition of and growth in our newer branches that have lower per-branch revenues , and the costs to operate these branches represent a higher percentage of their sales than many of our existing branches . the lifo method of valuing inventory decreased gross profit by $ 0.1 million in fiscal 2015 , while it increased gross profit by $ 0.3 million in fiscal 2014. selling , general and administrative expenses sg & a expenses were $ 35.4 million , or 9.7 % of sales , for fiscal 2015 , as compared to $ 33.5 million , or 9.6 % of sales , for fiscal 2014. the expenses increased in our water treatment segment , with $ 1.6 million of the increase due to our recently acquired florida and oklahoma locations , and the remainder of the increase driven by the addition of sales personnel in existing locations . operating income operating income was $ 30.4 million , or 8.4 % of sales , for fiscal 2015 , as compared to $ 28.1 million , or 8.1 % of sales , for fiscal 2014. operating income for the industrial segment increased by $ 1.6 million as a result of the gross profit increases discussed above . operating income for the water treatment segment increased $ 0.8 million , as increased sg & a expenses partially offset increases in gross profit as discussed above . interest income ( expense ) , net interest income on cash and investments of $ 0.2 million was offset by interest expense related to our pension withdrawal liability of $ 0.2 million during both fiscal 2015 and fiscal 2014 . 18 income tax provision our effective income tax rate was 36.9 % for fiscal 2015 compared to 35.5 % for fiscal 2014. our effective tax rate for fiscal 2014 was reduced by a non-recurring state tax benefit of $ 0.4 million . the effective tax rate is generally impacted by projected levels of taxable income , permanent items , and state taxes . liquidity and capital resources cash provided by operating activities in fiscal 2016 was $ 36.3 million compared to $ 20.7 million in fiscal 2015 and $ 34.6 million in fiscal 2014 . the increase in cash provided by operating activities was primarily due to the timing of inventory purchases . our inventory levels on hand at the end of fiscal 2014 were unusually low , which resulted in significant cash expended to rebuild inventory levels in the first quarter of fiscal 2015. at the end of fiscal 2015 , our inventory levels were higher and we did not experience as large of a cash outflow during the first quarter of fiscal 2016. due to the nature of our operations , which includes purchases of large quantities of bulk chemicals , the timing of purchases can result in significant changes in working capital and the resulting operating cash flow . historically , our cash requirements for working capital increase during the period from april through november as caustic soda inventory levels increase as the majority of barges are received during this period . cash used in investing activities was $ 151.4 million in fiscal 2016 compared to $ 26.4 million in fiscal 2015 and $ 23.1 million in fiscal 2014 . we expended $ 159.0 million , net of cash acquired , to complete the stauber and davis acquisitions in fiscal 2016 compared to $ 10.1 million for the dumont acquisition in 2015. net cash of $ 31.7 million was provided by sales of investments during fiscal 2016 as we liquidated our investments to partially fund the stauber acquisition . capital expenditures were $ 24.2 million in fiscal 2016 , $ 14.6 million in fiscal 2015 and $ 12.3 million in fiscal 2014 . capital expenditures in fiscal 2016 included $ 7.7 million related to facility improvements , replacement equipment , new and replacement containers and water treatment trucks , $ 6.4 million related to business expansion , inventory storage and process improvements , and $ 5.4 million related to a major upgrade to one of our terminal facilities . total capital spending in fiscal 2017 is currently expected to be comparable to fiscal 2016. cash provided by financing activities was $ 116.4 million in fiscal 2016 , as compared to cash used in financing activities of $ 9.1 million in fiscal 2015 and $ 6.7 million in fiscal 2014 .
| also contributing to the year-over-year increase was an overall increase in sales volumes at our other locations , driven by the 53 rd week in fiscal 2016 , and higher sales volumes of specialty products , partially offset by lower volumes sold and lower selling prices on certain bulk commodity products . health and nutrition segment . sales for our newly established health and nutrition segment were $ 33.9 million for the fourth quarter and full year of fiscal 2016 . 16 gross profit gross profit was $ 80.3 million , or 19.4 % of sales , for fiscal 2016 , an increase of $ 14.5 million from $ 65.8 million , or 18.1 % of sales , for fiscal 2015 . our newly established health and nutrition segment accounted for $ 6.8 million of the increase , including an estimated $ 0.5 million related to the 53 rd week in fiscal 2016. including the health and nutrition segment , we estimate the total gross profit impact of the 53 rd week to be approximately $ 2.1 million of additional gross profit for the year . the lifo method of valuing inventory increased gross profit by $ 1.4 million for fiscal 2016 , while it decreased gross profit by $ 0.4 million for fiscal 2015 . industrial segment . gross profit for the industrial segment was $ 38.0 million , or 15.1 % of sales , for fiscal 2016 , an increase of $ 4.3 million from $ 33.6 million , or 13.5 % of sales , for fiscal 2015 . we estimate the gross profit impact of the 53 rd week in the industrial segment to be approximately $ 1.0 million of additional gross profit for the year . an increase in sales of specialized products that carry higher per-unit margins were partially offset by lower sales of bulk commodity products , which carry lower per-unit margins . the lifo method of valuing inventory increased gross profit in our industrial segment by $ 1.0 million in fiscal 2016 , while it decreased gross profit by $ 0.3 million in fiscal 2015. water treatment segment . gross profit for the
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63 on may 11 , 2015 , we entered into an award contract supported by the clinical and rehabilitative medicine research program , or crmrp , of the united states army medical research and materiel command , or usamrmc , within the u.s. department of defense , or the dod , in which the dod agreed to provide up to $ 17.0 million to support the development of dsuvia , referred to as the dod contract . under the terms of the dod contract , the dod has and continues to reimburse us for costs incurred for development , manufacturing , regulatory and clinical costs outlined in the contract in order to submit an nda to the fda , including reimbursement for certain personnel and overhead expenses . the period of performance under the dod contract began on may 11 , 2015. the contract gives the dod the option to extend the term and provide additional funding . on march 2 , 2016 , the dod contract was amended to approve enrollment of additional patients in the sap302 study , approve the addition of the sap303 study , and extend the contract period of performance by four months from november 10 , 2016 to march 9 , 2017 , to accommodate the increased sap302 patient enrollment and the sap303 study . the costs for these changes has been absorbed within the current contract value . if dsuvia is approved by the fda , the dod has the option to purchase 112,000 units of commercial product pursuant to the terms of the dod contract . we have also held various meetings with health authorities in europe , including iceland and hungry who have been designated as rapporteur and co-rapporteur , respectively , to discuss the submission of a marketing authorization application , or maa , for arx-04 ( known as dsuvia in the united states ) . based on feedback from these discussions , we intend to submit a hybrid application for a label indication for arx-04 in the eu for acute moderate-to-severe pain in adult patients in medically supervised settings . at the time of the anticipated submission of the maa , we will have only completed one study in the emergency room for acute pain patients , in addition to two phase 3 and one phase 2 post-operative pain studies . we may need an additional controlled study in the emergency department with arx-04 to obtain a label that includes trauma-related pain in addition to post-operative pain . we also anticipate we may need comparator studies in the eu to ensure premium reimbursement in certain countries . we anticipate submitting the maa for arx-04 in the first half of 2017. a pre- submission meeting was held with the european-appointed rapporteur and co-rapporteur in january 2017. zalviso ® ( sufentanil sublingual tablet system ) as a follow-on product candidate to dsuvia in the united states , zalviso is intended for the management of moderate-to-severe acute pain in hospitalized adult patients . zalviso consists of sufentanil sublingual tablets , 15 mcg , delivered by the zalviso system , a needle-free , handheld , patient-administered , pain management system , or together , zalviso . while still under development in the u.s. , as discussed further below , zalviso is approved and marketed in the eu . zalviso is a pre-programmed , non-invasive , system to allow hospital patients with moderate-to-severe acute pain to self-dose with sufentanil sublingual tablets , 15 mcg , to manage their pain . zalviso is designed to help address certain problems associated with post-operative intravenous ( iv ) patient-controlled analgesia ( pca ) . zalviso allows patients to self-administer sufentanil sublingual tablets via a pre-programmed , secure system designed to eliminate the risk of programming errors . on december 16 , 2013 , acelrx and grünenthal gmbh , or grünenthal , entered into a collaboration and license agreement , or the license agreement , and related manufacture and supply agreement , or the msa , and together with the license agreement , the agreements . the license agreement grants grünenthal rights to commercialize zalviso , our novel sublingual patient-controlled analgesia , or pca , system , or the product , in the countries of the european union , or eu , switzerland , liechtenstein , iceland , norway and australia , or the territory , for human use in pain treatment within , or dispensed by , hospitals , hospices , nursing homes and other medically supervised settings , or the field . we retain rights with respect to the product in countries outside the territory , including the united states , asia and latin america . under the msa , we will exclusively manufacture and supply the product to grünenthal for the field in the territory . we entered into amendments to the license agreement , effective july 17 , 2015 and september 20 , 2016 , or the license amendments , and together with the license agreement , the amended license agreement , and entered into an amendment to the msa , or the msa amendment , and together with the msa , the amended msa , effective as of july 17 , 2015 , and together , the amended agreements . for additional information on the amended agreements , see note 6 “ collaboration agreement ” in the accompanying notes to the consolidated financial statements . zalviso was approved for commercial sale by the european commission in september 2015. grünenthal has initially deployed the zalviso system in a limited number of hospitals in targeted countries under a pilot program , whereby the hospital will use zalviso in a small number of post-operative patients . pilot programs are expected to last several months after which zalviso may be available for commercial sale . zalviso has been commercially launched in germany , france , the uk , and italy , and is expected to be launched in the second quarter of 2017 in the netherlands , belgium , portugal , ireland , spain , austria and the nordics . story_separator_special_tag on september 18 , 2015 , we sold a majority of the expected royalty stream and commercial milestones from the sales of zalviso in the eu and eea by grünenthal to pdl , or the royalty monetization . for additional information on the royalty monetization with pdl , see note 8 “ liability related to sale of future royalties ” in the accompanying notes to the consolidated financial statements . royalty revenues and non-cash royalty revenues from the commercial sales of zalviso in the eu are expected to be minimal for 2017 . 64 we submitted an nda for zalviso in september 2013 , and on july 25 , 2014 , the division of anesthesia , analgesia , and addiction products , or the division , of the fda issued a complete response letter , or crl , for the zalviso nda . the crl contains requests for additional information on the zalviso system to ensure proper use of the device . the requests include submission of data demonstrating a reduction in the incidence of optical system errors , changes to address inadvertent dosing , among other items , and submission of additional data to support the shelf life of the product . in march 2015 , we received correspondence from the fda stating that , in addition to the work we had performed to address the items in the crl , a clinical study would be required to test the modifications to the zalviso device and mitigations put in place to reduce the risk of inadvertent dosing/misplaced tablets . our iap312 study is designed to evaluate the effectiveness of changes made to enhance performance of the zalviso device , incidence of inadvertent dosing and takes into account comments from the fda on the protocol . the iap312 study will include approximately 315 post-operative patients and collect information requested by the division including device failure rate and incidence of dropped tablets . these results will supplement the three phase 3 trials already completed that include a head-to-head comparison to iv pca . we initiated iap312 in september 2016 and expect to complete this study in mid-2017 . pending successful completion of the iap312 trial , we anticipate resubmitting the nda for zalviso by the end of 2017. financial overview we have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue our research and development and pre-commercialization activities and support grünenthal 's launch of zalviso in the eu . as a result , we expect to continue to incur negative cash flows . although zalviso has been approved for sale in the eu , we sold the majority of the royalty rights and certain commercial sales milestones we are entitled to receive under the grünenthal agreements to pdl in september 2015. as we pursue development of our product candidates , including regulatory review and potential commercial development , subject to fda approval , of our product candidates , we expect the business aspects of our company to become more complex . in the future , we plan to add personnel and incur additional costs related to the maturation of our business and the potential commercialization of dsuvia and zalviso in the united states . in addition , we believe that continued investment in research and development is critical to attaining our strategic objectives . in order to develop our product candidates as commercially viable therapeutics , we expect to expend significant resources for expertise in manufacturing , regulatory affairs , clinical research and other aspects of pharmaceutical development . to date , we have funded our operations primarily through the issuance of equity securities , borrowings , payments from our commercial partner , grünenthal , monetization of certain future royalties and commercial sales milestones from the sales of zalviso by grünenthal , and funding from the dod . our revenues since inception have consisted primarily of revenues from our amended license agreement with grünenthal and our research contracts with the dod . as mentioned above , in may 2015 , the dod agreed to provide us up to $ 17.0 million to support the development of dsuvia . under the terms of the contract , the dod has and continues to reimburse us for costs incurred for development , manufacturing , regulatory and clinical costs outlined in the contract in order to submit an nda to the fda , including reimbursement for certain personnel and overhead expenses . there can be no assurance that we will enter into other collaborative agreements or receive research-related contract awards in the future . we expect revenues to continue to fluctuate from period-to-period . there can be no assurance that our relationship with our existing commercial partner , grünenthal , will continue beyond the initial term , or that we will be able to meet the milestones specified in the amended license agreement , or that we will obtain marketing approval for any of our product candidates , outside of zalviso in the eu and eea , and subsequently generate revenue from those product candidates in excess of our operating expenses . our net losses were $ 43.2 million and $ 24.4 million during the years ended december 31 , 2016 and 2015 , respectively . as of december 31 , 2016 , we had an accumulated deficit of $ 246.4 million . as of december 31 , 2016 , we had cash , cash equivalents and investments totaling $ 80.3 million compared to $ 113.5 million as of december 31 , 2015 . 65 critical accounting estimates based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the united states , and meaningfully present our financial condition and results of operations .
| in addition , we recognized $ 10.9 million in revenue under the dod contract . revenue during the year ended december 31 , 2015 , was $ 19.3 million , including $ 14.9 million recognized under our amended license agreement with grünenthal . in addition , we recognized $ 4.4 million in revenue under the dod contract . revenue for the year ended december 31 , 2014 was $ 5.2 million , related to our amended license agreement with grünenthal . collaboration agreement revenue below is a summary of revenue recognized under the amended agreements during the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_5_th as a result of the launch of zalviso in europe by our licensee , grünenthal , we recognized $ 5.7 million in product sales in the year ended december 31 , 2016 , consisting of zalviso devices , drug product and accessories . delivery of the zalviso cartridges ordered by grünenthal is behind schedule at patheon . the inability to deliver cartridges to the schedule ordered by grünenthal may have a negative impact on their future sales including the timing of their launch in certain countries . we are working with patheon to resolve these issues ; however , there can be no assurance that the issues will be resolved in a timely fashion , or that we will be able to meet grünenthal 's needs in such a way as to not impact their future sales . the first commercial sale of zalviso occurred in april 2016. as mentioned above , under the royalty monetization , we sold a portion of the expected royalty stream and commercial milestones from the sales of zalviso in the eu by grünenthal to pdl . as the royalty amounts are not currently reasonably estimable without the royalty reports , we recognize royalty revenue and non-cash royalty revenue on a quarterly basis in arrears . as of december 31 , 2016 , we had current and non-current portions
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aspects of our exosomes pipeline have been supported through collaborations and alliances . we have entered into a sponsored research agreement with johns hopkins university , or jhu , pursuant to which researchers in the lab of dr. stephen gould will perform certain research activities in connection with our exosomes program and the further development of the platform . additional collaborations include the department of defense , the national institutes of health and cedars-sinai medical center , or csmc . our executive offices are located at 8840 wilshire blvd. , 2 nd floor , beverly hills , california 90211. our telephone number is ( 310 ) 358-3200 and our internet address is www.capricor.com . our technologies cardiosphere-derived cells ( cap-1002 ) our core cell therapy technology is based on cardiosphere-derived cells , or cdcs , a cardiac-derived cell therapy that was first identified in the academic laboratory of capricor 's scientific founder , dr. eduardo marbán . since the initial publication in 2007 , cdcs have been the subject of over 100 peer-reviewed scientific publications and have been administered to over 200 human subjects across several clinical trials . cdcs have been shown to exert potent immunomodulatory activity and to alter the immune system 's activity to encourage cellular regeneration . we have been developing allogeneic cdcs ( cap-1002 ) as a product candidate for the treatment of dmd and investigating their effects on skeletal and cardiac function . preclinical and clinical data support the therapeutic concept of administering cdcs as a means to address conditions in which the heart or skeletal muscle has been damaged . in a variety of preclinical experimental models of heart injury , cdcs have been shown to stimulate cell proliferation and blood vessel growth and to inhibit programmed cell death and scar formation . published data by csmc , which tested the effectiveness of cdcs in a mouse model of dmd , showed for the first time that the skeletal and cardiac improvements could be directly attributed to treatment with cdcs . the data also provide further evidence of the potential of cdcs to stimulate tissue repair and regeneration by first reducing inflammation , which then enables new healthy muscle to form , as was shown in the mouse model of dmd . cdcs are derived from cardiospheres , or csps , which are self-adherent multicellular clusters derived from the heart . cdcs are sufficiently small that , within acceptable dose limits , they can be infused into a coronary artery or into the peripheral vasculature . capricor has performed clinical studies to establish the range of cdc dose levels that appear to be safe via intracoronary administration and peripheral venous access . 77 while cdcs originate from either a deceased human donor ( allogeneic source ) or from heart tissue taken directly from recipient patients themselves ( autologous source ) , the methods for manufacturing cdcs from either source are similar . capricor 's proprietary manufacturing methods are focused on producing therapeutic doses of cdcs to boost the regenerative capacity of the heart and skeletal muscles , with the goal of improving cardiac and skeletal muscle function . capricor has exclusively licensed intellectual property covering cdcs and csps from three academic institutions and is also pursuing its own intellectual property rights relating to cdcs as a product candidate . exosomes extracellular vesicles , including exosomes and microvesicles , are nano-scale , membrane-enclosed vesicles which are secreted by most cells and contain characteristic lipids , proteins and nucleic acids such as mrna and micrornas . they can signal through the binding and activation of membrane receptors or through the delivery of their cargo into the cytosol of target cells . our preclinical data has shown that cdcs mediate most of their therapeutic activities through the secretion of extracellular vesicles . exosomes act as messengers to regulate the functions of neighboring or distant cells and have been shown to regulate functions such as cell survival , proliferation , inflammation and tissue regeneration . furthermore , preclinical research has shown that exogenously-administered exosomes can modify cellular activities , thereby supporting their therapeutic potential . their size , low or null immunogenicity and ability to communicate in native cellular language potentially makes them an exciting new class of therapeutic agents with the potential to expand our ability to address complex biological responses . because exosomes are a cell-free substance , they can be stored , handled , reconstituted and administered in similar fashion to common biopharmaceutical products such as antibodies . the following table summarizes our active product development programs : product indication/population development stage cap-1002 duchenne muscular dystrophy * hope-3 phase iii – in planning stages hope-2 phase ii completed * * * hope-duchenne phase i/ii completed * * cap-1002 sars-cov-2 inspire phase ii enrolling exosome-mrna vaccine sars-cov-2 preclinical engineered exosomes ( rna delivery ) monogenic diseases discovery cdc-exosomes ( cap-2003 ) duchenne muscular dystrophy ind submitted exosome-vlp vaccine sars-cov-2 preclinical engineered exosomes ( biologics delivery ) evaluating discovery * the u.s. food and drug administration , or fda , has granted orphan drug , regenerative medicine advanced therapies , or rmat , and rare pediatric disease designations to cap-1002 for the treatment of dmd . * * we completed an open label extension , or ole , for the usual care only comparator arm of the hope-duchenne trial . * * * we are currently conducting an ole of the hope-2 trial . these programs represent our core technology and products . 78 story_separator_special_tag expenses are primarily related to clinical , regulatory , and manufacturing-related expenses , including our technology transfer with lonza houston , inc. these figures are largely dependent on the next steps in our dmd and covid-19 programs , the regulatory status of our programs with the fda , and our ability to secure a partner for the potential future further clinical development of cap-1002 for dmd , if necessary , and various other factors . story_separator_special_tag exosome technologies – we expect to spend approximately $ 10.0 million to $ 12.0 million during 2021 on development expenses related to our exosomes program , which includes preclinical and manufacturing related expenses for these technologies . our expenses for this program are primarily related to our exosome-mrna vaccine , which may include expenses related conducting a clinical trial , subject to regulatory approval , as well as expenses focused on the expansion of our engineered exosomes platform . furthermore , we have expenses in connection with our sponsored research agreement with johns hopkins university for further research related to our exosome platform technology . our expenditures on current and future clinical development programs , particularly our cap-1002 and exosomes programs , can not be predicted with any significant degree of certainty as they are dependent on the results of our current trials and our ability to secure additional funding and a strategic partner . further , we can not predict with any significant degree of certainty the amount of time which will be required to complete our clinical trials , the costs of completing research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during manufacturing and clinical development and as a result of a variety of other factors , including : · the number of trials and studies in a clinical program ; · the number of patients who participate in the trials ; · the number of sites included in the trials ; · the rates of patient recruitment and enrollment ; · the duration of patient treatment and follow-up ; · the costs of manufacturing our product candidates ; · the costs , requirements and timing of , and the ability to secure , regulatory approvals ; and · additional delays caused by the covid-19 pandemic . liquidity and capital resources for the fiscal years ended december 31 , 2020 and 2019 the following table summarizes our liquidity and capital resources as of and for each of our last two fiscal years , and our net increase ( decrease ) in cash and cash equivalents as of and for each of our last two fiscal years and is intended to supplement the more detailed discussion that follows . the amounts stated in the tables below are expressed in thousands . replace_table_token_2_th 80 replace_table_token_3_th our total cash , cash equivalents and marketable securities as of december 31 , 2020 was approximately $ 32.7 million compared to approximately $ 9.9 million as of december 31 , 2019. the increase in cash , cash equivalents and marketable securities from december 31 , 2020 as compared to december 31 , 2019 was primarily due to net financing activities of approximately $ 33.0 million and a net loss of approximately $ 13.7 million in 2020. as of december 31 , 2020 , we had approximately $ 6.4 million in total liabilities . as of december 31 , 2020 , we had approximately $ 30.7 million in net working capital . we had a net loss of approximately $ 13.7 million for the year ended december 31 , 2020. cash used in operating activities was approximately $ 10.1 million and $ 6.8 million for the years ended december 31 , 2020 and 2019 , respectively . the difference of approximately $ 3.3 million in cash from operating activities is primarily due to an increase of approximately $ 6.0 million in net loss for the year ended december 31 , 2020 as compared to the same period in 2019. furthermore , there was a change of approximately $ 1.3 million in stock-based compensation expense and a change of approximately $ 0.6 million in prepaid expenses and other current assets for the year ended december 31 , 2020 as compared to the same period in 2019. to the extent we obtain sufficient capital and or long-term debt funding and are able to continue developing our product candidates , including if we expand our technology portfolio , engage in further research and development activities , and , in particular , conduct preclinical studies and clinical trials , we expect to continue incurring substantial losses , which will generate negative net cash flows from operating activities . we had cash flow provided by ( used in ) investing activities of approximately $ 5.4 million and $ ( 3.0 ) million for the years ended december 31 , 2020 and 2019 , respectively . the increase in cash provided by investing activities for the year ended december 31 , 2020 as compared to the same period of 2019 is primarily due to the net effect from purchases , sales , and maturities of marketable securities as well as purchases of property and equipment . we had cash flow provided by financing activities of approximately $ 33.4 million and $ 9.2 million for the years ended december 31 , 2020 and 2019 , respectively . the increase in cash provided by financing activities for the year ended december 31 , 2020 as compared to the same period of 2019 is primarily due to the net proceeds from the sale of common stock . during 2020 we received net proceeds from the sale of equities of approximately $ 33.0 million compared to approximately $ 9.2 million over the same period of 2019. furthermore , we received $ 0.3 million under the sba paycheck protection program of the cares act in 2020. from inception through december 31 , 2020 , we financed our operations primarily through private and public sales of our equity securities , nih and dod grants , a payment from a former collaboration partner , a cirm loan and a cirm grant award .
| general and administrative , or g & a , expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , stock compensation expense , accounting , legal and other professional fees , consulting expenses , rent for corporate offices , business insurance and other corporate expenses . our results have included non-cash compensation expense due to the issuance of stock options and warrants , as applicable . we expense the fair value of stock options and warrants over their vesting period as applicable . when more precise pricing data is unavailable , we determine the fair value of stock options using the black-scholes option-pricing model . the terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee . generally , the awards vest based upon time-based or performance-based conditions . performance-based conditions generally include the attainment of goals related to our financial performance and product development . stock-based compensation expense is included in the consolidated statements of operations under g & a or r & d expenses , as applicable . we expect to record additional non-cash compensation expense in the future , which may be significant . results of operations for the fiscal years ended december 31 , 2020 and 2019 revenue grant income . grant income for the years ended december 31 , 2020 and 2019 was approximately $ 0.2 million and $ 0.5 million , respectively . the decrease in grant income of approximately $ 0.3 million in 2020 as compared to 2019 is primarily due to the timing of grant activities . the dod grant award came to completion during the third quarter of 2020. miscellaneous income . miscellaneous income for the years ended december 31 , 2020 and 2019 was approximately $ 0.1 million and $ 0.5 million , respectively . the miscellaneous income was related to providing cap-1002 for investigational purposes for clinical trials sponsored by csmc . the decrease in miscellaneous income is due to delays in the clinical trials sponsored by csmc
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new accounting pronouncements not yet adopted revenue recognition in may 2014 , the fasb issued guidance codified in asc 606 , “ revenue recognition - revenue from contracts with customers ” ( “ asc 606 ” ) , which amends the guidance in the former asc 605 , “ revenue recognition ” . asc 606 is effective for annual periods beginning after december 15 , 2016 , and interim periods within that reporting period for a public company . an entity may elect either a full retrospective transition method , which requires the restatement of all periods presented , or a modified retrospective transition method , which requires a cumulative effect recognized as of the date of initial application to be used on transition . in august 2015 , the fasb delayed the effective date by one year to annual periods beginning after december 15 , 2017 , and interim periods within that reporting period for a public company . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . accordingly , the updated standard is effective for us as of april 1 , 2018 and we do not plan to early adopt . we are currently in the process of determining whether we will utilize the full or modified retrospective method of adoption allowed by the new standard . due to the impact the new standard may have on our business processes , systems , and controls , a project team has been formed to evaluate and guide the implementation process . to date , we have performed a preliminary assessment of key customer contracts and are in the process of comparing historical accounting policies and practices to the new standard , including ( i ) assessing the current net-of-core value revenue recognition policy , and whether the performance obligation ( s ) related to the sale of our products will include both the core and unit value ; ( ii ) the assessment of potential variable consideration including the accounting for return rights , the core exchange program , warranty and various allowances provided to our customers ; ( iii ) the classification of assets and liabilities related to core assets and liabilities and customer allowances , and ( iv ) principal versus agent considerations as amended through accounting standards update ( “ asu ” ) 2016-08 , “ principal versus agent considerations ( reporting revenue gross versus net ) ” . we continue to evaluate the impact asc 606 , related amendments and interpretive guidance will have on our consolidated financial statements . financial instruments in january 2016 , the fasb issued guidance that addresses certain aspects of recognition , measurement , presentation , and disclosure of financial instruments . the guidance is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . a reporting entity should apply the new guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption . we are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements . 22 leases in february 2016 , the fasb issued new guidance that requires balance sheet recognition of a right-of-use asset and lease liability by lessees for operating leases . the new guidance also requires new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements . the new guidance is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted . the new guidance requires a modified retrospective approach with optional practical expedients . we are required to adopt this guidance in the first quarter of fiscal 2020. we are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements , but expect that it will result in a significant increase to our long-term assets and liabilities on the consolidated balance sheets . business combinations in january 2017 , the fasb issued guidance which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions ( or disposals ) of assets or businesses . the new guidance is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . a reporting entity should apply the amendment prospectively . we are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements . goodwill impairment in january 2017 , the fasb issued guidance which simplifies the test for goodwill impairment . this standard eliminates step 2 from the goodwill impairment test , instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit 's fair value . this guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after december 15 , 2019 with early adoption permitted . this guidance must be applied on a prospective basis . we are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements . modifications to share-based payment awards in may 2017 , the fasb issued guidance to provide clarity and reduce ( i ) the diversity in practice and ( ii ) the cost and complexity when applying the accounting guidance for equity-based compensation to a change to the terms or conditions of a share-based payment award . this update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting . this guidance is effective for annual periods , and interim periods within those annual periods , beginning after december 15 , 2017 with early adoption permitted . this guidance should be applied prospectively to an award modified on or after that adoption date . story_separator_special_tag we are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements . new accounting pronouncements recently adopted share-based compensation in march 2016 , the fasb issued guidance that simplifies several aspects of the accounting for share-based payment transactions and states that , among other things , all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement and an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur . the new guidance is effective for interim and annual reporting periods beginning after december 15 , 2016 with early adoption permitted . we early adopted this guidance effective april 1 , 2016 which resulted in a cumulative-effect adjustment of $ 892,000 through retained earnings and current deferred tax assets to record excess tax benefits not previously recognized . we have also elected to account for forfeitures as they occur using the modified retrospective approach which did not have any material impact on our consolidated balance sheets . in addition , we are now required to present excess tax benefits as an operating activity ( combined with other income tax cash flows ) on the statements of cash flows rather than as a financing activity and have elected to adopt this change prospectively . 23 extraordinary items in january 2015 , the fasb issued guidance that simplifies income statement presentation by eliminating the concept of extraordinary items . this guidance is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2015. a reporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements . early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption . there was no impact on our consolidated financial statements from the adoption of this guidance . disclosure of uncertainties about an entity 's ability to continue as a going concern in august 2014 , the fasb issued guidance which requires an entity to evaluate whether there are conditions or events , considered in the aggregate , that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the date that the financial statements are issued ( or available to be issued ) . if conditions or events raise substantial doubt that is not alleviated , an entity should disclose that there is substantial doubt about the entity 's ability to continue as a going concern within one year after the date that the financial statements are issued ( or available to be issued ) , along with the principal conditions or events that raise substantial doubt , management 's evaluation of the significance of those conditions or events in relation to the entity 's ability to meet its obligations and management 's plans that are intended to mitigate those conditions . the new guidance is effective for the annual period ending after december 15 , 2016 , and for annual periods and interim periods thereafter . there was no impact on our consolidated financial statements from the adoption of this guidance . inventory in july 2015 , the fasb issued guidance that requires an entity to measure inventory at the lower of cost and net realizable value . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . subsequent measurement is unchanged for inventory measured using lifo or the retail inventory method . the amendments in this update are effective for financial statements issued for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years . the amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period . we early adopted this guidance as of the beginning of the fourth quarter of fiscal 2017. there was no material impact on our consolidated financial statements as a result of the adoption of this guidance . statement of cash flows in august 2016 , the fasb issued guidance which adds and or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows . the new guidance is intended to reduce diversity in practice in how certain transactions are presented and classified in the statement of cash flows . the new guidance is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years ; early adoption is permitted . we early adopted this guidance during fiscal 2017. there was no impact on our consolidated statements of cash flows as a result of the adoption of this guidance . income taxes in november 2015 , the fasb issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated balance sheet . the guidance is effective for fiscal years beginning after december 15 , 2016 including interim periods within those fiscal years with early adoption permitted . a reporting entity should apply the amendment prospectively or retrospectively . we early adopted this guidance effective march 31 , 2017 , which resulted in the classification of all deferred tax assets and deferred tax liabilities as noncurrent in our consolidated balance sheets . we elected to apply this guidance retrospectively , which resulted in the reclassification of ( i ) $ 33,247,000 of current deferred income tax assets to long-term deferred income tax assets , ( ii ) $ 14,315,000 of long-term deferred income tax liabilities to long-term deferred income tax assets , and ( iii ) $ 196,000 of current deferred income tax liabilities from other current liabilities to long-term deferred income tax liabilities in the previously reported consolidated balance sheet at march 31 , 2016 .
| this decrease was partially offset by a 0.4 % increase from the change in estimate relating to stock adjustments . our gross profit for fiscal 2016 was impacted by $ 14,364,000 for customer allowances related to new business less a cost of goods sold offset of $ 809,000 , and a cost of goods sold impact of $ 43,000 for start-up costs incurred related to our launch of brake power boosters and $ 453,000 for inventory step-up amortization . 32 operating expenses the following summarizes operating expenses : replace_table_token_7_th general and administrative . our general and administrative expenses for fiscal 2017 were $ 31,124,000 , which represents a decrease of $ 18,541,000 , or 37.3 % , from general and administrative expenses for fiscal 2016 of $ 49,665,000. the reduction in fiscal 2017 was primarily due to ( i ) a $ 3,764,000 gain recorded due to the change in the fair value of the warrant liability during fiscal 2017 compared to a loss of $ 5,137,000 recorded during fiscal 2016 , ( ii ) $ 8,805,000 of decreased legal expense as compared to fiscal 2016 , which included $ 9,250,000 accrued in fiscal 2016 for the litigation settlement in the bankruptcy cases related to the discontinued subsidiaries partially offset by a $ 5,800,000 gain in connection with the settlement of litigation with fenwick automotive products limited and various of its subsidiaries , and ( iii ) $ 4,401,000 of decreased bad debt expense as compared to fiscal 2016 , which included expense in fiscal 2016 resulting from the bankruptcy filing by one of our customers . these decreases were partially offset by ( i ) $ 974,000 of decreased gain recorded due to the change in the fair value of the contingent consideration in connection with our fiscal 2016 acquisition , ( ii ) $ 799,000 of increased share-based compensation , and ( iii ) $ 700,000 of increased general and administrative expenses at our offshore locations due primarily to
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under asu 2014-09 , revenue from contracts with customers , establishes a comprehensive revenue recognition standard for virtually all industries under u.s. gaap , including those that previously followed industry-specific guidance . the revenue standard 's core principal is built on the contract between a vendor and a customer for the provision of goods and services . it attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled . the new standard applies to all public entities for annual periods beginning after december 15 , 2016. early adoption is prohibited under u.s. gaap . bancorp has evaluated the effect of asu 2014-09 and believes adoption will not have a material effect on the consolidated financial statements . 51 under asu 2014-11 , transfers and servicing ( topic 860 ) : repurchase-to-maturity transactions , repurchase financings , and disclosures , is an amendment requiring two accounting changes . first , repurchase-to maturity will be accounted for as secured borrowing transactions on the balance sheet , rather than sales . second , for repurchase financial arrangements , the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with ( or in contemplation of ) a repurchase agreement with the same counterparty , which also will generally result in secured borrowing accounting for the repurchase agreement . asu 2014-11 also introduces new disclosures to increase transparency about the types of collateral pledged for repurchase agreements , securities lending transactions , and repurchase-to-maturity transactions that are accounted for as secured borrowings . the asu also requires a transferor to disclose information about transactions accounted for as a sale in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets through an agreement with the transferee . the updated standard applies to all public entities for the first interim period beginning after december 15 , 2014. bancorp has evaluated the effect of asu 2014-11 and believes adoption will not have a material effect on the consolidated financial statements . financial condition total assets decreased by $ 23,275,000 , or 3.0 % , at december 31 , 2014 to $ 776,328,000 , compared to the $ 799,603,000 at december 31 , 2013. the following discusses the material changes between the december 31 , 2014 and 2013 statements of financial condition . cash cash and cash equivalents decreased by $ 65,041,000 , or 66.1 % , at december 31 , 2013 to $ 33,335,000 , compared to $ 98,376,000 at december 31 , 2013. this decrease was primarily due to management 's decision to purchase additional securities for the investment portfolio , and to allow certain higher rate customer deposits to leave the bank . in addition , cash was used to fund an increase in loan originations . investments investment securities held to maturity increased by $ 14,955,000 , or 33.5 % , at december 31 , 2014 to $ 59,616,000 , compared to $ 44,661,000 at december 31 , 2013. this increase was primarily due to management 's decision to purchase additional us treasury and agency securities to gain higher yields than cash held in federal funds sold . loans loans held for sale . loans held for sale increased by $ 3,439,000 , or 92.3 % at december 31 , 2014 to $ 7,165,000 , compared to $ 3,726,000 at december 31 , 2013. this increase was primarily due to an increase in residential loans originated for sale and the timing of loans pending sale as of december 31 , 2014 compared to as of december 31 , 2013. loans receivable . total loans receivable , net increased by $ 31,069,000 , or 5.2 % at december 31 , 2014 , to $ 633,882,000 , compared to $ 602,813,000 at december 31 , 2013. this increase was primarily due to an increase in demand for new loan originations in 2014 , and management 's decision to hold a portion of the new loan originations in the portfolio . those loans were primarily residential mortgages with floating rates and residential construction loans . in addition , the allowance for loan losses decreased by $ 2,304,000 , or 19.6 % , at december 31 , 2014 to $ 9,435,000 , compared to $ 11,739,000 at december 31 , 2013. this decrease in the allowance was primarily due to an improvement in the level of problem loans at december 31 , 2014 compared to the level at december 31 , 2013 and management 's assessment of the collectability of the loans in bancorp 's portfolio . 52 foreclosed real estate foreclosed real estate decreased by $ 7,025,000 , or 78.3 % , at december 31 , 2014 to $ 1,947,000 , compared to $ 8,972,000 at december 31 , 2013. this decrease was primarily due to an increase in the number of foreclosed properties sold in 2014 that were included in the balance as of december 31 , 2013 , and the lower level of loans foreclosed on in 2014 compared to 2013. premises and equipment premises and equipment decreased by $ 679,000 , or 2.6 % , at december 31 , 2014 to $ 25,159,000 , compared to $ 25,838,000 at december 31 , 2013. this decrease was primarily due to the annual depreciation taken on premises and equipment in 2014 partially offset by new fixed assets acquired in 2014. accrued interest receivable and other assets accrued interest receivable and o ther assets increased by $ 261,000 , or 2.9 % , at december 31 , 2014 to $ 9,288,000 , compared to $ 9,027,000 at december 31 , 2013. this increase is primarily due to an increase in prepaid expenses and the recording of a new fair value measurement in 2014 on bancorp 's interest rate lock commitments . liabilities deposits . story_separator_special_tag total deposits decreased by $ 27,435,000 , or 4.8 % , at december 31 , 2014 to $ 543,814,000 , compared to $ 571,249,000 at december 31 , 2013. this decrease was primarily the result of management 's decision to allow certain higher rate customer deposits to mature and leave the bank . fhlb-atlanta advances . fhlb-atlanta advances at december 31 , 2014 were $ 115,000,000 , which was unchanged from december 31 , 2013. there were no contractual advance payoffs scheduled during 2014 and no additional advances were needed . subordinated debentures . as of december 31 , 2014 , bancorp had outstanding approximately $ 20,619,000 principal amount of junior subordinated debt securities due 2035 ( the “ 2035 debentures ” ) . the 2035 debentures were issued pursuant to an indenture dated as of december 17 , 2004 ( the “ 2035 indenture ” ) between bancorp and wells fargo bank , national association as trustee . the 2035 debentures pay interest quarterly at a floating rate of interest of 3-month libor ( 0.23 % december 31 , 2014 ) plus 200 basis points , and mature on january 7 , 2035. payments of principal , interest , premium and other amounts under the 2035 debentures are subordinated and junior in right of payment to the prior payment in full of all senior indebtedness of bancorp , as defined in the 2035 indenture . the 2035 debentures became redeemable , in whole or in part , by bancorp on january 7 , 2010. the 2035 debentures were issued and sold to severn capital trust i ( the “ trust ” ) , of which 100 % of the common equity is owned by bancorp . the trust was formed for the purpose of issuing corporation-obligated mandatorily redeemable capital securities ( “ capital securities ” ) to third-party investors and using the proceeds from the sale of such capital securities to purchase the 2035 debentures . the 2035 debentures held by the trust are the sole assets of the trust . distributions on the capital securities issued by the trust are payable quarterly at a rate per annum equal to the interest rate being earned by the trust on the 2035 debentures . the capital securities are subject to mandatory redemption , in whole or in part , upon repayment of the 2035 debentures . bancorp has entered into an agreement which , taken collectively , fully and unconditionally guarantees the capital securities subject to the terms of the guarantee . under the terms of the 2035 debenture , bancorp is permitted to defer the payment of interest on the 2035 debentures for up to 20 consecutive quarterly periods , provided that no event of default has occurred and is continuing . as of december 31 , 2014 , bancorp has deferred the payment of eleven quarters of interest and the cumulative amount of interest in arrears not paid , including interest on unpaid interest , was $ 1,350,000 . 53 subordinated notes and series a preferred stock . on november 15 , 2008 , bancorp completed a private placement offering consisting of a total of 70 units , at an offering price of $ 100,000 per unit , for gross proceeds of $ 7,000,000. each unit consists of 6,250 shares of bancorp 's series a 8.0 % non-cumulative convertible preferred stock and bancorp 's subordinated notes ( “ subordinated notes ” ) in the original principal amount of $ 50,000. the subordinated notes earn interest at an annual rate of 8.0 % , payable quarterly in arrears on the last day of march , june , september and december commencing december 31 , 2008. the subordinated notes are redeemable in whole or in part at the option of bancorp at any time beginning on december 31 , 2009 until maturity , which is december 31 , 2018. dividends will not be paid on bancorp 's common stock in any quarter until the dividend on the series a preferred stock has been paid for such quarter ; however , there is no requirement that bancorp 's board of directors declare any dividends on the series a preferred stock and any unpaid dividends are not cumulative . dividends on the series a preferred stock have not been paid since the first quarter of 2012 because bancorp has not received approval from the federal reserve to pay such dividends . series b preferred stock . on november 21 , 2008 , bancorp entered into an agreement with the united states department of the treasury ( “ treasury ” ) , pursuant to which bancorp issued and sold ( i ) 23,393 shares of its series b fixed rate cumulative perpetual preferred stock , par value $ 0.01 per share and liquidation preference $ 1,000 per share , ( the “ series b preferred stock ” ) and ( ii ) a warrant ( the “ warrant ” ) to purchase 556,976 shares of bancorp 's common stock , par value $ 0.01 per share , for an aggregate purchase price of $ 23,393,000. on september 25 , 2013 , the treasury sold all of its 23,393 shares of series b preferred stock to outside investors as part of their ongoing efforts to wind down and recover its remaining investments under the troubled asset relief program ( “ tarp ” ) . the terms of the series b preferred stock remain the same . the treasury continues to hold the warrant . the series b preferred stock qualifies as tier 1 capital and pays cumulative compounding dividends at the rate of 9 % per annum . the series b preferred stock may be redeemed by bancorp . the series b preferred stock has no maturity date and ranks pari passu with bancorp 's existing series a preferred stock , in terms of dividend payments and distributions upon liquidation , dissolution and winding up of bancorp . the series b preferred stock is non-voting , other than class voting rights on certain matters that could adversely affect the series b preferred stock .
| credit risk includes , but is not limited to , the potential for borrower default and the failure of collateral to be worth what the bank determined it was worth at the time of the granting of the loan . the bank monitors its loan portfolio loan delinquencies at least as often as monthly . all loans that are delinquent and all loans within the various categories of the bank 's portfolio as a group are evaluated . the bank 's board , with the advice and recommendation of the bank 's loss mitigation committee , estimates an allowance to be set aside for loan losses . included in determining the calculation are such factors as historical losses for each loan portfolio , current market value of the loan 's underlying collateral , inherent risk contained within the portfolio after considering the state of the general economy , economic trends , consideration of particular risks inherent in different kinds of lending and consideration of known information that may affect loan collectibility . the provision for loan losses decreased $ 15,689,000 , or 95.0 % , to $ 831,000 for the year ended december 31 , 2014 , compared to $ 16,520,000 for the year ended december 31 , 2013. this decrease was a result of management 's decision in 2013 to sell approximately $ 48,514,000 of its loan portfolio to reduce the amount of problem loans in its portfolio as of december 31 , 2013. in accordance with generally accepted accounting principles , the losses on these sales , totaling approximately $ 14,199,000 , were charged off and recorded against the allowance for loan losses in 2013. accordingly after analysis of the allowance for loan losses , a corresponding provision occurred to replenish the allowance . the total allowance for loan losses decreased $ 2,304,000 , or 19.6 % to $ 9,435,000 as of december 31 , 2014 , compared to $ 11,739,000 as of december 31 , 2013. this decrease in the allowance was primarily due to an improvement in the level of criticized loans at december 31 , 2014 compared
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see note 10 to the consolidated financial statements for additional information on the property sales . on february 19 , 2020 , the company declared dividends of $ 0.25 per common share , to be paid to shareholders of record as of march 2 , 2020. the cash dividend totaling $ 9.3 million was paid on march 16 , 2020. on may 8 , 2020 , the board of directors of the company ( the “ board ” ) suspended the company 's quarterly cash dividend program until further notice given the unprecedented economic disruption caused by covid-19 . see note 20 to the consolidated financial statements for additional information on dividends declared . in the first quarter of 2020 , the company offered a the 2020 vsip which provided enhanced separation benefits to eligible employees with more than eight years of service . see note 6 to the consolidated financial statements for additional information on the 2020 vsip . in the second quarter of 2020 , the company entered a contract with a third party to outsource the printing and packaging of the virginian-pilot . the services were fully transitioned to the third party at the end of the third quarter . in the fourth quarter of 2020 , the company contracted with a third party to outsource the printing and packaging of the hartford courant . the services were fully transitioned to the third party at the end of 2020. see note 6 to the consolidated financial statements for additional information on changes in operations . in 2018 , the company 's last employee that was a member of the cwa/itu union at the company 's baltimore location retired . this retirement effected a partial withdrawal from the cwa/itu negotiated pension plan . during the year ended december 27 , 2020 , the company accrued $ 1.0 million to reflect this obligation . see note 16 to the consolidated financial statements for additional information on the company 's multiemployer pension plans . on july 27 , 2020 , the board declared a dividend of one preferred stock purchase right ( a “ right ” ) for each of the company 's outstanding shares of common stock , $ 0.01 par value . the dividend right was issued on august 7 , 2020 , to holders of record as of the close of business on that date . the rights will expire on july 27 , 2021 , unless earlier exercised , exchanged , amended or redeemed . see note 20 to the consolidated financial statements for additional information on the rights agreement . on december 11 , 2020 , the company , entered into the br agreement , by and among the sellers , bestreviews and nexstar , pursuant to which the sellers will sell 100 % of bestreviews to nexstar . the sale closed on december 29 , 2020 , subsequent to the company 's fiscal year-end , for a cash sales price of $ 160.0 million plus a $ 9.4 million working capital adjustment . as of the balance sheet date , bestreviews was owned 60 % by the company and 40 % by br holding company , inc. under the terms of the br transaction the company received 60 % of the cash selling price net of transaction fees upon the closing on december 29 , 2020. bestreviews is presented as discontinued operations in the accompanying financial statements . all prior periods have been adjusted . see note 8 to the consolidated financial statements for additional information on the related discontinued operations . on february 16 , 2021 , the company entered into a merger agreement by and among tellc , merger sub and the company , pursuant to which merger sub will merge with and into the company , with the company surviving as a wholly owned subsidiary of tellc . tellc is the acquirer and is an affiliate of alden global opportunities master fund , l.p. and alden global value recovery master fund , l.p. , the company 's largest shareholder . upon completion of the transaction the company will become a privately held company , and its common stock will no longer be listed on any public market . see note 20 to the consolidated financial statements for additional information on the merger agreement . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > ome delivery revenue decreased $ 7.6 million . these decreases were partially offset by an in crease of $ 10.1 million in digital subscription revenue as customers turn to digital delivery . these decreases were partially offset by revenues attributable to the acquisition of the virginian-pilot 29 which contributed $ 16.5 million in the year ended december 29 , 2019 , compared to $ 9.8 million in the year ended december 30 , 2018 . advertising revenue —advertising revenues decreased 12.0 % , or $ 54.6 million , in the year ended december 29 , 2019 , compared to the year ended december 30 , 2018 , due decreases in all revenue categories . retail advertising revenue decreased $ 54.8 million , n ational advertising decreased $ 6.0 million and c lassified advertising decreased $ 4.0 million . these decreases were partially offset by contributions from the acquisition of the virginian-pilot in the second quarter of 2018 which contributed $ 35.8 million in revenue during the year ended december 29 , 2019 , compared to $ 24.7 million during the year ended december 30 , 2018. other revenue —other revenues consist of commercial print and delivery , direct mail and marketing , and content syndication and licensing , and other revenue . other revenues decreased 1.6 % , or $ 2.9 million , in the year ended december 29 , 2019 , compared to the year ended december 30 , 2018 . commercial print and delivery revenue decreased $ 9.2 million . story_separator_special_tag this decrease was partially offset by an increase in direct mail revenue of $ 3.1 million and an increase in the revenue from the tsa agreement of $ 2.3 million and by revenues attributable to the acquisition of the virginian-pilot which contributed $ 3.9 million in the year ended december 29 , 2019 , compared to $ 2.3 million in the year ended december 30 , 2018 . compensation expense —compensation expense decreased 18.3 % , or $ 80.8 million , in the year ended december 29 , 2019 , compared to the prior period . this decrease was due primarily to a decrease in salary and payroll tax expense of $ 57.7 million , a decrease in severance expense of $ 34.5 million and a decrease in medical insurance expense of $ 9.3 million as a result of the reduction in headcount related to personnel restructuring in prior periods . this decrease was partially offset by increased pension expense of $ 8.3 million due primarily to contributions to the drivers ' plan , and increased compensation expense due to the acquisitions which contributed $ 17.6 million in the year ended december 29 , 2019 , compared to $ 16.6 million in the year ended year ended december 30 , 2018. newsprint and ink expense —newsprint and ink expense decreased 14.1 % , or $ 9.3 million , in the year ended december 29 , 2019 , compared to the prior year . this decrease was due primarily to a decrease in the average cost per ton of newsprint related to the repeal of the tariff on certain newsprint products sourced from canada and a decrease in volume . the decreases in price and volume were partially offset by increased newsprint and ink expense from the acquisition of the virginian-pilot which contributed $ 4.0 million in the year ended december 29 , 2019 , compared to $ 3.0 million during the year ended december 30 , 2018 . outside services expense —outside services expense decreased 6.0 % , or $ 20.7 million in the year ended december 29 , 2019 compared to the prior year . this decrease was due primarily to $ 12.5 million of expense recorded in 2018 related to the consulting agreement described in note 7 to the consolidated financial statements . additionally , there was a reduction of $ 5.2 million in third-party delivery expense , $ 4.2 million in temporary help , $ 2.9 million in outside printing and production costs , and $ 2.0 million in consulting costs . the decreases were partially offset by increases due to the acquisitions which contributed $ 17.8 million in the year ended december 29 , 2019 , compared to $ 10.2 million during the year ended december 30 , 2018 . other operating expenses —other operating expenses include occupancy costs , promotion and marketing costs , affiliate fees and other miscellaneous expenses . these expenses increased 1.1 % , or $ 1.6 million , in the year ended december 29 , 2019 , compared to the prior year . this increase was due primarily to $ 23.9 million of operating expense previously allocated to the california properties in the prior year . these allocated operating expenses are recovered as a component of tsa revenue in periods subsequent to the sale . additionally , acquisitions contributed $ 12.9 million in other operating expenses for the year ended december 29 , 2019 , compared to $ 6.5 million for the year ended december 30 , 2018 . these increases were partially offset by decreases in all categories , primarily a $ 7.4 million decrease in occupancy costs , a $ 5.2 million decrease in insurance expense , a $ 3.9 million decrease in bad debt expense and a $ 2.3 million decrease in travel , entertainment and other employee expenses . depreciation and amortization expense —depreciation and amortization expense decreased 12.6 % , or $ 6.4 million , for the year ended december 29 , 2019 , compared to the prior year . this decrease was due primarily to accelerated depreciation in 2018 related to the shortened lives for certain assets removed from service . this decrease was partially offset by increases due to the acquisitions which contributed $ 4.7 million in the year ended december 29 , 2019 , compared to $ 0.5 million during the year ended december 30 , 2018 . impairment expense— in the fourth quarter of 2019 , the company recorded a non-cash impairment charge of $ 14.5 million related to the goodwill associated with the baltimore sun media group and virginia media group . 30 interest expense , net— interest expense , net decreased as the senior term facility was repaid in full in june 2018. loss on early extinguishment of debt —in june 2018 , the company repaid the outstanding principal balance under the senior term facility and terminated the agreement . as a result of the early extinguishment of debt , the company incurred a $ 7.7 million loss in 2018 to expense the remaining balance of original issue discount and debt origination fees . loss on equity investments , net— loss on equity investments , net increased $ 1.1 million due primarily to additional reserves for certain of the company 's investments . other income ( expense ) , net — the decrease in other non-operating income , net is primarily due to credits related to periodic benefit costs , in 2018 , the company terminated the non-union post-retirement medial plan . as such , remaining amounts in accumulated other comprehensive income were amortized to expense during 2018. income tax expense ( benefit ) — income tax expense increased by $ 12.6 million for the year ended december 29 , 2019 , over the prior year period .
| other revenues decreased 27.0 % , or $ 48.8 million , in the year ended december 27 , 2020 , compared to the year ended december 29 , 2019 . commercial print and delivery revenue decreased $ 20.2 million , direct mail revenue decreased $ 11.8 million , and revenue from the tsa agreement decreased $ 17.0 million . in response to these continuing revenue declines which have been accelerated by the covid-19 pandemic , the company has taken significant cost management measures as we work to position the company for a post-pandemic digital future . while we are aggressively managing all expenses , our efforts are particularly focused on our fixed-cost infrastructure , including flattening 28 our management structure , reductions in leased facilities and outsourcing of production , all of which are reflected in the following comparisons . compensation expense —compensation expense decreased 16.0 % , or $ 57.8 million , in the year ended december 27 , 2020 , compared to the prior period . this decrease was due primarily to a decrease in salary and payroll tax expense of $ 49.8 million , a decrease in incentive compensation of $ 13.0 million , a decrease in stock-based compensation of $ 8.0 million , a decrease in workers compensation insurance expense of $ 2.8 million , and a decrease in multiemployer pension expense of $ 3.2 million . these decreases were partially offset by increased severance costs of $ 21.2 million related to personnel restructuring and production outsourcing . newsprint and ink expense —newsprint and ink expense decreased 40.5 % , or $ 23.0 million , in the year ended december 27 , 2020 , compared to the prior year . this decrease was due primarily to a decrease in the average cost per ton of newsprint related to the repeal of the tariff on certain newsprint products sourced from canada and a decrease in volume . outside services expense —outside services expense decreased 18.1 % , or $ 59.2 million , in the year ended december 27 , 2020 , compared to the prior
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the shared distribution consists of a 13.5 % contribution of salaries to all eligible employees , most of which will be paid into retirement plans via sun hydraulics stock , and a $ 0.12 per share dividend to shareholders , totaling approximately $ 7.7 million . the shared distribution concept was introduced in 2008 as a way to reward both shareholders and employees when sun has a successful year . the shared distribution dividend will be issued to shareholders of record on march 22 , 2012 , with payment on march 31 , 2012. additionally , the company 's board of directors declared a first quarter 2012 cash dividend of $ 0.09 per share payable on april 15 , 2012 , to shareholders of record as of march 31 , 2012. outlook first quarter 2012 revenues are expected to be approximately $ 53 million , up approximately 5 % from the first quarter of 2011. earnings per share are estimated to be $ 0.37 to $ 0.39 compared to $ 0.38 in the same period a year ago . story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px '' > the u.k. reporting segment contributed $ 4.2 million to our consolidated operating income during 2011 compared to $ 2.8 million during 2010 , an increase of $ 1.3 million . the increase was primarily related to decreased material costs of $ 0.5 million , productivity improvements of $ 0.2 million and decreased variable and fixed costs as a percent of sales of $ 0.2 million . the increase in sales volume resulted in $ 0.5 million of additional operating income . interest income , net net interest income for 2011 was $ 0.8 million compared to net interest income of $ 0.7 million for 2010. total average cash and marketable securities for 2011 , was $ 59.0 million compared to total average cash and marketable securities of $ 41.6 million for 2010. although total cash and marketable securities increased in 2011 , interest rates were at an all-time low . interest is primarily derived from investments in corporate and municipal bonds , mutual funds , certificates of deposit , and money market funds . foreign currency transaction ( gain ) loss , net net foreign currency transaction gain was $ 0.2 million in 2011 compared to a loss of $ 0.1 million in 2010. the u.s. dollar weakened against the euro , the korean won and the british pound at times during 2011 , resulting in foreign currency transaction gains at each of our international locations . miscellaneous ( income ) expense , net miscellaneous income was $ 1.4 million in 2011 compared to $ 0.1 million in 2010. the current period amount includes a gain of $ 1.2 million as a result of remeasuring to fair value its 38 % equity interest in hct held before the business combination . the remaining 2011 income was related to the gain on the sale of the chinese joint venture company . 23 income taxes the provision for income taxes for the year ended december 31 , 2011 , was 34.6 % of pretax income compared to a provision of 32.4 % for the year ended january 1 , 2011. the change was primarily due to the relative levels of income and different tax rates in effect among the countries in which the company sells its products . the current year provision was affected by discrete items related to a reserve for uncertain tax positions from previous years . excluding these discrete items , the effective rate would have been approximately 33.8 % . comparison of years ended january 1 , 2011 , and january 2 , 2010 net sales net sales were $ 150.7 million , an increase of $ 53.3 million , or 54.7 % , compared to $ 97.4 million in 2009. net sales increased 54.8 % excluding the effect of exchange rates . the increase in net sales was primarily driven by increased demand in our end markets , which primarily include capital goods equipment . price increases instituted in july 2010 accounted for approximately 1.5 % of total sales . new product sales ( defined as products introduced within the last five years ) generally made up 10-15 % of total sales in 2010. north american sales increased 51.3 % or $ 22.8 million , to $ 67.3 million in 2010 , asian sales increased 74.2 % or $ 12.8 million , to $ 30.1 million in 2010 , and european sales increased 46.9 % or $ 15.2 million , to $ 47.7 million in 2010. the u.s. reporting segment had sales of $ 94.1 million during 2010 , up $ 34.8 million or 58.7 % , compared to sales of $ 59.3 million during 2009. the increase was driven by demand in our end markets and the general upturn in the global economy . international sales out of the u.s. were $ 34.9 million during 2010 , up 83.7 % or $ 15.9 million , compared to $ 19.0 million during 2009. international sales out of the us include sales to europe , africa and the asia/pacific region . significant increases in sales were noted in almost all geographic regions . the korean reporting segment had sales of $ 16.3 million during 2010 , up $ 6.3 million or 63.2 % , compared to sales of $ 10.0 million during 2009. currency effect increased 2010 sales by approximately $ 1.4 million , the majority of which occurred in the first half of the year . the remaining increase was the result of efforts to expand and diversify the customer base , in addition to increased demand from existing customers . the german reporting segment had sales of $ 19.8 million during 2010 , up $ 5.1 million or 34.9 % , compared to sales of $ 14.7 million during 2009. the increase in sales was primarily related to demand within germany . however increased sales were noted throughout most of europe . story_separator_special_tag these increases were partially offset by currency effect , which reduced 2010 sales by approximately $ 1.0 million , most of which occurred in the second half of the year . the u.k. reporting segment had sales of $ 20.6 million during 2010 , up $ 7.1 million or 52.6 % , compared to sales of $ 13.5 million during 2009. the increase was primarily related to sales within the u.k , and to sweden . currency effect reduced 2010 sales by approximately $ 0.4 million . gross profit gross profit increased $ 30.4 million or 138.4 % to $ 52.3 million in 2010 , compared to $ 22.0 million in 2009. gross profit as a percentage of net sales increased to 34.7 % in 2010 , compared to 22.5 % in 2009. during the downturn of the prior year , the company maintained its workforce and labor and variable overhead costs became essentially fixed . by maintaining its workforce , the company has been able to respond to the increasing demand in 2010. as sales increased across all segments , the company has experienced productivity improvements and was able to leverage its overhead costs to generate higher gross profit . higher sales volume in 2010 contributed $ 11.4 million of the gross profit increase . the remaining increase in gross profit was attributed to productivity improvements of approximately $ 4.5 million , and decreases in overhead expenses as a percentage of sales of approximately $ 13.3 million , both of which occurred primarily in the u.s. a price increase in july 2010 added approximately $ 2.6 million to gross profit . the 24 increase in gross profit was partially offset by higher material costs as a percentage of sales of $ 1.4 million . additionally , 2010 amounts include higher benefit costs of approximately $ 1.9 million relating to the shared distribution , most of which will be paid into retirement plans . in june 2009 , the company initiated rolling furloughs for the production workforce and a 3 % salary reduction for non-production personnel . production employees were brought back throughout the first quarter of 2010 as demand increased . in april 2010 , the company ended its employee furlough program and restored the 3 % salary decrease for all u.s. employees . there was minimal impact during 2010 relating to the furloughs and salary reductions , however , there were cost savings of approximately $ 1.3 million in the prior year . selling , engineering , and administrative expenses selling , engineering and administrative expenses in 2010 were $ 21.3 million , a $ 1.5 million , or 7.5 % , increase , compared to $ 19.8 million in 2009. the increase is primarily related to marketing efforts in asia of approximately $ 0.4 million , and additional benefits related to the shared distribution of approximately $ 0.8 million , most of which will be paid into retirement plans . in the prior year , the cost savings of approximately $ 0.9 million resulted from furlough and salary reductions . operating income operating income increased $ 28.9 million or 1348.4 % to $ 31.0 million in 2010 , compared to $ 2.1 million in 2009 , with operating margins of 20.6 % and 2.2 % for 2010 and 2009 , respectively . based on the company 's structure and decisions during the downturn , the increase in sales during 2010 has improved operating margins across all segments . during the downturn of the prior year , the company maintained its workforce and labor and variable overhead costs became essentially fixed . by maintaining its workforce , the company has been able to respond to the increasing demand . as sales increase across all segments , the company is experiencing productivity improvements and is able to leverage its overhead costs to generate higher operating income . the u.s. reporting segment contributed $ 22.0 million to our consolidated operating income during 2010 compared to an operating loss of $ 2.1 million during 2009 , an increase of $ 24.2 million . the increase in the u.s. operating segment is primarily related to productivity gains and leverage of its overhead costs . productivity gains contributed $ 4.5 million and decreases in variable and fixed overhead costs as a percent of sales added $ 13.8 million to operating income . the remaining increases in operating income were primarily from absorption of selling , engineering , and administrative expenses . the korean reporting segment contributed $ 2.2 million to our consolidated operating income during 2010 compared to $ 0.6 million during 2009 , an increase of $ 1.6 million . the increase in operating income was primarily related to material costs due to the strength of the korean won against the u.s. dollar for material purchases made in u.s. dollars , and productivity improvements totaling $ 1.0 million . the increase in sales volume resulted in $ 0.4 million of additional operating income . the german reporting segment contributed $ 4.0 million to our consolidated operating income during 2010 compared to $ 2.5 million during 2009 , an increase of $ 1.5 million . the increase was primarily due to the absorption of selling , engineering , and administrative expenses which remained flat in whole dollars . the increase in sales volume resulted in $ 0.9 million of additional operating income . these amounts were offset by material costs , due to the weakening of the euro against the u.s. dollar for material purchases made in u.s. dollars of $ 0.6 million . the u.k. reporting segment contributed $ 2.8 million to our consolidated operating income during 2010 compared to $ 0.9 million during 2009 , an increase of $ 1.9 million . the increase was primarily related to productivity improvements of $ 0.8 million and decreased variable and fixed costs as a percent of sales of $ 1.7 million . the increase in sales volume resulted in $ 0.5 million of additional operating income .
| % , compared to sales of $ 16.3 million during 2010. the increase was related to demand in almost all market segments . currency effect increased 2011 sales by approximately $ 0.9 million , the majority of which occurred in the second and third quarters of the year . the german reporting segment had sales of $ 28.0 million during 2011 , up $ 8.2 million or 41.6 % , compared to sales of $ 19.8 million during 2010. the increases in sales were primarily related to an increased demand for our products within germany . currency effect increased 2011 sales by approximately $ 1.4 million , the majority of which occurred in the second and third quarters of the year . the u.k. reporting segment had sales of $ 23.9 million during 2011 , up $ 3.3 million or 16.1 % , compared to sales of $ 20.6 million during 2010. the increase was primarily related to sales within the u.k , and to norway . currency effect increased 2011 sales by approximately $ 0.3 million . gross profit gross profit increased $ 26.9 million or 51.3 % to $ 79.2 million in 2011 , compared to $ 52.3 million in 2010. gross profit as a percentage of net sales increased to 38.8 % in 2011 , compared to 34.7 % in 2010. as sales increased across all segments , the company achieved productivity improvements and was able to leverage its overhead costs to generate higher gross profit . higher sales volume in 2011 contributed $ 16.3 million of the increase . the remaining increase in gross profit was attributed to productivity improvements of approximately $ 0.8 million , decreases in overhead expenses as a percentage of sales of approximately $ 5.1 million , both of which occurred primarily in the u.s. , and price increases in july 2010 and 2011 , of approximately $ 6.8 million . the increase in gross profit was partially offset by higher material costs as a percentage of sales of
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during this period , our sales were impacted by the following items : the discontinuance and reduction of various high volume/low margin product lines such as navigation , gmrs radios , flat-panel tv 's , camcorders , clock radios , digital players , digital voice recorders , and portable dvd players , volatility in core automotive , premium audio and consumer accessories sales due to increased competition , lower selling prices and the volatility of the national and global economy , political and economic volatility in venezuela , euro devaluation against the u.s. dollar . partially offset by : the introduction of new products and lines such as digital antennas and mobile multi-media devices , mobile ipad and ipod interfaces and bluetooth and wireless speaker products , acquisition of hirschmann 's mobile communications and infotainment business , critical accounting policies and estimates 24 general our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions can be subjective and complex and may affect the reported amounts of assets and liabilities , revenues and expenses reported in those financial statements . as a result , actual results could differ from such estimates and assumptions . the significant accounting policies and estimates which we believe are the most critical in fully understanding and evaluating the reported consolidated financial results include the following : revenue recognition we recognize revenue from product sales at the time of passage of title and risk of loss to the customer either at fob shipping point or fob destination , based upon terms established with the customer . any customer acceptance provisions , which are related to product testing , are satisfied prior to revenue recognition . we have no further obligations subsequent to revenue recognition except for returns of product from customers . we do accept returns of products , if properly requested , authorized and approved . we continuously monitor and track such product returns and record the provision for the estimated amount of such future returns at point of sale , based on historical experience and any notification we receive of pending returns . sales incentives we offer sales incentives to our customers in the form of ( 1 ) co-operative advertising allowances ; ( 2 ) market development funds ; ( 3 ) volume incentive rebates ; and ( 4 ) other trade allowances . we account for sales incentives in accordance with asc 605-50 `` customer payments and incentives '' ( `` asc 605-50 '' ) . except for other trade allowances , all sales incentives require the customer to purchase our products during a specified period of time . all sales incentives require customers to claim the sales incentive within a certain time period ( referred to as the `` claim period '' ) . all costs associated with sales incentives are classified as a reduction of net sales . the accrual balance for sales incentives at february 29 , 2016 and february 28 , 2015 was $ 12,439 and $ 14,097 , respectively . although we make our best estimate of sales incentive liabilities , many factors , including significant unanticipated changes in the purchasing volume and the lack of claims from customers could have a significant impact on the liability for sales incentives and reported operating results . we reverse earned but unclaimed sales incentives based upon the expiration of the claim period of each program . unclaimed sales incentives that have no specified claim period are reversed in the quarter following one year from the end of the program . for the years ended february 29 , 2016 , february 28 , 2015 and february 28 , 2014 , reversals of previously established sales incentive liabilities amounted to $ 77 , $ 111 and $ 867 , respectively . these reversals include unearned and unclaimed sales incentives . unearned sales incentives are volume incentive rebates where the customer did not purchase the required minimum quantities of product during the specified time . volume incentive rebates are reversed into income in the period when the customer did not reach the required minimum purchases of product during the specified time . reversals of unearned sales incentives for the years ended february 29 , 2016 , february 28 , 2015 and february 28 , 2014 amounted to $ 77 , $ 103 and $ 812 , respectively . unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period ( period after program has ended ) . reversals of unclaimed sales incentives for the years ended february 29 , 2016 , february 28 , 2015 and february 28 , 2014 amounted to $ 0 , $ 8 and $ 55 , respectively . accounts receivable we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current credit worthiness , as determined by a review of current credit information . we continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . while such credit losses have historically been within management 's expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that have been experienced in the past . since our accounts receivable are concentrated in a relatively few number of large customers , a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivable and our results of operations . 25 the company has supply chain financing agreements ( `` factoring agreements '' ) with certain financial institutions for the purpose of accelerating receivable collection and better managing cash flow . story_separator_special_tag under the factoring agreements , the company has agreed to sell certain of its accounts receivable balances to these institutions , who have agreed to advance amounts equal to the net accounts receivable balances due , less a discount as set forth in the respective agreements . the factored balances under these agreements are accounted for as sales of accounts receivable , as they are sold without recourse . cash proceeds from these factoring agreements are reflected as operating activities included in the change in accounts receivable in the company 's consolidated statements of cash flows . total balances factored , net of discounts , for the years ended february 29 , 2016 , february 28 , 2015 and february 28 , 2014 were approximately $ 273,000 , $ 182,000 and $ 100,000 , respectively . fees incurred in connection with the factoring agreements totaled $ 1,129 , $ 866 and $ 258 for the years ended february 29 , 2016 , february 28 , 2015 and february 28 , 2014 , respectively , and are recorded as interest expense by the company . inventories we value our inventory at the lower of the actual cost to purchase ( primarily on a weighted moving average basis , with a portion valued at standard cost , which approximates actual costs on the first in , first out basis ) and or the current estimated market value of the inventory . market value of inventory does not exceed the net realizable value of the inventory and is not less than the net realizable value of such inventory , less an allowance for a normal profit margin . we regularly review inventory quantities on-hand and record a provision in cost of sales for excess and obsolete inventory based primarily on selling prices , indications from customers based upon current price negotiations , and purchase orders . our industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand . in addition , and as necessary , specific reserves for future known or anticipated events may be established . during the years ended february 29 , 2016 , february 28 , 2015 and february 28 , 2014 , we recorded inventory write-downs of $ 1,256 , $ 2,877 and $ 3,602 , respectively . estimates of excess and obsolete inventory may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the carrying value of inventory and our results of operations . asset impairments as of february 29 , 2016 , intangible assets totaled $ 185,022 and property , plant and equipment totaled $ 75,606 ( excluding venezuelan investment properties of $ 3,816 , which are discussed below ) . management makes estimates and assumptions in preparing the consolidated financial statements for which actual results will emerge over long periods of time . this includes the recoverability of long-lived assets employed in the business , including assets of acquired businesses . these estimates and assumptions are closely monitored by management and periodically adjusted as circumstances warrant . for instance , expected asset lives may be shortened or an impairment recorded based upon a change in the expected use of the asset or performance of the related asset group . at the present time , management intends to continue the development , marketing and selling of products associated with its intangible assets , and there are no known restrictions on the continuation of their use , other than the ruling received in the fourth quarter of fiscal 2016 ( see note 1 ( k ) ) . certain indefinite lived trademarks were impaired during the second and fourth quarter of fiscal 2016 , resulting in impairment charges of $ 6,210 and $ 2,860 , respectively . in fiscal 2014 , we recorded impairment charges for intangible assets and long-lived assets of $ 25,398. no impairment losses were recorded related to indefinite lived intangible assets during fiscal 2015. the cost of other intangible assets with definite lives and long-lived assets are amortized on a straight-line basis over their respective lives . management has determined that the current lives of these assets are appropriate . management has determined that there were no other indicators of impairment that would cause the carrying values related to intangible assets with definite lives to exceed their expected future cash flows at february 29 , 2016 . approximately 83.0 % percent of our indefinite-lived trademarks ( $ 89,790 ) are at risk of impairment as of february 29 , 2016 . as a result of the impairment charges recorded in fiscal 2016 and fiscal 2014 , the carrying values of certain indefinite-lived trademarks were adjusted to their respective fair values as of february 29 , 2016 and february 28 , 2014. the company uses an income approach , based on the relief from royalty method , to value the indefinite-lived trademarks as part of its impairment test . this impairment test involves the use of accounting estimates and assumptions , changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions . the critical assumptions in the discounted cash flow model include revenues , long-term growth rates , royalty rates , and discount rates . management exercises judgment in developing these assumptions . certain of these assumptions are based upon industry projections , facts specific to the trademarks and consideration of our long-term view for the trademark and the markets we operate in .
| the euro devalued against the u.s. dollar beginning in the second quarter of fiscal 2015 and accelerated during the third and fourth quarters of fiscal 2015 through the end of fiscal 2016. during these periods , the euro to u.s. dollar rate dropped from approximately 1.36 on may 31 , 2014 to 1.09 on february 29 , 2016 , representing a 20 % decrease in value , which negatively impacted the translation of our euro denominated sales when comparing the year ended february 29 , 2016 to the year ended february 28 , 2015 , and resulting in a decrease of approximately $ 28,200 in automotive segment sales . in addition , the company experienced a decrease in sales related to its remote start business during the year ended february 29 , 2016 due to load in sales realized in the prior year for a program launched with subaru that leveled out in fiscal 2016 , the completion of remote start programs with two other vehicle manufacturers , as well as an unseasonably warm start to the fall/winter season , which negatively impacted the sale of remote start products . the company has also experienced a decline in sales for its car connection program for the year ended february 29 , 2016 , which began selling devices to retailers during the first half of fiscal 2015 , with significant load in sales , and a decrease in satellite radio fulfillment and portable dvd player sales , as more cars are now being manufactured with these products and the company began to phase out its portable dvd product offerings during the prior fiscal year . in addition , during the first quarter of fiscal 2015 , the company sold all of its jensen mobile product inventory to a third party , consisting of car speakers and amplifiers , in order to license the brand name for a commission , which has resulted in reduced sales of these products for the year ended february 29 , 2016 , as compared to the prior year period . as an offset to these decreases , the company saw an increase in its oem manufacturing line sales for the year ended february 29 , 2016 , due primarily to the launch of a new program with cadillac for rear seat entertainment , as well as the relaunch of a previously suspended oem
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this approval triggered a milestone payment to us , which was received october 2017. on october 12 , 2017 , we announced that we had entered into a settlement agreement with teva pharmaceuticals usa , inc. , actavis laboratories ut , inc. and teva pharmaceuticals industries , ltd. ( collectively , teva ) that resolves our previously reported bunavail ® patent litigation against teva pending in the united states district court for the district of delaware . on november 27 , 2017 , we announced that the ohio bureau of workers compensation had approved a change to its formulary resulting in favorable positioning for our products belbuca ® and bunavail ® . belbuca ® will be added to the formulary as a tier 1 long-acting opioid without restrictions . on december 8 , 2017 , we received the required 90-day notice from collegium regarding termination of the previously announced license and development agreement between us and collegium for our onsolis ® product . we are assessing options for commercializing our onsolis ® product , including the use of our current sales force or potentially out-licensing the product . on december 18 , 2017 , we announced that the u.s. patent and trademark office had issued a notice of allowance of our patent application for u.s. patent application serial no . 13/724,959 ( or the 959 patent ) that once formally granted , will be listed in the fda publication approved drug products with therapeutic equivalence evaluations ( known as the orange book ) and will extend the exclusivity of belbuca ® from july 2027 to december 2032. the 959 patent covers the method of using bema ® for the treatment of chronic pain . on december 20 , 2017 , we announced the appointment of scott m. plesha , formerly our senior vice president of sales and marketing , to the role of president , effective january 2 , 2018. this coincides with the previously announced retirement of dr. mark a. sirgo from his day-to-day role as president and chief executive officer and his continuation as vice chairman of the board of directors . besides mr. plesha 's new responsibilities as president , mr. plesha will continue to directly oversee the sales and marketing functions of our company . on december 26 , 2017 , pursuant to our term loan agreement with crg , we were eligible and elected , to receive in the second draw for gross proceeds of $ 15.0 million . on january 30 , 2018 , we announced that belbuca ® is now commercially available in canada via our exclusive agreement with purdue ( canada ) . this milestone triggered a payment in the amount of cad 1 million , which we received march 2018. on february 6 , 2018 , we announced that we had entered into a settlement agreement with teva that resolves our previously reported belbuca ® patent litigation against teva pending in the united states district court for the district of delaware . our products and related trends our product portfolio currently consists of four products . as of the date of this report , three products are approved by the fda and one is development . three of these four products utilize our patented bema ® thin film drug delivery technology . belbuca ® is indicated for the management of chronic pain severe enough to require daily , around-the-clock , long-term opioid treatment and for which alternative treatment options are inadequate . this product was originally licensed on a worldwide basis to endo . on october 26 , 2015 , we announced with endo that the fda approved belbuca ® . belbuca ® was launched by endo in february 2016. on december 7 , 2016 , we entered into an agreement with endo terminating endo 's licensing of rights for belbuca ® . this followed a strategic decision made by endo to discontinue commercial efforts in the branded pain business . on january 6 , 2017 , we announced the closing of the transaction to reacquire the license to belbuca ® from endo . as a result , the worldwide rights to belbuca ® were transferred back to us . behind a revised commercialization plan based on market research conducted primarily by endo that took into consideration the current climate for prescribing opioids for chronic pain , we are leveraging our existing sales force to capitalize on commercial synergies with bunavail ® . this effort is a focused commercial approach targeting identified healthcare providers which we believe create the potential to incrementally grow belbuca ® sales without the requirement for significant resources . we also will explore other options for longer-term growth for belbuca ® . in mid-february 2017 , we completed the expansion and training of our sales force , allowing for promotion of belbuca ® 55 to commence in full in late february . we further expanded our sales force beginning of january 2018 to support the commercialization efforts . belbuca ® and bunavail ® are currently supported by a field force of approximately eighty-five sales representatives and nine regional sales managers . as previously disclosed , the launch has been more challenging because of the increased scrutiny over the prescribing of opioids that is driven by the centers for disease control and prevention guidelines issued in march 2016. the difference that belbuca ® offers over the schedule ii opioids , such as oxycodone , hydrocodone , morphine , etc. , include less addiction and abuse potential along with a ceiling effect on respiratory depression . the approval of belbuca ® carries a standard post-approval requirement by the fda to conduct a study to determine the effect of belbuca ® on qt prolongation ( i.e . an abnormal lengthening of the heartbeat ) . also required is a study assessing the safety and efficacy of belbuca ® in pediatric patients and participation in a consortium with other holders of ndas for long-acting opioids to assess and better understand the risk of abuse , misuse , addiction and overdose with opioids . story_separator_special_tag prescription sales of belbuca have significantly increased since promotion began . bunavail ® was approved by the fda in june 2014 and is indicated for the treatment of opioid dependence . bunavail ® uses our bema ® technology combined with buprenorphine in tandem with naloxone , an opioid antagonist . we are commercializing bunavail ® ourselves and launched the product during the fourth quarter of 2014. we have been actively engaged in efforts to optimize our commercialization of bunavail ® with particular emphasis in 2016 on better aligning costs with revenue and reducing spending . we will seek to continue to manage our bunavail ® business by focusing sales efforts on those healthcare providers who have been prescribers of bunavail . and we will continue to use published data evidencing diversion ( i.e. , the illicit use of a legally prescribed controlled substance ) associated with the market leader 's product and highlight the other attributes of bunavail ® as we seek to win additional managed care contracts . we also believe there will be an opportunity to introduce more patients to bunavail ® with the lifting of the long-standing limit from 100 to 275 ( as outlined in the final ruling by hhs and effective on august 8 , 2016 ) , the number of patients per physician that can be treated at any given time with buprenorphine and more recent legislation allowing nurse practitioners and physician assistants to prescribe buprenorphine for opioid dependence . we will continue to closely monitor commercial efforts and seek to increase revenue and profitability , as well as evaluate all options available to preserve the long-term prospects for and maximize the value of bunavail ® . separately , as with all other buprenorphine containing products for opioid dependence , the approval of bunavail ® carries a standard post-approval requirement by the fda to conduct a study to determine the effect of bunavail ® on qt prolongation . onsolis ® is approved in the u.s. , the eu ( where it is marketed as breakyl ) and taiwan ( where it is marketed as painkyl ) , for the management of breakthrough pain in opioid tolerant adult patients with cancer . onsolis ® utilizes our bema ® thin film drug delivery technology in combination with the narcotic fentanyl . the commercial rights to onsolis ® were originally licensed to meda , a subsidiary of mylan n.v. , in 2006 and 2007 for all territories worldwide except for taiwan ( where it is licensed to tty ) . the marketing authorization for onsolis ® was returned to us in early 2015 as part of an assignment and revenue sharing agreement with meda for the united states , canada and mexico . such agreement also facilitated the approval of a new formulation of onsolis ® in the u.s. we are currently assessing our commercial options for onsolis ® . buprenorphine extended release injection is in development as an injectable , extended release , microparticle formulation of buprenorphine for the treatment of opioid dependence and chronic pain , the rights to which we secured when we entered into a definitive development and exclusive license option agreement from evonik in october 2014. in 2015 , we completed initial development work and preclinical studies which have resulted in the identification of a formulation we believe is capable of providing 30 days of continuous buprenorphine treatment . during a pre-ind meeting with the fda in november 2015 , the fda requested an additional study to assess the fate of the polymers used in the formulation . in 2016 , we completed this study as well as additional preclinical work and other activities to support a planned phase 1 clinical study . we submitted an investigational new drug application ( ind ) for this product candidate to the fda in december 2016. we expect to continue our research and development of pharmaceutical products and related drug delivery technologies , some of which will be funded by our commercialization agreements . we will continue to seek additional license agreements , which may include upfront payments . we anticipate that funding for the next several years will come primarily from earnings from sales of belbuca ® and bunavail ® , milestone payments and royalties from meda and tty , potential sales of securities and collaborative research agreements , including those with pharmaceutical companies . we have limited history of commercial operations , having focused the vast majority of our corporate effort on research and development activities . we have , since our founding , received revenue in the form of : ( i ) product sales from our belbuca ® and bunavail ® products , ( ii ) contract revenue from endo related to an upfront , non-refundable payment for a license of our belbuca ® product in 2012 , ( iii ) payment from endo for certain patent-related milestones ( iv ) royalty revenue from meda for sales 56 of breakyl and onsolis ® , ( vi ) upfront non-refundable license and milestone payments from meda in 2007 , 2008 , 2009 and 2012 ( vi ) product sales revenue related to bunavail ® sales ( vii ) contract revenue from endo related to two full database locks in 2014 , ( viii ) contract revenue from endo upon fda acceptance of the filed nda of our belbuca ® product in 2015 and subsequent regulatory approval , ( ix ) and sponsored research revenue from both endo and meda . only the belbuca ® and bunavail ® product sales and breakyl royalty revenues have the potential to be repeating or predictable . until recurring revenue from product sales ( belbuca ® and bunavail ® are the foremost opportunity ) becomes a larger portion of our total revenue , we anticipate that our quarterly results of operations will fluctuate for the foreseeable future . readers are cautioned that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance .
| contract revenue in 2017 includes $ 20 million from endo related to a patent extension that was previously recorded as deferred revenue because all or a portion of such $ 20 million was contingently refundable to endo if a third party generic product was introduced in the u.s. during the patent extension period from 2020 to 2027. however , due to us and endo entering into a termination agreement on december 7 , 2016 which terminated the belbuca ® license to endo effective january 6 , 2017 , the deferred $ 20 million was recognized as revenue in january 2017. the remaining $ 1.2 million in contract revenues during 2017 was related to our license agreement with purdue canada . cost of sales . we incurred $ 19.5 million and $ 11.3 million in cost of sales during the years ended 2017 and 2016 , respectively . in 2017 , we had minimum $ 1.5 million contractual royalty due to cdc related to our onsolis ® and breakyl product . also , in 2017 , we incurred $ 15.8 million in cost of sales for belbuca ® and bunavail ® plus $ 0.6 million related depreciation of manufacturing equipment and $ 0.2 million in immediate expensing of certain production that did not meet specifications during product validation and batch size scale up and yield losses . also included in 2017 was $ 1.0 million in cost of sales for breakyl in europe , $ 0.3 million in cost of sales for painkyl and $ 0.1 million cost of sales related to onsolis ® . in 2016 , we had $ 1.9 million contractual royalty due to meda related to our onsolis ® licensing arrangement with collegium and a standard , minimum $ 1.5 million contractual royalty due to cdc related to our onsolis ® and breakyl product . also , in 2016 , we incurred $ 6.3 million in cost of sales for bunavail ® plus $ 0.6 million related depreciation of manufacturing equipment and $ 0.2 million in immediate expensing of certain production that did not meet specifications during product validation and batch size scale up . also included in 2016 was $ 0.7 million in cost of sales for breakyl in europe and $ 0.1 million cost of sales related to belbuca ® . selling , general and administrative expenses . during the years ended december 31 , 2017 and 2016 , selling , general and administrative expenses totaled $ 58.9 million and $ 49.3 million , respectively . selling , general and administrative
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the ratio of units disconnected in a period to average units in service for the same period , called the disconnect rate , is an indicator of our success at retaining subscribers , which is important in order to maintain recurring revenue and to control operating expenses . the following table sets forth our gross placements and disconnects for the periods stated : replace_table_token_10_th the following table sets forth information on our direct units in service by account size for the periods stated : 24 replace_table_token_11_th the following table sets forth information on the direct net disconnect rate by account size for our direct customers for the periods stated : replace_table_token_12_th the other factor that contributes to revenue , in addition to the number of units in service , is the monthly charge per unit . as previously discussed , the monthly charge per unit is dependent on the subscriber 's service , extent of geographic coverage , whether the subscriber leases or owns the messaging device , and the number of units the customer has in the account . the ratio of revenue for a period to the average units in service , for the same period , commonly referred to as average revenue per unit ( `` arpu '' ) , is a key revenue measurement as it indicates whether charges for similar services and distribution channels are increasing or decreasing . arpu by distribution channel and messaging service are monitored regularly . the following table sets forth arpu by distribution channel for the periods stated : replace_table_token_13_th while arpu for similar services and distribution channels is indicative of changes in monthly charges and the revenue rate applicable to new subscribers , this measurement on a consolidated basis is affected by several factors , including the mix of units in service and the pricing of the various components of our services . we expect future sequential annual revenues to decline in line with recent trends . the change in arpu in the direct distribution channel is the most significant indicator of rate-related changes in our revenue . the decrease in consolidated arpu during the years 2012 through 2014 was due to the change in composition of our customer base as the percentage of units in service attributable to larger customers continues to increase . these larger customers benefit from lower pricing associated with their larger number of units-in-service . we believe that without further price adjustments , arpu would trend lower for both the direct and indirect distribution channels in 2015. price increases could mitigate , but not completely offset , the expected declines in both arpu and revenue . the following table sets forth information on direct arpu by account size for the periods stated : 25 replace_table_token_14_th software revenue we enter into agreements whereby our customers purchase products and services including software , professional services ( primarily installation and training ) , equipment ( to be used in conjunction with the software ) , and maintenance support ( post-contract support ) . the software is licensed to end-users under an industry standard software license agreement . software revenue consists of two primary components : operations revenue and maintenance revenue . operations revenue consists of subscription services revenue , software license revenue , professional services revenue , and equipment sales . maintenance revenue is for ongoing support of a software application or equipment ( typically for one year ) . we recognize equipment revenue when it is shipped or delivered to the customer depending on delivery method of free on board ( `` fob '' ) shipping or fob destination , respectively . as of january 1 , 2014 , license , professional services and maintenance revenue is recognized ratably over the longer of the period of professional services delivery to the customer or the contractual term of the maintenance agreement . if the period of delivery to the customer is not known , license and professional services revenue will be recognized when software and professional services are fully delivered to the customer and maintenance revenue will be recognized ratably over the remaining contractual term of the maintenance agreement . prior to january 1 , 2014 , license and professional services revenue was recognized when the services were fully delivered to the customer and maintenance revenue was recognized ratably over the term of the maintenance agreement . after the initial maintenance term , customers typically renew their maintenance support . the maintenance renewal rates for the years ended december 31 , 2014 , 2013 and 2012 were 99.5 % , 99.1 % and 99.0 % , respectively . the breakout of revenue by component was as follows for the periods stated : replace_table_token_15_th on a regular basis , we enter into contractual arrangements with our customers to provide software licenses , professional services , and equipment sales . in addition , we enter into contractual arrangements for maintenance with our customers on new solutions or renewals on existing solutions . these contractual arrangements are reported as bookings and represent future revenue . bookings increased by 23.7 % for the year ended december 31 , 2014 compared to the same period in 2013. the increase reflects the continuing success of our sales force in closing business and expanding market penetration with new customers , as well as selling additional solutions to our installed base . the following table summarizes total bookings for the periods stated : 26 replace_table_token_16_th we reported a software backlog of $ 42.4 million for the year ended december 31 , 2014 , which represented all purchase orders received from customers not yet recognized as revenue . story_separator_special_tag backlog december 31 , 2014 ( dollars in thousands ) beginning balance at january 1 , 2014 $ 40,211 operations bookings for the year 45,125 maintenance renewals for the year 33,389 available backlog $ 118,725 operations revenue for the year ( 37,068 ) maintenance revenue for the year ( 30,803 ) other ( 1 ) ( 8,463 ) total backlog at december 31 , 2014 $ 42,391 increase in backlog from january 1 , 2014 5.4 % ( 1 ) other reflects cancellations and adjustments to backlog . the breakout of backlog by source was as follows for the year ended december 31 , 2014 : replace_table_token_17_th operations - consolidated our operating expenses are presented in functional categories . certain of our functional categories are especially important to overall expense control and management ; these operating expenses are categorized as follows : cost of revenue . these are expenses primarily for hardware , third-party software , outside service expenses and payroll and related expenses for our professional services , logistics , customer support and maintenance staff . service , rental and maintenance . these are expenses associated with the operation of our paging networks and development of our software . expenses consist largely of site rent expenses for transmitter locations , telecommunication expenses to deliver messages over our paging networks , and payroll and related expenses for our engineering , pager repair functions and development and maintenance of our software products . selling and marketing . these are expenses associated with our direct sales force and indirect sales channel and marketing expenses in support of those sales groups . this classification consists primarily of payroll and related expenses and commission expenses . general and administrative . these are expenses associated with information technology and administrative functions . this classification consists primarily of payroll and related expenses , outside service expenses , taxes , licenses and permit expenses , and facility rent expenses . we review the percentages of these operating expenses to revenue on a regular basis . even though the operating expenses are classified as described above , expense control and management are also performed by expense category . approximately 75 % 27 of the operating expenses referred to above were incurred in payroll and related expenses , cost of sales , site and facility rent expenses and telecommunication expenses for each of the years ended december 31 , 2014 , 2013 and 2012. payroll and related expenses for the year ended december 31 , 2012 included a benefit of $ 0.3 million for forfeitures under the 2012 stip associated with the departure of two former executives . our largest expense , payroll and related expenses , includes wages , commissions , incentives , employee benefits and related taxes . on a monthly basis , we review the number of employees in major functional categories and the design and physical locations of functional groups to continuously improve efficiency , to simplify organizational structures , and to minimize the number of physical locations for the company . we have 587 full-time equivalent employees ( “ ftes ” ) at december 31 , 2014 , a decrease of 7.0 % from 631 ftes at december 31 , 2013. the change in the number of ftes reflects adjustments to our workforce resulting from the changing nature of our revenues . software revenue is anticipated to increase , while the wireless revenue is expected to continue to decrease reflecting the changing technology expectations of our customer base . cost of sales includes distribution costs for equipment and products sold and or licensed , operating costs ( excluding payroll and related expenses ) related to product implementation , training , and product support services , and costs associated with the delivery of third party implementation services and third party license , and or maintenance support . site rent expenses for transmitter locations are largely dependent on our paging networks . we operate local , regional , and nationwide one-way and two-way paging networks . these networks each require locations on which to place transmitters , receivers , and antennae . site rent expenses for transmitter locations are highly dependent on the number of transmitters , which in turn is dependent on the number of networks . in addition , these expenses generally do not vary directly with the number of subscribers or units in service , which is detrimental to our operating margins as revenue declines . in order to reduce these expenses , we have an active program to consolidate the number of paging networks , and thus transmitter locations , which we refer to as network rationalization . we have reduced the number of active transmitters by 4.4 % to 4,339 active transmitters at december 31 , 2014 from 4,538 active transmitters at december 31 , 2013. telecommunication expenses are incurred to interconnect our paging networks and to provide telephone numbers for customer use , points of contact for customer service , and connectivity among our offices . these expenses are dependent on the number of units in service , the number of customers we support and the number of office and network locations that we maintain . however , the number or duration of telephone calls to call centers may vary from period to period based on factors other than the number of units in service or customers , which could cause telecommunication expenses to vary . due to the integration of the management structure and consolidation of our organization effective january 1 , 2014 , certain prior years ' interim revenue and operating expenses were reclassified to conform to the current year 's presentation . in 2014 , we reported wireless and software revenue , and had reclassified the revenue previously reported in the annual report on form 10-k for 2013 ( the `` 2013 form 10-k '' ) and annual report on form 10-k for 2012 ( the `` 2012 form 10-k '' ) to conform with the current year 's presentation .
| the following table includes the cash receipt and expenditure components of our cash flows from operating activities for the periods indicated , and sets forth the change between the stated periods : replace_table_token_39_th net cash provided by operating activities decreased $ 8.9 million for the year ended december 31 , 2014 compared to the same period in 2013 due to a decrease in cash received from customers of $ 11.6 million , partially offset by a decrease in cash paid for operating expenses of $ 2.7 million . cash received from customers consisted of revenue and direct taxes billed to customers adjusted for changes in accounts receivable , deferred revenue and tax withholding amounts . the decrease of $ 11.6 million was due to lower revenue of $ 9.5 million and higher accounts receivable of $ 9.5 million and other , net of $ 0.5 million , partially offset by higher deferred revenue and customer deposits of $ 7.9 million . 39 the decrease in cash paid for operating expenses of $ 2.7 million was as follows : cash payments for payroll and related costs decreased by $ 2.0 million primarily due to reduced headcount resulting in lower payroll and related costs . cash payments for site rent costs decreased $ 1.0 million . this decrease was due primarily to lower site rent costs for leased locations as we rationalized our network and incurred lower payments in 2014. cash payments for telecommunication costs decreased $ 0.7 million . this decrease was due primarily to the consolidation of our networks and reflects continued office and staffing reductions to support our smaller customer base for wireless revenue . cash payments for other operating costs increased $ 1.0 million . the increase was due primarily to higher advertising costs of $ 1.2 million , higher recruitment and relocation costs of $ 0.6 million , higher repair and maintenance costs of $ 0.4 million and other , net of $ 0.2 million , partially offset by lower outside services costs of $ 0.8 million and bad debt costs of $ 0.6 million . net cash used in investing activities . net cash used in investing activities decreased $ 2.5 million for the year ended december 31 , 2014 compared to the same period in 2013 due primarily to lower capital expenses for property and equipment of $ 2.7 million for the year ended december 31 , 2014 from the same period in 2013 ,
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the net deferred tax asset recorded on our consolidated balance sheet as of december 31 , 2018 totaled $ 1,069,000. the difference would have been recorded as a net deferred tax asset of $ 480,000 ( net of $ 240,000 uncertain tax liability ) if it had been recorded on our consolidated balance sheet as of december 31 , 2017 and as a net deferred tax asset of $ 250,000 ( net of $ 380,000 uncertain tax liability ) if it had been recorded on our consolidated balance sheet as of december 31 , 2016 . 54 pro forma income tax expense and net income as a result of our status as an s corporation , we had no u.s. federal income tax expense for the years ended december 31 , 2017 or 2016. further , we do not have u.s. federal income tax expense for the full year ended december 31 , 2018 , but rather only for the short year after conversion to c corporation status ( as discussed earlier ) . the pro forma impact of being taxed as a c corporation is illustrated in the following table : replace_table_token_6_th ( 1 ) a portion of our net income in each of these periods was derived from nontaxable investment income and other nondeductible expenses . ( 2 ) based on a statutory federal income tax rate of 21 % for the year ended december 31 , 2018 and 35 % for each of the years ended december 31 , 2017 and december 31 , 2016 , plus the applicable statutory state income tax rate for each of the respective periods . state income tax expense would have been approximately : - $ 1.3 million for the year ended december 31 , 2018 with an effective state tax rate of 4.9 % - $ 1.3 million for the year ended december 31 , 2017 with an effective state tax rate of 5.4 % - $ 1.0 million for the year ended december 31 , 2016 with an effective state tax rate of 5.7 % story_separator_special_tag font-family : 'times new roman ' ; '' > the provision for loan losses decreased by $ 1 million , or 83.95 % , to $ 200,000 ; and - the allowance as a percentage of loans decreased by 5 basis points to 1.31 % . for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 : - the provision for loan losses decreased by $ 309,000 , or 19.9 % , to $ 1.2 million ; and - the allowance as a percentage of loans decreased by 1 basis point to 1.36 % . noninterest income noninterest income for the year ended december 31 , 2018 was $ 1.3 million compared to $ 1.4 million for the year ended december 31 , 2017 , a decrease of $ 104,000 , or 7.25 % . noninterest income for the year ended december 31 , 2017 was $ 1.4 million compared to $ 1.6 million for the year ended december 31 , 2016 , a decrease of and $ 208,000 , or 12.7 % . the following table sets forth the major components of our noninterest income for the years ended december 31 , 2018 , 2017 and 2016 : 58 replace_table_token_9_th noninterest expense noninterest expense for the year ended december 31 , 2018 was $ 15.0 compared to $ 14.5 million for the year ended december 31 , 2017 , an increase of $ 434,000 , or 3.0 % . noninterest expense for the year ended december 31 , 2017 was $ 14.5 compared to $ 13.1 million for the year ended december 31 , 2016 , an increase of $ 1.4 million , or 10.8 % . the following table sets forth the major components of our noninterest expense for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_10_th for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 : - salaries and employee benefits expense was $ 8.1 million compared to $ 7.6 million , an increase of $ 502,000 , or 6.6 % . the increase in 2018 was attributable to higher salaries and incentive compensation expense . - furniture and equipment expense was $ 684,000 compared to $ 831,000 , a decrease of $ 147,000 , or 17.7 % . the decrease in 2018 was primarily due to lower bank vehicle expenses compared to 2017 . - regulatory assessments totaled $ 542,000 compared to $ 450,000 , an increase of $ 92,000 , or 20.4 % . the change came primarily from fdic assessments that totaled $ 440,000 in 2018 compared to $ 394,000 in 2017 , an increase of $ 46,000 , or 11.7 % . the increase is due to a higher assessment associated with an increase in deposits accounts due to organic growth and expansion into the texas market . - travel , lodging and entertainment expense was $ 699,000 compared to $ 1.0 million , a decrease of $ 342,000 , or 32.9 % . the decrease in 2018 was primarily due to lower aircraft expenses as the aircraft was sold at the end of the third quarter of 2018. for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 : - salaries and employee benefits expense was $ 7.6 million compared to $ 6.5 million , an increase of $ 1.1 million , or 16.8 % . the increase in 2017 was attributable to our expansion in the dallas/fort worth metropolitan area as our number of full-time equivalent employees totaled 80 at december 31 , 2017 compared to 72 at december 31 , 2016 . 59 - furniture and equipment expense was $ 831,000 compared to $ 693,000 , an increase of $ 138,000 , or 19.9 % . this increase in 2017 was primarily due to higher bank vehicle expenses compared to 2016 . story_separator_special_tag - regulatory assessments totaled $ 450,000 compared to $ 638,000 , a decrease of $ 188,000 , or 29.5 % . the change came primarily from fdic assessments that totaled $ 394,000 in 2017 and $ 550,000 in 2016 , a decrease of $ 156,000 , or 28.4 % , respectively . the primary reason for the decrease in assessments in 2017 was less reliance on non-reciprocal deposits related to non-core funding . - travel , lodging and entertainment expense for 2017 was $ 1.0 million compared to $ 542,000 , an increase of $ 499,000 , or 92.1 % . the increase in 2017 was primarily due to aircraft expenses and increased travel to the new branch in the dallas/fort worth metropolitan area . financial condition the following discussion of our financial condition compares december 31 , 2018 , 2017 , and 2016. total assets total assets increased $ 66.9 million , or 9.5 % , to $ 770.5 million as of december 31 , 2018 , as compared to $ 703.6 million as of december 31 , 2017 and $ 613.8 million as of december 31 , 2016. the increasing trend in total assets is primarily attributable to strong organic loan and retail deposit growth within the oklahoma city market and expansion into the dallas/fort worth metropolitan area . securities we had no securities portfolio as of december 31 , 2018 , december 31 , 2017 and december 31 , 2016. loan portfolio our loans represent the largest portion of our earning assets . the quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition . as of december 31 , 2018 , 2017 and 2016 , our gross loans were $ 601.9 million , $ 564.6 million and $ 503.8 million , respectively . the following table presents the balance and associated percentage of each major category in our loan portfolio as of december 31 , 2018 , december 31 , 2017 and december 31 , 2016 : replace_table_token_11_th 60 we have established internal concentration limits in the loan portfolio for cre loans , hospitality loans , energy loans , and construction loans , among others . all loan types are within our established limits . we use underwriting guidelines to assess each borrower 's historical cash flow to determine debt service , and we further stress test the debt service under higher interest rate scenarios . financial and performance covenants are used in commercial lending to allow us to react to a borrower 's deteriorating financial condition , should that occur . the following tables show the contractual maturities of our gross loans as of the periods below : replace_table_token_12_th replace_table_token_13_th 61 replace_table_token_14_th allowance for loan and lease losses the allowance is based on management 's estimate of probable losses inherent in the loan portfolio . in the opinion of management , the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date . while management uses available information to analyze losses on loans , future additions to the allowance may be necessary based on changes in economic conditions . in addition , various regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance . in analyzing the adequacy of the allowance , a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit reviews . to determine the adequacy of the allowance , the loan portfolio is broken into segments based on loan type . historical loss experience factors by segment , adjusted for changes in trends and conditions , are used to determine an indicated allowance for each portfolio segment . these factors are evaluated and updated based on the composition of the specific loan segment . other considerations include volumes and trends of delinquencies , nonaccrual loans , levels of bankruptcies , criticized and classified loan trends , expected losses on real estate secured loans , new credit products and policies , economic conditions , concentrations of credit risk and the experience and abilities of our lending personnel . in addition to the segment evaluations , impaired loans with a balance of $ 250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary . specific allowances may also be established for loans whose outstanding balances are below the $ 250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment . the allowance was $ 7.8 million at december 31 , 2018 , $ 7.7 million at december 31 , 2017 and $ 6.9 million at december 31 , 2016. the increasing trend was related to , and in conjunction with , loan growth . 62 the following table provides an analysis of the activity in our allowance for the periods indicated : replace_table_token_15_th while the entire allowance is available to absorb losses from any and all loans , the following table represents management 's allocation of the allowance by loan category , and the percentage of allowance in each category , for the periods indicated : replace_table_token_16_th nonperforming assets loans are considered delinquent when principal or interest payments are past due 30 days or more . delinquent loans may remain on accrual status between 30 days and 90 days past due . loans on which the accrual of interest has been discontinued are designated as nonaccrual loans . typically , the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when , in the opinion of management , there is a reasonable doubt as to collectability of the obligation . when loans are placed on nonaccrual status , all interest previously accrued but not collected is reversed against current period interest income . income on a nonaccrual loan is subsequently recognized only to the extent that cash is received and the loan 's principal balance is deemed collectible .
| 55 results of operations years ended december 31 , 2018 , december 31 , 2017 , and december 31 , 2016 net interest income and net interest margin the following table presents , for the periods indicated , information about : ( i ) weighted average balances , the total dollar amount of interest income from interest-earning assets , and the resultant average yields ; ( ii ) average balances , the total dollar amount of interest expense on interest-bearing liabilities , and the resultant average rates ; ( iii ) net interest income ; and ( iv ) the net interest margin . replace_table_token_7_th ( 1 ) includes income and weighted average balances for fed funds sold , interest-earning deposits in banks and other miscellaneous interest-earning assets . ( 2 ) includes income and weighted average balances for fhlb and frb stock . ( 3 ) average loan balances include monthly average nonaccrual loans of $ 991,000 , $ 2.6 million and $ 4.7 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . ( 4 ) net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities . 56 we continued to experience strong asset growth for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 : - total interest income on loans increased $ 2.8 million , or 6.8 % , to $ 44.3 million which was attributable to a $ 44.7 million increase in the average balance of loans to $ 583.8 million during the year ended 2018 as compared with the average balance of $ 539.1 million for the year ended 2017 ; - loan fees totaled $ 5.1 million , a decrease of $ 3.2 million or 38.5 % which was attributable to nonrecurring loan fee income earned during the year ended 2017 as compared to 2018 ; - yields on our interest-earning assets totaled 6.48 % , a decrease of 12 basis points which was attributable to the $ 3.2 million decrease in nonrecurring loan fee income earned during the year ended 2018 ; and - net interest margin for the year ended 2018 and 2017 was 5.49 % and 5.87 % , respectively . for the
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amid the current covid-19 backdrop , we implemented a number of protocols to facilitate a safer environment at each of our locations , including more rigorous cleaning and sanitizing routines ; limits on customer traffic in stores to maintain physical and social distancing protocols ; other physical and social distancing efforts such as markings on floors , signage and plexiglass shields ; and instituting curbside pickup . we have been designated an essential business in all the local markets that we serve , and we have yet to experience a significant amount of forced temporary branch closures due to covid-19 business disruptions . we continue to deliver building products to both the residential and non-residential construction markets . we continue to serve customers in every way possible , and our online platform has stood out as an increasingly valuable tool in this current remote operating environment . our average daily sales levels for the three months and year ended september 30 , 2020 decreased 0.6 % and 2.7 % , respectively , compared to the prior year . in response to the potential business disruptions , we have implemented a series of operational and financial actions to combat the effects of the covid‑19 induced slowdown . we immediately responded to changes in localized demand through aggressive cost-cutting actions , including a reduction in seasonal and temporary hiring , cuts in overtime hours and reduced hourly schedules . we also implemented furloughs in both operating and non-operating functions , temporarily reduced salaries , improved working capital metrics by reducing inventory , and heightened our organizational focus on managing all expenses . additionally , we significantly restricted capital expenditures , primarily by deferring expenditures related to our fleet vehicles . we took meaningful actions to improve our 25 financial flexibility and ensure the strength of our balance sheet , and we are prepared to take additional steps to appropriately manage the business through this uncertain period . we are also monitoring input costs to ensure we are well-positioned to take advantage of any opportunities that present themselves over the next several quarters . results of operations the following tables set forth consolidated statement of operations data and such data as a percentage of total net sales for the periods presented ( in millions ) : replace_table_token_10_th replace_table_token_11_th in managing our business , we consider all growth , including the opening of new branches , to be organic growth unless it results from an acquisition . when we refer to growth in existing markets or organic growth , we include growth from existing and newly opened branches , but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period . we believe the existing market information is useful to investors because it helps explain organic growth or decline . when we refer to regions , we are referring to our geographic regions . when we refer to our net product costs , we are referring to our invoice cost less the impact of short-term buying programs ( also referred to as “ special buys ” given the manner in which they are offered ) . 26 as of september 30 , 2020 , we had a total of 524 branches in operation . all 524 branches were acquired prior to the start of fiscal year 2019 and therefore meet our existing market definition . as a result , operating results for existing markets are equal to consolidated operating story_separator_special_tag man ; font-size:11pt ; '' > 28 seasonality in general , sales and net income are highest during our first , third and fourth fiscal quarters , which represent the peak months of construction and re-roofing , especially in our branches in the northern and mid-western u.s. and in canada . we have historically incurred low net income levels or net losses during the second quarter when our sales are substantially lower . we generally experience an increase in inventory , accounts receivable and accounts payable during the third and fourth quarters of the year as a result of the seasonality of our business . our peak cash usage generally occurs during the third quarter , primarily because accounts payable terms offered by our suppliers typically have due dates in april , may and june , while our peak accounts receivable collections typically occur from june through november . we generally experience a slowing of our accounts receivable collections during our second quarter , mainly due to the inability of some of our customers to conduct their businesses effectively in inclement weather in certain regions of the u.s. and canada . we continue to attempt to collect those receivables , which require payment under our standard terms , and typically do not provide material concessions to our customers . we generally experience our peak working capital needs during the third quarter after we build our inventories following the winter season but before we begin collecting on most of our spring receivables . the impact of the covid-19 pandemic may cause fluctuations in our financial results and working capital that are not aligned with the seasonality we generally experience . quarterly financial data the following table sets forth certain unaudited quarterly data for 2020 and 2019 which , in the opinion of management , reflect all adjustments ( consisting of normal recurring adjustments ) considered necessary for a fair presentation of this data . results of any one or more quarters are not necessarily indicative of results for an entire fiscal year or of continuing trends ( in millions , except per share amounts ) : replace_table_token_16_th impact of inflation we believe that our results of operations are not materially impacted by modest changes in inflation . in general , we have historically been successful in passing on price increases from our vendors to our customers in a timely manner . story_separator_special_tag there was no significant inflationary pressure in 2020. there was increased product inflation from our suppliers in 2019 and 2018 , and we were able to mostly offset higher products costs with increased selling prices . liquidity liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash . we assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities , taking into consideration the seasonal nature of our business . 29 our principal sources of liquidity as of september 30 , 2020 were our cash and cash equivalents of $ 624.6 million and our available borrowings of $ 955.0 million under our asset-based revolving lines of credit . during the three months ended march 31 , 2020 , we elected to borrow an additional $ 725.0 million under our revolving lines of credit as a proactive measure to increase our cash position and preserve financial flexibility in response to the current uncertainty in global markets resulting from the covid-19 pandemic . during the second half of fiscal 2020 , we used a portion of our operating cash flows to fully repay these additional borrowings . significant factors which could affect future liquidity include the following : the adequacy of available bank lines of credit ; the ability to attract long-term capital with satisfactory terms ; cash flows generated from operating activities ; working capital management ; acquisitions ; and capital expenditures . our primary capital needs are for working capital obligations and other general corporate purposes , including acquisitions and capital expenditures . our primary sources of working capital are cash from operations and bank borrowings . we have financed large acquisitions through increased bank borrowings and the issuance of long-term debt and common or preferred stock . we then repay any such borrowings with cash flows from operations . we have funded most of our capital expenditures with cash on hand , increased bank borrowings , or equipment financing , and then reduced those obligations with cash flows from operations . we may explore additional or replacement financing sources in order to bolster liquidity and strengthen our capital structure . we believe we currently have adequate liquidity and availability of capital to fund our present operations , meet our commitments on our existing debt and fund anticipated growth , including expansion in existing and targeted market areas . we may seek potential acquisitions from time to time and hold discussions with certain acquisition candidates . if suitable acquisition opportunities or working capital needs arise that require additional financing , we believe that our financial position and earnings history provide a sufficient base for obtaining additional financing resources at reasonable rates and terms . we may also choose to issue additional shares of common stock or preferred stock in order to raise funds . the following table summarizes our cash flows for the periods indicated ( in millions ) : replace_table_token_17_th operating activities net cash provided by operating activities was $ 479.3 million in 2020 , compared to $ 212.7 million in 2019. cash from operations increased $ 266.6 million due to an incremental cash inflow of $ 238.8 million stemming from changes to our net working capital , mainly driven by decreases in accounts receivable and inventory as well as an increase in accounts payable . in addition , there was an increase in net income after adjustments for non-cash items of $ 27.8 million . investing activities net cash used in investing activities was $ 39.0 million in 2020 , compared to $ 211.7 million in 2019. the $ 172.7 million decrease in investing cash spend was primarily due to the $ 164.0 million payment resulting from the 338 ( h ) ( 10 ) election made in 2019 in connection with the allied acquisition . financing activities net cash provided by financing activities was $ 112.2 million in 2020 , compared to net cash used in financing activities of $ 58.8 million in 2019. the financing cash flow increase of $ 171.0 million was primarily due to a $ 181.9 million increase in net borrowings under our revolving lines of credit over the comparative periods , partially offset by a $ 13.1 million net cash outflow in the current period related to the refinancing of our outstanding senior notes . 30 monitoring and assessing collectability of accounts receivable we perform periodic credit evaluations of our customers and typically do not require collateral , although we typically obtain payment and performance bonds for any type of public work and can lien projects under certain circumstances . consistent with industry practices , we require payment from most customers within 30 days , except for sales to our non-residential roofing contractors , which we typically require to pay in 60 days . as our business is seasonal in certain geographic regions , our customers ' businesses are also seasonal . sales are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables generally increases during this time . throughout the year , we closely monitor our receivables and record estimated reserves based upon our judgment of specific customer situations , aging of accounts and our historical write-offs of uncollectible accounts . our divisional credit offices are staffed to manage and monitor our receivable aging balances and our systems allow us to enforce pre-determined credit approval levels and properly leverage new business . the credit pre-approval process denotes the maximum credit that each level of management can approve , with the highest credit amount requiring approval by our ceo and cfo . there are daily communications with branch and field staff . our divisional offices conduct periodic reviews with their branch managers , various regional management staff and the chief credit officer . depending on the state of the respective division 's receivables , these reviews can be weekly , bi-weekly or monthly .
| operating expense increased 4.7 % to $ 1.66 billion in 2020 , from $ 1.59 billion in 2019. the comparative increase in operating expense was mainly influenced by : a net $ 113.9 million increase in amortization expense , which includes the gross impact of accelerated amortization of $ 142.6 million related to the write-off of certain trade names in connection with the rebranding . 27 the increase was partially offset by our aggressive cost-cutting actions in response to the covid-19 pandemic , as well as our renewed focus on improving our cost structure and identifying opportunities for efficiencies across our business . these initiatives combined to produce the following primary effects : a $ 24.5 million decrease in selling expense , mainly due to a decrease in fleet costs ; and a $ 15.8 million decrease in payroll and employee benefit costs , mainly due to reductions in both hours worked and headcount . while certain of our cost actions were temporary in nature , we remain focused on improving our expense structure to produce permanent efficiency gains and increase our operating leverage as demand improves . interest expense , financing costs and other interest expense , financing costs and other expense was $ 128.1 million in 2020 , compared to $ 158.6 million in 2019. the decrease is primarily due to : a lower weighted-average interest rate on our outstanding debt ; a $ 5.6 million settlement received in connection with a class action lawsuit ; and a net $ 5.1 million refund received as the final true-up of the $ 164.0 million payment resulting from the 338 ( h ) ( 10 ) election made in connection with the allied acquisition . income taxes there was an income tax benefit of $ 26.8 million in 2020 , compared to $ 0.2 million in 2019. the comparative increase in income tax benefit was primarily due to the pretax loss in 2020 driven by the accelerated amortization of $ 142.6 million related to the write-off of certain trade names in connection with the rebranding . the effective tax rate was 24.9 % in 2020 , compared to 1.6 % in 2019. net income ( loss ) /net income
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as of december 31 , 2018 , we had received $ 5.7 million of such grants . we have incurred negative cash flows from operations since inception , and have expended , and expect to continue to expend , substantial funds to complete our planned product development efforts . since inception , our expenses have significantly exceeded revenues , resulting in an accumulated deficit as of december 31 , 2018 of $ 410.2 million . we can not provide assurance that we will ever be able to generate sufficient product sales or royalty revenue to achieve profitability on a sustained basis , or at all . since our inception , we have devoted our resources primarily to fund our research and development programs . we have not been profitable since inception and to date have received limited revenues from the sale of products . we expect to incur losses for the next several years as we continue to invest in product research and development , preclinical studies , clinical trials and regulatory compliance . if we raise additional funds by selling additional equity securities , the relative equity ownership of our existing investors will be diluted and the new investors could obtain terms more favorable than previous investors . if we raise additional funds through collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs , or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves . we plan to expend substantial funds to conduct research and development programs , expand our manufacturing capabilities , preclinical studies and clinical trials of potential products , including research and development with respect to our acquired and developed technology . our future capital requirements and adequacy of available funds will depend on many factors , including : the successful development and commercialization of our cell and gene therapy and other product candidates ; 59 the ability to establish and maintain collaborative arrangements with corporate partners for the research , development and commercialization of products ; continued scientific progress in our research and development programs ; the magnitude , scope and results of preclinical testing and clinical trials ; the costs involved in filing , prosecuting and enforcing patent claims ; the costs involved in conducting clinical trials ; competing technological developments ; the cost of manufacturing and scale-up ; the ability to establish and maintain effective commercialization arrangements and activities ; and successful regulatory filings . we have devoted substantially all of our efforts and resources to research and development conducted on our own behalf . the following table summarizes research and development spending by project category , which spending includes , but is not limited to , payroll and personnel expense , lab supplies , preclinical expense , development cost , clinical trial expense , outside manufacturing expense and consulting expense : project years ended december 31 , inception date ( 1 ) 2018 2017 2016 gene therapy $ 38,593,000 $ 15,789,000 $ 8,846,000 $ 65,560,000 plasma therapy 105,000 546,000 1,714,000 4,697,000 mugard — 22,000 45,000 5,434,000 others ( 2 ) — 632,000 50,000 40,702,000 total $ 38,698,000 $ 16,989,000 $ 10,655,000 $ 116,393,000 ( 1 ) cumulative spending from inception of the company or project through december 31 , 2018 . ( 2 ) includes other projects which the company is no longer focused on pursuing . due to uncertainties and certain of the risk factors described above , including those relating to our ability to successfully commercialize our drug candidates , our ability to obtain necessary additional capital to fund operations in the future , our ability to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes , government regulation to which we are subject , the uncertainty associated with preclinical and clinical testing , intense competition that we face , market acceptance of our products , the potential necessity of licensing technology from third parties and protection of our intellectual property , it is not possible to reliably predict future spending or time to completion by project or product category or the period in which material net cash inflows from significant projects are expected to commence . if we are unable to timely complete a particular project , our research and development efforts could be delayed or reduced , our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations , as discussed in the risk factors above , including without limitation those relating to the uncertainty of the success of our research and development activities and our ability to obtain necessary additional capital to fund operations in the future . story_separator_special_tag as discussed in such risk factors , delays in our research and development efforts and any inability to raise additional funds could cause us to eliminate one or more of our research and development programs . we plan to continue our policy of investing any available funds in certificates of deposit , money market funds , government securities and investment-grade interest-bearing securities . we do not invest in derivative financial instruments . 60 off-balance sheet arrangements we did not have , during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined under applicable sec rules . contractual obligations the following table summarizes our significant contractual obligations as of the payment due date by period at december 31 , 2018 : replace_table_token_4_th we enter into agreements in the normal course of business with clinical research organizations for clinical trials and clinical manufacturing organizations for supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes . these contractual obligations are cancelable at any time by us , generally upon prior written notice to the vendor , and are thus not included in the contractual obligations table . operating lease amounts represent future minimum lease payments under our non-cancelable operating lease agreements . the minimum lease payments above do not include any related common area maintenance charges or real estate taxes . under the terms of the license agreement with regenxbio , regenxbio has granted us an exclusive worldwide license ( subject to certain non-exclusive rights previously granted for mps iiia ) , with rights to sublicense , to regenxbio 's nav aav9 vector for the development and commercialization of gene therapies for the treatment of mps iiia , mps iiib , cln1 disease and cln3 disease . in return for these rights , regenxbio will receive a guaranteed $ 20 million upfront payment , $ 10 million of which was paid on signing of the agreement on november 4 , 2018 and $ 10 million of which will be paid by november 4 , 2019 and is included in the contractual obligations table above . in addition , regenxbio will receive a total of $ 100 million in annual fees , payable upon the second through sixth anniversaries of the agreement , $ 20 million of which is guaranteed and is included in the contractual obligations table above . regenxbio is also eligible to receive potential commercial milestone payments of up to $ 60 million as well as low double-digit royalties on net sales of products incorporating the licensed intellectual property ; however , these amounts are not included since the payment is uncertain as of december 31 , 2018. in addition , we are also party to other license agreements , which include contingent payments . however , contingent payments related to these license agreements are not disclosed as the satisfaction of these contingent payments is uncertain at december 31 , 2018 and , if satisfied , the timing of payment for these amounts was not reasonably estimable at december 31 , 2018. commitments related to the license agreements include contingent payments that will become payable if and when certain development , regulatory and commercial milestones are achieved . during the next 12 months , we do not expect to make milestone payments related to such license agreements . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . in applying our accounting principles , we must often make individual estimates and assumptions regarding expected outcomes or uncertainties . as you might expect , the actual results or outcomes are often different than the estimated or assumed amounts . these differences are usually minor and are included in our consolidated 61 financial statements as soon as they are known . our estimates , judgments and assumptions are continually evaluated based on available information and experience . because of the use of estimates inherent in the financial reporting process , actual results could differ from those estimates . receivables receivables are reported in the balance sheets at the outstanding amount net of an allowance for doubtful accounts . we continually evaluate the creditworthiness of our customers and their financial condition and generally do not require collateral . the allowance for doubtful accounts is based upon reviews of specific customer balances , historic losses , and general economic conditions . as of december 31 , 2018 and 2017 , no allowance was recorded as all accounts were considered collectible . licensed technology we maintain licensed technology on our consolidated balance sheet until either the licensed technology agreement underlying it is completed or the asset becomes impaired . when we determine that an asset has become impaired or we abandon a project , we write down the carrying value of the related intangible asset to its fair value and take an impairment charge in the period in which the impairment occurs . generally , licensed technology is amortized over the life of the patent or the agreement . we test our intangible assets for impairment on an annual basis , or more frequently if indicators are present or changes in circumstance suggest that impairment may exist . events that could result in an impairment , or trigger an interim impairment assessment , include the receipt of additional clinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate , changes in the clinical development program for a drug candidate or new information regarding potential sales for the drug .
| as a result , we recorded foundation revenues of $ 2.8 million in 2018 to match the costs of the activities performed under the collaborative agreement . our licensing revenue was $ 0 and $ 0.6 million for the years ended december 31 , 2018 and 2017 , respectively . in 2017 , we recognized licensing revenue over the period of the performance obligation under our licensing agreements under the guidance in asc 605. the adoption of asc 606 in 2018 resulted in recognizing licensing revenue at the point of sale to the licensee and no longer amortizing revenue over time . as a result , deferred licensing revenue on the date of adoption of asc 606 was recorded as an adjustment to accumulated deficit on january 1 , 2018. we recorded royalty revenue for mugard of $ 0.2 million for each of the years ended december 31 , 2018 and 2017. we licensed mugard to amag pharmaceuticals , inc. ( “ amag ” ) and norgine b.v. ( “ norgine ” ) and receive quarterly royalties under our agreements . total research and development spending for the year ended december 31 , 2018 was $ 38.7 million , as compared to $ 17.0 million for the same period of 2017 , an increase of $ 21.7 million . the increase in expenses was primarily due to : increased clinical and development work for the manufactured product for eb-101 , abo-102 and abo-101 and other gene therapy products ( $ 13.7 million ) ; increased salary and related costs ( $ 4.2 million ) due to hiring additional scientific staff ; increased stock-based compensation expense ( $ 2.1 million ) ; and 57 increased scientific consulting expense ( $ 1.4 million ) . total general and administrative expenses were $ 20.1 million for the year ended december 31 , 2018 , as compared to $ 10.9 million for the same period of 2017 , an increase of $ 9.2 million . the increase in expenses was due primarily to the following : increased stock-based compensation expense ( $ 1.4
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we believe that the actions we took in 2020 in response to the pandemic will position us well for long-term growth . however , we can not reasonably estimate the duration and severity of the covid-19 pandemic or its ultimate impact on the global economy , our business and results and the markets in which we operate . we experienced increased volatility in demand in 2020 for some of our products as consumers adapted to the evolving environment . beginning in the first quarter of 2020 , demand across our consumer tissue products ( consumer products segment ) increased as consumers increased home inventory levels in response to covid-19 . we expect the increase to be followed by periods of potential demand softness and volatility as consumers use existing home inventories and demand potentially returns to more normal levels . executive summary for the year ended 2020 , we reported net sales of $ 1.9 billion , up from $ 1.8 billion reported for the year ended 2019. we reported net income for the year of $ 77.1 million , or $ 4.61 per diluted share , compared to a net loss of $ 5.6 million or $ 0.34 per diluted share in 2019. adjusted ebitda was $ 283.2 compared to $ 167.3 million reported in 2019. increases in adjusted ebitda for 2020 as compared to 2019 was primarily driven by a significantly higher sales volume for retail tissue as a result of the covid-19 pandemic . increased demand resulted in increased production which in turn drove increased fixed cost absorption and improved margins . the pulp and paperboard business also benefited on a comparative basis due to the absence of major maintenance in our pulp and paperboard operations . see discussion on segment level results regarding sales , operating results and adjusted ebitda in “ our operating results ” below . see note 17 `` segment information '' of the notes to consolidated financial statements included in item 8 of this report for further information . drivers tissue industry overview the u.s. tissue market can be divided into two market segments : the at-home or consumer retail purchase segment , which represented about 72 % of 2020 u.s. tissue market sales and away-from-home segment , representing the remaining 28 % of u.s. tissue market sales and includes tissue for locations such as restaurants , hotels and office buildings ( according to fastmarkets risi ( risi ) outlook for world tissue business , september 2020 ) . the u.s. at-home tissue segment consists of bath , paper towels , facial and napkin products categories . each category is further distinguished according to quality segments : ultra , premium , value and economy . as a result of manufacturing process improvements and consumer preferences , the majority of at-home tissue sold in the united states is ultra and premium quality . at-home tissue producers are comprised of companies that manufacture branded tissue products , private label tissue products , or both . branded tissue suppliers manufacture , market and sell tissue products under their own nationally branded labels . private label tissue producers manufacture tissue products for retailers to sell as their store brand . the following charts , with data from risi , provides a breakdown of private brand versus branded offerings and product mix for the at-home industry : 22 source : risi , outlook for worlds tissue business , september 2020. in dollars in the u.s. , at-home tissue is primarily sold through grocery stores , mass merchants , warehouse clubs , drug stores and discount dollar stores . tissue has experienced steady demand growth largely due to population growth in the united states . in addition to economic and demographic drivers , tissue demand is affected by product innovations and shifts in distribution channels . the u.s. tissue industry has experienced an increase in ultra and premium tissue products as industry participants have added or improved through-air-dried , or tad , or equivalent production capacity as well as added conventional tissue capacity . demand for consumer tissue products has experienced a significant increase for at-home tissue products in 2020 primarily driven by the covid-19 pandemic which resulted in a shift of tissue consumption from away-from-home to at-home . as consumers return to pre-covid away from home activities , we expect this demand for tissue to normalize and approach pre-covid-19 levels . paperboard industry overview sbs paperboard is a premium paperboard grade that is most frequently used to produce folding cartons , liquid packaging , cups and plates , blister and carded packaging , top sheet and commercial printing items . sbs paperboard is used for such products because it is manufactured using virgin fiber combined with the kraft bleaching process , which results in superior cleanliness , brightness and consistency . sbs paperboard is often manufactured with a clay coating to provide superior surface printing qualities . in general , the process of making paperboard begins by chemically cooking wood fibers to make pulp . the pulp is bleached to provide a white , bright pulp , which is formed into paperboard . bleached pulp that is to be used as market pulp is dried and baled on a pulp drying machine , bypassing the paperboard machines . the various grades of paperboard are wound into rolls for converting to final end users . liquid packaging and cup stock grades are often coated with polyethylene , a plastic coating , in a separate operation to create a resistant and durable liquid barrier . story_separator_special_tag the chart below illustrates the north american paperboard production by type ( as reported by risi north american capacity report as of september 2020 ) : source : risi na capacity report as of september 2020 with adjustments based upon risi announced closures and curtailments , in tons . 23 folding carton category . folding carton is the largest portion of the sbs category of the north america paperboard industry . within the folding carton segment , there are varying qualities of sbs paperboard , as well as competing paperboard substrates that can be substituted for sbs . the high end of the folding carton category requires a premium print surface and includes uses such as packaging for pharmaceuticals , cosmetics and other premium retail goods . sbs paperboard is also used in the packaging of frozen foods , beverages and baked goods . liquid packaging . liquid packaging paperboard is used in rigid containers including juice , milk and wine sold in supermarket retail channels cup and plate category . cup and plate category is primarily converted into packaging for premium ice cream , hot and cold cups used in quick service channels and commodity focus plates . other . other applications include carded packaging for blister board alternatives ( ie . batteries and lip stick ) and bleached bristols which are used to produce premium printing heavyweight papers grades used in commercial application . bristols can be clay coated on one side or both sides for applications such as brochures , presentation folders and paperback book covers . the paperboard industry is affected by macro-economic conditions around the world and has historically experienced cyclical market conditions . as a result , historical prices for products and sales volumes have been volatile . product pricing is significantly affected by the relationship between supply and demand for our products . product supply in the industry is influenced primarily by fluctuations in available manufacturing production , which tends to increase during periods when prices remain strong . in 2020 , demand for paperboard products has been affected by the covid-19 pandemic , with increases in some end-market segments like food packaging and decreases in food service and commercial print . critical accounting policies and significant estimates a discussion of our significant accounting policies and significant accounting estimates and judgments is presented in note 1 of the notes to consolidated financial statements in item 8 of this report . throughout the preparation of the financial statements , we employ significant judgments in the application of accounting principles and methods . we believe that the accounting estimates discussed below represent the accounting estimates requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results . we reviewed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board of directors . for 2020 , these significant accounting estimates and judgments include : pension and other post retirement employee benefits we have a number of pension plans in the united states covering many of our employees . benefit accruals under most of our defined benefit pension plan in the united states were frozen prior to january 2014. we account for the consequences of our sponsorship of these plans using assumptions to calculate the related assets , liabilities and expenses recorded in our financial statements . net actuarial gains and losses occur when actual experience differs from any of the assumptions used to value defined benefit plans or when assumptions change as they may each year . the primary factors contributing to actuarial gains and losses are changes in the discount rate used to value obligations as of the measurement date and the differences between expected and actual returns on pension plan assets . this accounting method results in the potential for volatile and difficult to forecast gains and losses . we record amounts relating to these defined benefit plans based on various actuarial assumptions , including discount rates , assumed rates of return , compensation increases and life expectancy . we review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current economic conditions and trends . we believe that the assumptions utilized in recording our obligations under our plans are reasonable based on our experience and on advice from our independent actuaries ; however , differences in actual experience or changes in the assumptions may materially affect our financial condition or results of operations . the following table illustrates the estimated impact on hypothetical pension obligations and expenses that would have resulted from a 25 basis point reduction in two key assumptions ( in millions ) : ( in millions ) statement of operations balance sheet impact discount rate $ 0.5 $ 9.6 expected long term rate of return $ 0.7 $ — 24 it is not possible to forecast or predict whether there will be actuarial gains and losses in future periods , and if required , the magnitude of any such adjustment . these gains and losses are driven by differences in actual experience or changes in the assumptions that are beyond our control , such as changes in interest rates and the actual return on pension plan assets . non-gaap financial measures in evaluating our business , we utilize several non-gaap financial measures . a non-gaap financial measure is generally defined by the sec as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so excluded or included under applicable gaap guidance .
| segment sales , operating income and adjusted ebitda for the pulp and paperboard segment were as follows : replace_table_token_5_th sales volumes decreased in our pulp and paperboard segment for 2020 compared to 2019 due to impacts of covid-19 which led to a reduction in our commodity food service business offset by increases in our folding carton and coated cup business . sales prices decreased in our pulp and paperboard segment for 2020 compared to 2019 due to the impacts of mix and some price reductions . during 2019 , the pulp and paperboard segment completed its planned major maintenance which resulted in higher operating costs during that year . overall , the increase in operating income and adjusted ebitda for 2020 as compared to 2019 was driven by reduced sales offset by improved input costs , primarily consisting of natural gas , wood and pulp and absence of planned major maintenance . corporate expenses corporate expenses were $ 63.0 million in 2020 as compared to $ 57.0 million in 2019. the increase for the year ended 2020 as compared to 2019 was related to higher incentive pay due to improved results and increased costs associated with professional services . corporate expenses primarily consist of corporate overhead such as wages and benefits , professional fees , insurance and other expenses for corporate functions including certain executive officers , public company costs , information technology , financial services , environmental and safety , legal , supply management , human resources and other corporate functions not directly associated with the business operations . other operating charges see note 10 `` other operating charges , net '' of the notes to the consolidated financial statements included in item 8 of this report for additional information . interest expense , net interest expense for the year ended december 31 , 2020 compared to december 31 , 2019 was $ 1.6 million higher due to the absence of capitalized interest due to the completion of our shelby expansion in the
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adjusted net income consists of net income ( loss ) attributable to pq group holdings adjusted for ( i ) non-operating income or expense and ( ii ) the impact of certain non-cash , nonrecurring or other items included in net income ( loss ) that we do not consider indicative of our ongoing operating performance . we believe that these non-gaap financial measures provide investors with useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business . you should not consider adjusted ebitda or adjusted net income in isolation or as alternatives to the presentation of our financial results in accordance with gaap . the presentation of our adjusted ebitda and adjusted net income financial measures may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures . in evaluating adjusted ebitda and adjusted net income , you should be aware that we are likely to incur expenses similar to those eliminated in this presentation in the future and that certain of these items could be considered recurring in nature . our presentation of adjusted ebitda and adjusted net income should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items . reconciliations of adjusted ebitda and adjusted net income to gaap net income ( loss ) are included in the results of operations discussion that follows for each of the respective periods . key factors and trends affecting operating results and financial condition sales our environmental catalysts and services sales have grown primarily due to expansion into new end applications , including emission control catalysts , polymer catalysts , and refining catalysts , as well as continued supply share gains . sales in our environmental catalysts and services segment are made on both a purchase order basis and pursuant to long-term contracts . historically , our performance materials and chemicals business has experienced relatively stable demand both seasonally and throughout economic cycles , due to the diverse consumer and industrial end uses that our products serve . expansions into new applications , including personal care and consumer cleaning , as well as share gains in existing end 46 uses , have added to our sales growth . product sales from our performance chemicals product group are made on both a purchase order basis and pursuant to long-term contracts . in the performance materials product group , sales have been driven by the growth of spending on repair , maintenance and upgrade of existing highways and the construction of new highways and roads by governments around the world . product sales in our performance materials product group are made principally on a purchase order basis . there may be modest fluctuations in timing of orders , but orders are mainly driven by demand and general economic conditions . cost of goods sold cost of goods sold consists of variable product costs , fixed manufacturing expenses , depreciation expense and freight expenses . variable product costs include all raw materials , energy and packaging costs that are directly related to the manufacturing process . fixed manufacturing expenses include all plant employment costs , manufacturing overhead and periodic maintenance costs . the primary raw materials for our environmental catalysts and services business include spent sulfuric acid , sulfur , sodium silicates , acids , bases , and certain metals . most of our refining services contracts feature take-or-pay volume protection and or quarterly price adjustments for commodity inputs , labor , the chemical engineering index ( u.s. chemical plant construction cost index ) and natural gas . spent acid for our refining services product group is supplied by customers for a nominal charge as part of their contracts . over 80 % of our refining services product group sales for the year ended december 31 , 2018 were under contracts featuring quarterly price adjustments . the price adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor , fixed costs and raw material pricing . the primary raw materials used in the manufacture of products in our performance materials and chemicals business include soda ash , industrial sand , aluminum trihydrate , sodium hydroxide ( also known as “ caustic soda ” ) , and cullet . for the year ended december 31 , 2018 , approximately 40 % of our north american silicate sales , which is a significant portion of our performance chemicals product group sales , were derived from contracts that included raw material pass-through clauses . under these contracts , there generally is a time lag of three to nine months for price changes to pass through , depending on the magnitude of the change in cost and other market dynamics . freight expenses are generally passed through directly to customers . while natural gas is not a direct feedstock for any product , all businesses use natural gas powered furnaces to heat raw materials and create the chemical reactions necessary to produce end-products . we maintain multiple suppliers wherever possible , hedge exposure to fluctuations in prices for natural gas purchases in the united states , make forward purchases of natural gas in the united states , canada , and europe to mitigate our exposure to price volatility , and structure our customer contracts when possible to allow for the pass-through of raw material and natural gas costs . joint ventures we account for our investments in our equity joint ventures under the equity method . our largest joint venture , the zeolyst joint venture , manufactures high performance , specialty , zeolite-based catalysts for use in the emission control industry , the petrochemical industry and other areas of the broader chemicals industry . we share proportionally in the management of our joint ventures with the other parties to each such joint venture . seasonality seasonal changes and weather conditions typically affect our performance materials and refining services product groups . story_separator_special_tag in particular , our performance materials product group generally experiences lower sales and profit in the first and fourth quarters of the year because highway striping projects typically occur during warmer weather months . additionally , our refining services product group typically experiences similar seasonal fluctuations as a result of higher demand for gasoline products in the summer months . as a result , our working capital requirements tend to be higher in the first and fourth quarters of the year , which can adversely affect our liquidity and cash flows . because of this seasonality associated with certain of our product groups , results for any one quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full year . foreign currency as a global business , we are subject to the impact of gains and losses on currency translations , which occur when the financial statements of foreign operations are translated into u.s. dollars . we operate a geographically diverse business with approximately 40 % of our sales for the years ended december 31 , 2018 and 2017 in currencies other than the u.s. dollar . because our consolidated financial results are reported in u.s. dollars , sales or earnings generated in currencies other 47 than the u.s. dollar can result in a significant increase or decrease in the amount of those sales and earnings when translated to u.s. dollars . the foreign currencies to which we have the most significant exchange rate exposure include the euro , british pound , canadian dollar , brazilian real and the mexican peso . pro forma results of operations in addition to the analysis of historical results of operations , we have prepared unaudited supplemental pro forma results of operations for the year ended december 31 , 2016. the unaudited pro forma statement of operations reflects pro forma adjustments to the results of pq group holdings to give effect to the business combination and the related financing transactions as if they had occurred on january 1 , 2015. the unaudited pro forma adjustments include : elimination of intercompany sales between legacy pq and legacy eco ; adjustments to depreciation expense related to the step-up in fair value of property , plant and equipment ; adjustments to amortization expense related to the step-up in fair value of definite-lived intangible assets ; removal of non-recurring adjustments related to the step-up in the fair value of inventory ; adjustments to stock compensation expense to reflect charges as they relate to our new capital structure ; adjustments related to the amortization of the step-up in fair value of property , plant , equipment and definite-lived intangible assets related to our zeolyst joint venture ; adjustments to interest expense related to the senior secured term loan facility ; adjustments related to the write-off of existing deferred financing fees , original issue discounts and prepayment penalties ; and the tax effect of the aforementioned adjustments , including the effect related to the change in tax status of eco services from a limited liability company to a c-corporation . the unaudited pro forma statement of operations has been prepared in accordance with article 11 of regulation s-x by combining the historical results of operations of legacy eco and legacy pq for the periods prior to may 4 , 2016 and should be read in conjunction with our historical consolidated financial statements and related notes thereto included elsewhere in this form 10-k. the unaudited pro forma statement of operations has been prepared for illustrative purposes only and is not necessarily indicative of the combined results of operations that would have been realized had the pro forma transactions been completed as of the dates indicated , nor are they meant to be indicative of any anticipated future results of operations . the unaudited pro forma adjustments are based upon available information and assumptions we believe are factually supportable , directly attributable to the business combination and the related financing transactions , and with respect to the statement of operations , expected to have a continuing impact on our business , and that we believe are reasonable under the circumstances . in addition , the unaudited pro forma statement of operations does not include any pro forma adjustments to reflect expected cost savings or restructuring actions which may be achievable or the impact of any nonrecurring activity and transaction-related costs . we believe that the unaudited pro forma statement of operations is a useful presentation of our results of operations as it provides comparative information , period-over-period , on a more comparable basis . 48 results of operations year ended december 31 , 2018 compared to the year ended december 31 , 2017 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in selling , general and administrative expenses was due to higher compensation related expenses due to an increase in employee headcount , higher stock compensation expense of $ 10.7 million related to awards issued in conjunction with our ipo and increased professional fees . other operating expense , net other operating expense , net for the year ended december 31 , 2018 was $ 29.5 million , a decrease of $ 34.7 million , or 54.0 % , compared with $ 64.2 million for the year ended december 31 , 2017 . the decrease in other operating expense , net was due to gains recognized in the year ended december 31 , 2018 on the termination of a customer supply contract of $ 20.6 million and insurance recoveries totaling $ 6.5 million related to losses sustained as a result of hurricane harvey in august 2017 ( of which $ 5.5 million was recorded in other operating expense , net ) , and higher expenses in the year ended december 31 , 2017 related to severance and restructuring costs for a plant reduction in force , legal and professional fees related to our ipo , management advisory fees for agreements that terminated as a result of our ipo and transaction-related costs for our june 2017 acquisition of sovitec .
| 49 the following is our consolidated statements of operations and a summary of financial results for the years ended december 31 , 2018 and 2017 . replace_table_token_5_th sales replace_table_token_6_th 50 environmental catalysts & services : sales in environmental catalysts and services for the year ended december 31 , 2018 were $ 527.7 million , an increase of $ 54.0 million , or 11.4 % , compared to sales of $ 473.7 million for the year ended december 31 , 2017 . the increase in sales was primarily due to higher average selling price and customer mix of $ 28.6 million and an increase in volumes of $ 25.5 million . the higher average selling price and customer mix was driven by higher cost pass-through pricing in our virgin sulfuric acid product group and favorable customer pricing in our regeneration services product group . the increase in volumes was driven by higher customer demand within our virgin sulfuric acid , regeneration services and polyolefin catalysts product lines , which was partially offset by lower methyl methacrylate sales . performance materials & chemicals : sales in performance materials and chemicals for the year ended december 31 , 2018 were $ 1,083.8 million , an increase of $ 82.0 million , or 8.2 % , compared to sales of $ 1,001.8 million for the year ended december 31 , 2017 . the increase in sales was primarily due to higher sales volumes of $ 49.2 million , higher average selling price and favorable customer mix of $ 31.3 million and the favorable effects of foreign currency translation of $ 1.5 million . the integration of sovitec into our existing european operations , growth in north american highway safety product sales and higher sodium silicate industrial demand more than offset a decline in consumer product sales . higher average selling prices were principally a result of favorable cost pass-through pricing and price increases in certain product lines . the favorable effects
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our material cash needs for the next 12 months will include ( i ) costs of the clinical trial in the u.s. ( ii ) employee salaries , ( iii ) costs expected for the upcoming multi-dose clinical trial , ( iv ) payments to hadassah for rent and operation of the gmp facilities , and ( v ) fees to our consultants and legal advisors , patents , and fees for facilities to be used in our research and development . future operations are expected to be highly capital intensive and will require substantial capital raisings . we expect our current cash position will allow us to meet our obligations in the upcoming 12 months . over the longer term if we are not able to raise substantial additional capital , we may not be able to continue to function as a going concern and may have to cease operations or the company will reduce its costs , including curtailing its current plan to pursue larger clinical trials in als and move new indications into clinical testing . we will be required to raise a substantial amount of capital in the future in order to reach profitability and to complete the commercialization of our products . our ability to fund these future capital requirements will depend on many factors , including the following : our ability to obtain funding from third parties , including any future collaborative partners ; the scope , rate of progress and cost of our clinical trials and other research and development programs ; the time and costs required to gain regulatory approvals ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the costs of filing , prosecuting , defending and enforcing patents , patent applications , patent claims , trademarks and other intellectual property rights ; the effect of competition and market developments ; and future pre-clinical and clinical trial results . critical accounting policies our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing in this annual report . we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . 41 the discussion and analysis of our financial condition and results of operations is based on our financial statements , which we prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . financial statements in u.s. dollars : the functional currency of the company is the u.s dollar ( `` dollar '' ) since the dollar is the currency of the primary economic environment in which the company has operated and expects to continue to operate in the foreseeable future . part of the transactions of the company are recorded in new israeli shekels ( `` nis '' ) ; however , a substantial portion of the company 's costs are incurred in dollars or linked to the dollar . accordingly , management has designated the dollar as the currency of the company 's primary economic environment and thus it is their functional and reporting currency . transactions and balances denominated in dollars are presented at their original amounts . non-dollar transactions and balances have been re-measured to dollars in accordance with the provisions of asc 830-10 ( formerly statement of financial accounting standard 52 ) , `` foreign currency translation '' . all transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses , as appropriate . fair value of financial instruments : the carrying values of cash and cash equivalents , accounts receivable and prepaid expenses , trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments . the company utilizes the black scholes merton formula to measure the fair value of the warrants issued . the assumptions included in the black-scholes model were : ( i ) the market price of the company 's shares ; ( ii ) the exercise price of the warrant ; ( iii ) risk-free interest ; ( iv ) term available to exercise or redeem the security and ( v ) the volatility of the shares during the relevant term . the company determines the volatility of its shares using daily historical quotes of the shares . the risk free interest rate is determined as the interest rate on governmental bonds with maturity commensurate with the term of the warrant . accounting for stock-based compensation : in accordance with asc 718-10 ( formerly statement of financial accounting standards 123 ( revised 2004 ) ) the company estimates the fair value of equity-based payment awards on the date of grant using an option-pricing model . the value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the company 's consolidated statement of operations . the company recognizes compensation expense for the value of non-employee awards , which have graded vesting , based on the straight-line method over the requisite service period of each award . the company recognizes compensation expense for the value of employee awards that have graded vesting , based on the straight-line method over the requisite service period of each of the awards , net of estimated forfeitures . the company estimates the fair value story_separator_special_tag our material cash needs for the next 12 months will include ( i ) costs of the clinical trial in the u.s. ( ii ) employee salaries , ( iii ) costs expected for the upcoming multi-dose clinical trial , ( iv ) payments to hadassah for rent and operation of the gmp facilities , and ( v ) fees to our consultants and legal advisors , patents , and fees for facilities to be used in our research and development . future operations are expected to be highly capital intensive and will require substantial capital raisings . we expect our current cash position will allow us to meet our obligations in the upcoming 12 months . over the longer term if we are not able to raise substantial additional capital , we may not be able to continue to function as a going concern and may have to cease operations or the company will reduce its costs , including curtailing its current plan to pursue larger clinical trials in als and move new indications into clinical testing . we will be required to raise a substantial amount of capital in the future in order to reach profitability and to complete the commercialization of our products . our ability to fund these future capital requirements will depend on many factors , including the following : our ability to obtain funding from third parties , including any future collaborative partners ; the scope , rate of progress and cost of our clinical trials and other research and development programs ; the time and costs required to gain regulatory approvals ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the costs of filing , prosecuting , defending and enforcing patents , patent applications , patent claims , trademarks and other intellectual property rights ; the effect of competition and market developments ; and future pre-clinical and clinical trial results . critical accounting policies our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing in this annual report . we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . 41 the discussion and analysis of our financial condition and results of operations is based on our financial statements , which we prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . financial statements in u.s. dollars : the functional currency of the company is the u.s dollar ( `` dollar '' ) since the dollar is the currency of the primary economic environment in which the company has operated and expects to continue to operate in the foreseeable future . part of the transactions of the company are recorded in new israeli shekels ( `` nis '' ) ; however , a substantial portion of the company 's costs are incurred in dollars or linked to the dollar . accordingly , management has designated the dollar as the currency of the company 's primary economic environment and thus it is their functional and reporting currency . transactions and balances denominated in dollars are presented at their original amounts . non-dollar transactions and balances have been re-measured to dollars in accordance with the provisions of asc 830-10 ( formerly statement of financial accounting standard 52 ) , `` foreign currency translation '' . all transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses , as appropriate . fair value of financial instruments : the carrying values of cash and cash equivalents , accounts receivable and prepaid expenses , trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments . the company utilizes the black scholes merton formula to measure the fair value of the warrants issued . the assumptions included in the black-scholes model were : ( i ) the market price of the company 's shares ; ( ii ) the exercise price of the warrant ; ( iii ) risk-free interest ; ( iv ) term available to exercise or redeem the security and ( v ) the volatility of the shares during the relevant term . the company determines the volatility of its shares using daily historical quotes of the shares . the risk free interest rate is determined as the interest rate on governmental bonds with maturity commensurate with the term of the warrant . accounting for stock-based compensation : in accordance with asc 718-10 ( formerly statement of financial accounting standards 123 ( revised 2004 ) ) the company estimates the fair value of equity-based payment awards on the date of grant using an option-pricing model . the value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the company 's consolidated statement of operations . the company recognizes compensation expense for the value of non-employee awards , which have graded vesting , based on the straight-line method over the requisite service period of each award . the company recognizes compensation expense for the value of employee awards that have graded vesting , based on the straight-line method over the requisite service period of each of the awards , net of estimated forfeitures . the company estimates the fair value
| general and administrative general and administrative expenses for the years ended december 31 , 2016 and 2015 were $ 2,833,000 and $ 3,587,000 , respectively . the decrease of $ 754,000 in general and administrative expenses is mainly due to : ( i ) an increase of $ 75,000 in payroll expenses and consultants , ( ii ) a decrease of $ 178,000 in the cost of our investor relations and public relations activities , our delaware franchise tax and rent , and ( iii ) a decrease of $ 651,000 of various other expenses . financial expenses the financial income of $ 101,000 for the year ended december 31 , 2016 is mainly due to interest earned on our cash , cash equivalents and short term deposits . financial expenses for the year ended december 31 , 2015 were $ 48,000. net loss net loss for the year ended december 31 , 2016 was $ 4,982,000 , as compared to a net loss of $ 8,488,000 for the year ended december 31 , 2015. net loss per share for the year ended december 31 , 2016 was $ 0.27 , compared to net loss per share of $ 0.46 for the year ended december 31 , 2015. the decrease in the net loss for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 is due to a decrease in our research and development expenses and general and administrative expenses offset by an increase in our financial expenses as explained above . the weighted average number of shares of common stock used in computing basic and diluted net loss per share for the year ended december 31 , 2016 was 18,663,162 , compared to 18,405,610 for the year ended december 31 , 2015. the increase in the weighted average number of shares of common stock used in computing basic loss per share for the year ended december 31 , 2016 was due to the issuance of shares to service providers and directors . going concern to date
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by model year , based on these projections we are expecting a 2020 build of 12.8 million vehicles , 15.1 million vehicles for 2021 , 15.1 million vehicles for 2022 , 15.5 million vehicles for 2023 and 15.8 million vehicles for 2024. these vehicle production estimates going forward were significantly reduced due to the impact of covid-19 . as part of this third party projection , the ford motor company and general motors are expected to experience flat vehicle production volumes in their production levels during this time period . fiat chrysler , however , is expected to slightly decrease production as they eliminate or reduce car production on certain models during this time horizon . of course , all of these forecasts are subject to variability based on what happens in the overall north american and global economies , especially as it relates to the world wide status of the covid-19 pandemic that may shut down our customers assembly facilities and supply chains in the foreseeable future , potential tariff enactment by the united states government or other foreign countries , the current levels of employment , availability of consumer credit , home equity values , fluctuating fuel prices , changes in customer vehicle and option preferences , product quality issues , including related to recall and product warranty coverage issues , and other key factors that we believe could determine whether consumers can or will purchase new vehicles or particular brands . 18 focus and strategy going forward strattec 's long-term strategy is focused on maximizing long-term shareholder value by driving profitable growth . our management believes productivity improvements and cost reductions are critical to our competitiveness , while enhancing the value we deliver to our customers . in order to accomplish this , we have been pursuing , and we intend to continue to pursue over the foreseeable future , the following objectives as summarized below : - streamline and standardize processes to increase productivity and improve the quality of our products - maintain a disciplined and flexible cost structure to leverage scale and optimize asset utilization and procurement - maintain our strong financial position by deploying capital spending targeted for growth and productivity improvement - leverage the “ vast automotive group brand ” with customer relationships to generate organic growth from global programs - offer our customers innovative products and technologies , in particular electronics capabilities , along with cost savings solutions to meet their changing demands - explore and execute targeted mergers and acquisitions or other joint venture opportunities with a disciplined due diligence approach and critical financial analysis to drive shareholder value we use several key performance indicators to gauge progress toward achieving these objectives . these indicators include net sales growth , operating margin improvement , return on capital employed and cash flow from operations . story_separator_special_tag of our development work . additionally , engineering , selling and administrative expenses in both the current year and prior year periods included non-cash compensation expense charges related to the transfer of excess qualified pension plan assets , as discussed above . these non-cash compensation expense charges increased engineering , selling and administrative expense by $ 1.9 million in the current year and $ 1.7 million in the prior year . loss from operations in the current year was $ 8.7 million compared to income from operations of $ 10.6 million in the prior year . this change was the result of reduced sales , which were partially offset by a reduction in cost of goods sold and decreased engineering , selling and administrative expenses in the current year as compared to the prior year , all as discussed above . the equity ( loss ) earnings of joint ventures was comprised of the following in the current year and prior year ( thousands of dollars ) : replace_table_token_5_th 20 lower profitability from our vehicle access systems technology ll c ( “ vast llc ” ) joint ventures was due to lower profitability in our vast china operation related to extended oem customer plant shutdowns associated with the covid-19 outbreak during the period january 2020 through march 2020 and higher development costs for new programs and startup costs associated with a new plant in jingzhou , china , which we believe will give vast added capacity , efficiencies , and a broader geographic footprint in the china market going forward . the current year equity loss of joint ventures for vast llc also included a $ 2 million impairment charge related to its minda-vast access systems joint venture in india . strattec 's portion of this impairment charge for 2020 totaled $ 667,000. our vast llc joint ventures in india and brazil continue to report losses due to our limited amount of business in both region s as well as the impact of covid -19. sal llc was dissolved during fiscal 2020. strattec was not the primary beneficiary and did not control sal llc . current year equ ity earnings of sal llc included a gain on dissolution of $ 342,000. included in other income ( expense ) , net in the current year and prior year were the following items ( thousands of dollars ) : replace_table_token_6_th foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets held by our mexican subsidiaries . the rabbi trust assets fund our amended and restated supplemental executive retirement plan . the investments held in the trust are considered trading securities . we entered into the mexican peso currency forward contracts during fiscal 2020 and 2019 to minimize earnings volatility resulting from changes in exchange rates affecting the u.s. dollar cost of our mexican operations . unrealized gains and losses on the peso forward contracts recognized as a result of mark-to-market adjustments as of june 28 , 2020 may or may not be realized in future periods , depending on actual mexican peso to u.s. dollar exchange rates experienced during the balance of the contract period . story_separator_special_tag pension and postretirement plan costs include the components of net periodic benefit cost other than the service cost component . during fiscal 2020 , other miscellaneous income net includes $ 450,000 of favorable valued added tax adjustments realized by our mexican entities and $ 434,000 of experience gains from asset returns related to the termination of our qualified pension plan as discussed under retirement plans and postretirement costs within our notes to financial statements under item 8 of this report on form 10-k. our effective income tax rate for 2020 was 27.9 percent compared to 37.9 percent in 2019. during 2020 , our effective tax rate was impacted by the carry-back of losses to tax years with a higher statutory tax rate . during 2019 , our effective tax rate was impacted by a $ 372,000 benefit resulting from measurement period adjustments to the one-time transition tax on non-previously taxed post 1986 accumulated foreign earnings occurring as a result of the enactment of the tax cuts and jobs act of 2017. additionally , our income tax provision for each year 2020 and 2019 was affected by the non-controlling interest portion of our pre-tax income . the non-controlling interest impacts the effective tax rate as our adac-strattec llc and strattec power access llc entities are taxed as partnerships for u.s. tax purposes . liquidity and capital resources working capital ( millions of dollars ) replace_table_token_7_th 21 outstanding receivable balances from major customers our primary source of cash flow is from our major customers , which include fiat chrysler automobiles llc , general motors company and ford motor company . as of the date of filing this annual report with the securities and exchange commission , all of our customers are making payments on their outstanding accounts receivable in accordance with the payment terms included on their purchase orders . a summary of our outstanding receivable balances from our major customers as of june 28 , 2020 was as follows ( millions of dollars ) : replace_table_token_8_th the reduction in accounts receivable balances during the current year reflected reduced sales levels from the end of march 2020 through june 2020 as compared to our fiscal 2019 fourth quarter , which reduction was primarily due to our oem customers reducing production schedules and closing their assembly plants , which reduced orders for our products , due to the covid-19 outbreak . cash balances in mexico we earn a portion of our operating income in mexico . as of june 28 , 2020 , $ 3.4 million of our $ 11.8 million cash and cash equivalents balance was held in mexico . these funds are available for repatriation as deemed necessary . cash flow analysis replace_table_token_9_th the decrease in cash provided by operating activities between 2019 and 2020 was due to a reduction in operating income as previously discussed . the reduction in operating income was partially offset by a net reduction in working capital requirements between the two years of $ 9.6 million , with the net decrease in our working capital requirements being made up of the following working capital changes ( millions of dollars ) : replace_table_token_10_th the year over year change in the accounts receivable balances is the result of the amount and timing of sales during each year . the reduction in accounts receivable balances during the current year reflected reduced sales levels from the end of march 2020 through june 2020 as compared to the end of our prior year , which reduction was primarily due to our oem customers reducing production schedules and closing their assembly plants , which reduced orders for our products , due to the covid-19 outbreak . the increase in accounts receivable balances during the prior year reflected increased sales levels toward the end june 2019 as compared to the end of june 2018. the year over year change in inventory reflected an increase in inventory balances during the current year due to an inventory build-up resulting from our oem customers reducing production schedules and closing their assembly plants due to covid-19 . the year over year change in customer tooling balances , which consisted of costs incurred for the development of tooling that will be directly reimbursed by the customer whose parts are produced from the tool , was the result of the timing of tooling development spending required to meet customer production requirements and related billings for customer reimbursements . the year over year change in other assets was the result of a decrease in the income tax recoverable balance in 2019 , which changes were based on the required income tax provision , the timing and amounts of federal , state and foreign tax payments made , and the timing of the utilization of foreign tax credits and research and development tax credits . the year over year change in accounts payable and accrued liability balances reflected an increase in working capital requirements during the current year and a reduction in working capital 22 requirements during the prior year . the current year increase in working capital requirements resulted from a decrease in account payable and accrued liability balances , which resulted from a reduction in purchases from our vendors due to the impact of covid-19 . current year payments to our vendors were based on our normal payment terms . the prior year reduction in w orking capital requirements was the result of an increase in accounts payable a nd accrual balances , which resulted from the timing of purchases and payments with our vendors based on our normal payment terms . net cash used by investing activities of $ 12.3 million during 2020 and $ 17.6 million during 2019 included capital expenditures of $ 12.4 million and $ 17.5 million , respectively . capital expenditures during each year were made in support of requirements for new product programs and the upgrade and replacement of existing equipment .
| the decrease in our direct material costs as a percentage of our cost of goods sold in the current year as compared to the prior year was due to reduced scrap costs and a reduction in sales of our power access products as a percentage of our consolidated sales . power access products have a higher purchased content percentage as compared to our other products . thus , the decreased sales mix of power access products between periods further reduced our direct material costs as a percentage of our cost of goods sold . 19 the remaining components of cost of goods sold consist of labor and ove rhead costs which de creased $ 16.9 million or 11.4 percent to $ 131.8 million in the current year from $ 148.7 million in the prior year as the va riable portion of these costs decreased due to the reduction in sales volumes between years . additionally , the de crease in labor and overhead costs in the current year as compared to t he prior year was impacted by cost reduction initiatives implemented during our fiscal 2020 fourth quarter as a result of covid-19 and the impact of a favorable mexican peso to u.s. dollar exchange rate affecting our operations in mexico . cost reduction initiatives included temporary and permanent layoffs at our u.s. and mexico locations , reductions in pay for our officers , reductions in working hours for most salaried associates , and a reduction in our u.s. salaried workforce . the u.s. dollar value of our mexican operations was favorably impacte d by approximately $ 2.4 million in the current year as co mpared to the prior year due to a favorable mexican peso to u.s. dollar exchang e rate between these annual periods . the average u.s. dollar / mexican peso exchange rate increased to app roximately 20.50 pesos to the do llar in the current year from approximately 19.34 pesos to the dollar in the prior year . these favorable impacts were partially offset by an
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we expect to complete enrollment of the previously treated nsclc and mtc cohorts in the arrow trial in the second quarter of 2019. in addition , we plan to present updated data from the ongoing arrow trial in the second quarter of 2019. we plan to submit an nda for blu-667 in the first half of 2020 based on additional data from the ongoing arrow trial and currently expect the nda submission will be for separate potential indications : ( 1 ) patients with ret-fusion positive nsclc who have progressed following prior systemic therapy and ( 2 ) patients with ret-mutant mtc who have progressed following treatment with a tyrosine kinase inhibitor , or tki . in addition , in the second half of 2019 , we plan to initiate a phase 3 clinical trial evaluating blu-667 in first-line ret-altered nsclc and plan to initiate a phase 2 clinical trial evaluating blu-667 in combination with osimertinib in treatment-resistant , egfr-mutant nsclc harboring an acquired ret alteration . the fda has granted orphan drug designation to blu-667 for the treatment of ret-rearranged nsclc , jak1/2-positive nsclc or trkc-positive nsclc , and the fda has granted breakthrough therapy designation to blu-667 for the treatment of patients with ret mutation-positive mtc that requires systemic treatment and for which there are no acceptable alternative treatments . blu-554 is an orally available , potent and highly selective inhibitor that targets fgfr4 , a kinase that is aberrantly activated in a defined subset of patients with hepatocellular carcinoma , or hcc , the most common type of liver cancer . we are currently evaluating blu-554 in an ongoing phase 1 clinical trial in patients with advanced hcc . we and cstone pharmaceuticals , or cstone , plan to expand our ongoing phase 1 clinical trial of blu-554 to include clinical sites in mainland china by the middle of 2019. in addition , we and cstone plan to initiate a proof-of-concept clinical trial in the second half of 2019 in the cstone territory evaluating blu-554 in combination with cs1001 , a clinical stage anti-programmed death ligand-1 immunotherapy being developed by cstone , as a first-line therapy for the treatment of patients with hcc . the fda has granted orphan drug designation to blu-554 for the treatment of hcc . blu-782 is an orally available , potent and highly selective inhibitor that targets mutant activin-like kinase 2 , or alk2 . we are developing blu-782 for the treatment of fibrodysplasia ossificans progressiva , or fop , a rare , severely disabling genetic disease caused by mutations in the alk2 gene , acvr1 . fop is characterized by progressive heterotopic ossification , which is the abnormal transformation of muscle , ligaments and tendons into bone . heterotopic 89 ossification may be spontaneous or associated with painful episodic disease flare-ups that are usually precipitated by soft tissue injury . as the disease progresses , extra-skeletal bone increasingly restricts joints , resulting in severe disability and loss of mobility , compromised respiratory function and increased risk of early death . currently , there are no approved therapies for fop . we initiated a phase 1 clinical trial in healthy volunteers in the first quarter of 2019 , and we plan to initiate a phase 2 clinical trial evaluating blu-782 in patients with fop in the first half of 2020. the fda has granted fast track designation to blu-782 for the treatment of fibrodysplasia ossificans progressiva . we also plan to continue to leverage our discovery platform to systematically and reproducibly identify kinases that are drivers of diseases in genomically defined patient populations and craft drug candidates that potently and selectively target these kinases . we currently have four wholly-owned discovery programs for undisclosed kinase targets , and we anticipate nominating at least one additional wholly-owned discovery program in 2019. in addition , we entered into collaborations with f. hoffmann la roche ltd and hoffmann la roche inc. , which we collectively refer to as roche , and cstone in march 2016 and june 2018 , respectively . under our collaboration agreement with roche , we are seeking to discover , develop and commercialize up to five small molecule therapeutics targeting kinases believed to be important in cancer immunotherapy , as single products or possibly in combination with other therapeutics . under our collaboration agreement with cstone , we are seeking to develop and commercialize blu-554 , avapritinib and blu-667 , including back-up forms and certain other forms , in mainland china , hong kong , macau and taiwan , or the cstone territory , either as a monotherapy or as part of a combination therapy . we will continue to evaluate additional collaborations that could maximize the value for our programs and allow us to leverage the expertise of strategic collaborators . we are also focused on engaging in collaborations to capitalize on our discovery platform outside of our primary strategic focus area of cancer . we currently have worldwide development and commercialization rights to avapritinib , blu-667 and blu-554 other than the rights licensed to cstone in the cstone territory . we currently have worldwide development and commercialization rights to blu-782 and all of our discovery programs other than the discovery-stage programs under the roche collaboration . to date , we have financed our operations primarily through public offerings of our common stock , private placements of our convertible preferred stock , collaborations and a debt financing . story_separator_special_tag through december 31 , 2018 , we have received an aggregate of $ 1.1 billion from such transactions , including $ 887.4 million in aggregate gross proceeds from the sale of common stock in our may 2015 initial public offering , or ipo , and december 2016 , april 2017 and december 2017 follow‑on public offerings , $ 115.1 million in gross proceeds from the issuance of convertible preferred stock , $ 18.8 million of upfront and milestone payments under our former collaboration with alexion pharma holding , or alexion , $ 55.0 million in upfront and milestone payments under our existing collaboration with roche , a $ 40.0 million upfront payment under our existing collaboration with cstone , and $ 10.0 million in gross proceeds from the debt financing . since inception , we have incurred significant operating losses . our net losses were $ 236.6 million , $ 148.1 million and $ 72.5 million for the years ended december 31 , 2018 , 2017 and 2016. as of december 31 , 2018 , we had an accumulated deficit of $ 597.5 million . we expect to continue to incur significant expenses and operating losses over the next several years . we anticipate that our expenses will increase significantly in connection with our ongoing activities , particularly as we : · continue to advance and initiate clinical development activities for our lead drug candidate , avapritinib , as well as our other most advanced drug candidates , blu-667 , blu-554 and blu-782 ; · seek marketing approvals for our drug candidates that successfully complete clinical trials ; · establish a sales , marketing and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval ; · continue to manufacture increasing quantities of drug substance and drug product material for use in pre-clinical studies , clinical trials and for any potential commercialization ; · continue to discover , validate and develop additional drug candidates ; 90 · conduct research and development activities under our collaborations with roche and cstone ; · conduct development and commercialization activities for companion diagnostic tests for current or future drug candidates ; · maintain , expand and protect our intellectual property portfolio ; · acquire or in-license other drug candidates or technologies ; · hire additional research , clinical , quality , manufacturing , regulatory , commercial and general and administrative personnel ; and · incur additional costs associated with operating as a public company . financial operations overview revenue to date , we have not generated any revenue from drug sales . our revenue consists of collaboration revenue under our former collaboration with alexion , which was terminated in october 2017 , and our existing collaborations with roche and cstone , including amounts that are recognized related to upfront payments , milestone payments and amounts due to us for research and development services . in the future , revenue may include revenues related to the supply of our drug candidates or products to cstone for development and commercialization activities in the cstone territory and additional milestone payments and royalties on any net product sales under our collaborations with roche and cstone . we do not expect to generate any revenue from the sale of avapritinib until 2020 , assuming we are able to file for regulatory approval for avapritinib in the united states in the second quarter of 2019 and receive marketing approval by 2020. we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of product sales , if any , license fees , research and development services and related reimbursements , payments for manufacturing services , and milestone and other payments . in the future , subject to obtaining marketing approval for one or more of our drug candidates , we expect to generate revenue from a combination of product sales , royalties on product sales and cost reimbursements , as well as upfront , milestone and royalty payments , if any , under any current or future collaborations expenses research and development expenses research and development expenses consist primarily of costs incurred for our research and development activities , including our drug discovery efforts , and the development of our drug candidates , which include : · employee‑related expenses including salaries , benefits , and stock‑based compensation expense ; · expenses incurred under agreements with third parties that conduct research and development , pre-clinical activities , clinical activities and manufacturing on our behalf ; · expenses incurred under agreements with third parties for the development and commercialization of companion diagnostic tests ; · the cost of consultants ; · the cost associated with regulatory quality assurance and quality control operations ; · the cost of lab supplies and acquiring , developing and manufacturing pre-clinical study materials , clinical trial materials and commercial supply materials ; and 91 · facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other operating costs in support of research and development activities . research and development costs are expensed as incurred . costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . the successful development of our drug candidates is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these drug candidates . we are also unable to predict when , if ever , material net cash inflows will commence from our drug candidates .
| blu-667 ; · approximately $ 27.5 million in increased personnel expense , primarily due to an increase in headcount , which was driven by growth in the clinical and manufacturing organizations as we advance our lead drug candidates , and an increase of $ 10.7 million in stock-based compensation expense ; · approximately $ 27.3 million in increased expenses associated with clinical and commercial manufacturing activities ; · approximately $ 5.6 million in increased expenses associated with continuing to build our discovery platform and advance our discovery pipeline ; and · approximately $ 2.8 million in increased toxicology studies , including ind-enabling pre-clinical studies related to blu-782 . 98 general and administrative expense general and administrative expense increased by $ 19.9 million from $ 28.0 million for the year ended december 31 , 2017 to $ 47.9 million for the year ended december 31 , 2018. the increase in general and administrative expense was primarily related to the following : · approximately $ 11.1 million in increased personnel expenses , primarily due to an increase in general and administrative headcount to support our overall growth as a publicly traded company and an increase of $ 7.3 million in stock-based compensation expense ; · approximately $ 6.1 million in increased professional fees including pre-commercial planning activities ; and · approximately $ 2.1 million in increased facility costs related to our new headquarters in 2018. other income ( expense ) , net other income , net , increased by $ 7.1 million from $ 3.3 million for the year ended december 31 , 2017 to $ 10.5 million for the year ended december 31 , 2018. the increase was primarily related to higher average investment balances and a higher rate of return on investments . interest expense interest expense decreased by $ 0.1 million from $ 0.2 million for the year ended december 31 , 2017 to $ 0.1 million for the year ended december 31 ,
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we expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue to develop , seek regulatory approval , and , if approved , commercialize our product candidates . in the near term , we anticipate our expenses will continue to be substantial as we : conduct clinical development of otividex , oto-313 and oto-413 ; conduct nonclinical development of oto-825 , oto-510 and oto-6xx ; contract to manufacture our product candidates ; evaluate opportunities for development of additional product candidates ; maintain and expand our intellectual property portfolio ; hire additional staff as necessary to execute our product development plan ; and operate as a public company . we believe that our existing cash , cash equivalents and short-term investments will be sufficient to fund our operations for a period of at least twelve months from the date of this annual report on form 10-k. when additional financing is required , we anticipate we will seek funding through public or private equity or debt financings or other sources , such as potential collaboration arrangements . we may not be able to raise capital on terms acceptable to us , or at all . our failure to raise capital could have a negative impact on our financial condition and our ability to pursue our business strategies . in november 2008 , we entered into an exclusive license agreement with the regents of the university of california ( uc ) . under the license agreement , uc granted us an exclusive license under their rights to patents and applications that are co-developed and co-owned with us for the treatment of human otic diseases . our financial obligations under the license agreement include development and regulatory milestone payments of up to $ 2.7 million per licensed product , of which $ 1.9 million has been paid for otiprio , $ 0.8 million has been paid for otividex , $ 0.4 million has been paid for oto-413 , and $ 0.1 million has been paid for oto-311 ( but such milestone payments are reduced by 75 % for any orphan indication product ) , and a low single-digit royalty on net sales by us or our affiliates of licensed products . in addition , for each sublicense we grant we are obligated to pay uc a fixed percentage of all royalties as well as a sliding-scale percentage of non-royalty sublicense fees received by us under such sublicense , with such percentage depending on the licensed product 's stage of development when sublicensed to such third party . we have the right to offset a certain amount of third-party royalties , milestone fees or sublicense fees against the foregoing financial obligations , provided such third-party royalties or fees are paid by us in consideration for intellectual property rights necessary to commercialize a licensed product . 72 in april 2013 , we entered into an exclusive license agreement with durect corporation ( durect ) , as part of an asset transfer agreement between us and incumed llc , an affiliate of the neurosystec corporation . under this license agreement , durect granted us an exclusive , worldwide , royalty-bearing license under durect 's rights to certain patents and applications covering our oto-313 product candidate , as well as certain related know-how . under this license agreement and the asset transfer agreement , we are obligated to make one-time milestone payments of up to $ 7.5 million for the first licensed product . upon commercializing a licensed product , we are obligated to pay durect tiered , low single-digit royalties on annual net sales by us or our affiliates or sublicensees of the licensed products , and we have the right to offset a certain amount of third-party license fees or royalties against such royalty payments to durect . in addition , each sublicense we grant to a third party is subject to payment to durect of a low double-digit percentage of all non-royalty payments we receive under such sublicense . additionally , we are also obligated to pay the institut national de la santé et de la recherche médicale ( inserm ) , on behalf of durect , for a low single-digit royalty payment on net sales by us or our affiliates or sublicensees upon commercialization of the licensed product . the foregoing royalty payment obligation to durect would continue on a product-by-product and country-by-country basis until expiration or determination of invalidity of the last valid claim within the licensed patents that cover the licensed product , and the payment obligation to inserm would continue so long as durect 's license from inserm remains in effect . given the unprecedented and evolving nature of the covid-19 pandemic , there continues to be significant uncertainty about the progression and ultimate impact of the pandemic on our business operations . we have taken steps to mitigate the impact of the covid-19 pandemic on our clinical trials , including developing processes to ensure the integrity of data collection from enrolled patients and supporting the increasing number of sites able to enroll new patients , among other activity . nonetheless , we do not know the full extent of potential future delays or impacts on our business operations , our preclinical programs and clinical trials , healthcare systems , our financial condition , or the global economy as a whole resulting from the covid-19 pandemic . financial operations overview revenue in december 2015 , otiprio was approved by the fda for the treatment of pediatric patients with bilateral otitis media with effusion undergoing ttp surgery . in march 2016 , we began sales of otiprio in the united states to our network of specialty distributors who fill orders received from hospitals and ambulatory surgery centers who are the primary end user customers of otiprio for use during ttp surgery . we also entered into co-promotion partnerships to support the promotion of otiprio for the treatment of aoe in physician offices and in october 2020 amended the current co-promotion agreement with alk to include promotion of otiprio for use during ttp surgery in pediatric patients . story_separator_special_tag we recognize revenue on sales of otiprio upon delivery to our distributors . product sales are recorded net of estimated chargebacks , government rebates and distributor fees . prior to march 2016 we had not generated revenue . we do not expect to generate any revenue from any of our product candidates unless and until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties . operating expenses cost of product sales cost of product sales consists primarily of direct and indirect costs related to the manufacturing of otiprio , including third-party manufacturing costs , allocation of overhead costs and royalty payments based on otiprio sales . research and development expenses our research and development expenses primarily consist of costs associated with the nonclinical and clinical development of our product candidates . 73 our research and development expenses include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; external development expenses incurred under arrangements with third parties , such as fees paid to cros in connection with nonclinical studies and clinical trials , costs of acquiring and evaluating clinical trial data such as investigator grants , patient screening fees , laboratory work and statistical compilation and analysis , and fees paid to consultants ; costs to acquire , develop and manufacture clinical trial materials , including fees paid to contract manufacturers ; payments related to licensed product candidates and technologies ; costs related to compliance with drug development regulatory requirements ; and facilities expenses which include allocated expenses for amortization of rou assets , depreciation and other overhead expenses , and direct costs for laboratory and other supplies . we expense our internal and third-party research and development expenses as incurred . the following table summarizes our research and development expenses ( in thousands ) : replace_table_token_1_th we expect our research and development expenses to continue to be substantial for the foreseeable future as we advance our product candidates through their respective development programs . the process of conducting nonclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving regulatory approval for our product candidates . the probability of success will be affected by numerous factors , including nonclinical data , clinical data , competition , manufacturing capability and commercial viability . we are responsible for all of the research and development costs for our programs . completion dates and completion costs can vary significantly for each of our clinical development programs and are difficult to predict . we therefore can not estimate with any degree of certainty the costs we will incur in connection with development of our product candidates . we anticipate that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials , regulatory developments , and our ongoing assessments as to each current or future product candidate 's commercial potential . we may need to raise substantial additional capital in the future to complete the development of and , if approved , commercialize , our product candidates . we may enter into collaborative agreements in the future in order to conduct clinical trials and gain regulatory approval of our product candidates , particularly in markets outside of the united states . we can not forecast which programs or product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and overall capital requirements . 74 the costs of clinical trials may vary significantly over the life of a program owing to the following : per patient trial costs ; the number of sites included in the trials ; the countries in which the trials are conducted ; changes in regulatory and legal requirements for clinical trials ; the length of time required to enroll eligible patients ; the number of patients that participate in the trials ; the number of doses that patients receive ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; the phase of development of the product candidate ; the manufacturing process and complexity of , expiration of , and amount of the drug product required for the clinical trials ; the efficacy and safety profile of the product candidate ; and the impacts of covid-19 . selling , general and administrative expenses our selling , general and administrative expenses consist primarily of employee-related expenses , including salaries , benefits , travel and stock-based compensation expense , as well as other related costs for our employees and consultants in executive , administrative , finance and human resource functions . other selling , general and administrative expenses include facility-related costs not otherwise included in research and development , costs associated with prosecuting and maintaining our patent portfolio and corporate legal expenses , costs required for public company activities and infrastructure necessary for the general conduct of our business , and otiprio product support expenses and profit-sharing fees payable to our co-promotion partners , which are reduced by payments received from them . we expect our selling , general and administrative expenses to be substantial as we support development of our product candidates , and as we incur ongoing expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , directors ' and officers ' liability insurance premiums , and investor relations-related expenses . other income ( expense ) other income ( expense ) primarily consists of interest income earned on cash and cash equivalents and short-term investments and interest expense related to our long-term debt and finance leases .
| the increase of $ 1.0 million in research and development expenses resulted from a number of activities including : ( i ) a $ 2.5 million increase in otividex clinical trial and development costs related to the phase 3 trial initiated in the third quarter of 2018 ; ( ii ) a $ 0.7 million increase in oto-313 clinical trial and development costs related to the phase 1/2 trial initiated in the second quarter of 2019 ; and ( iii ) an increase of $ 0.5 million in other research and development costs , including professional services . these increases were partially offset by : ( i ) a decrease of $ 0.7 million in clinical trial and development costs for our oto-413 hearing loss program ; and ( ii ) a $ 2.0 million net decrease in personnel costs , including stock-based compensation expense associated with the option exchange in 2018. selling , general and administrative expenses . the decrease of $ 8.3 million in selling , general and administrative expenses was a result of a $ 5.3 million reduction in personnel costs , primarily due to a decrease in stock-based compensation expense associated with the option exchange in 2018 , and a $ 3.0 million decrease in outside service expense as a result of otiprio cost reimbursement recognized from our co-promotion partners in 2019. liquidity and capital resources we have incurred significant losses and negative cash flows from operations since our inception . as of december 31 , 2020 , we had an accumulated deficit of $ 504.6 million and we expect to continue to incur significant losses for the foreseeable future . we expect our research and development and selling , general and administrative expenses to continue to be substantial for the foreseeable future and , as a result , we will need additional capital to fund our operations , which we may obtain through one or more public or private equity or debt financings , or other sources such as potential collaboration arrangements . as of december 31 , 2020 , we had cash , cash equivalents
| 12,708 |
20 selling , product development and administrative expenses increased by $ 24.4 million , or 43.2 % , in 2014 compared to 2013. inclusion of the industrial filtration segment increased selling , product development and administrative expenses by $ 9.5 million in 2014 compared to 2013 and transaction related costs , included in corporate office expenses , increased $ 1.4 million related to the acquisition of industrial filtration . additionally , the increase in selling , product development and administrative expenses in 2014 compared to 2013 was due to a non-cash pension plan settlement charge of $ 4.9 million , included in corporate office expenses , associated with a voluntary one-time lump sum payment option elected by certain former u.s. employees under the company 's domestic defined benefit pension plan , and a $ 2.9 million sales commission settlement within the t/a metals segment as the company terminated a long-standing commercial sales agreement in 2014. other selling , product development and administrative expenses associated with pre-acquisition businesses increased in 2014 , compared to 2013 , related to salaries and benefits of $ 3.0 million , including $ 2.0 million of accrued incentive compensation as a result of meeting and exceeding certain operating performance targets in 2014 under an incentive bonus program , professional services of $ 1.1 million , other administrative costs of $ 1.3 million and product trial costs of $ 0.3 million . gain on sale of business replace_table_token_10_th on january 30 , 2015 , the company sold all of the outstanding shares of common stock of its life sciences vital fluids business , reported as other products and services , for a cash purchase price of $ 30.1 million . the disposition was completed pursuant to a stock purchase and sale agreement , dated january 30 , 2015 , by and among the company , and the buyer . the company recognized a pre-tax gain on the sale of $ 18.6 million , reported as non-operating income for the year ended december 31 , 2015. net of income taxes , the company reported a gain on sale of $ 11.8 million . interest expense replace_table_token_11_th the decrease in interest expense in 2015 compared to 2014 was due to lower average outstanding borrowings under the company 's amended credit facility and lower borrowing rates compared to 2014. borrowings under the company 's amended credit facility are associated with the acquisition of industrial filtration on february 20 , 2014. the increase in interest expense in 2014 compared to 2013 was due to borrowings under the company 's amended credit facility used to finance the acquisition of industrial filtration , partially offset by lower average principal balances on capital lease obligations . other income and expense replace_table_token_12_th the decrease in other income , net in 2015 compared to 2014 primarily relates to a decrease in foreign currency transaction gains due to the settlement of certain intercompany loans denominated in currencies other than the local functional currency , offset by an increase in foreign currency transaction gains associated with intercompany balances and trade payables and receivables denominated in currencies other than the local functional currency . the increase in other income , net in 2014 compared to 2013 primarily relates to foreign currency transaction gains associated with intercompany loans denominated in currencies other than the local functional currency . the amounts included in other expense ( income ) , net , in 2013 is primarily related to foreign currency transaction gains and losses and interest income . 21 income taxes replace_table_token_13_th the company 's effective tax rate for 2015 of 34.9 % was positively impacted by a favorable mix of taxable income generated from countries with lower tax rates compared to that of the united states , resulting in a tax benefit of $ 1.0 million . the company also recorded a tax benefit of $ 1.2 million attributable to the domestic production activities deduction and a tax benefit of $ 1.1 million related to research and development credits . these favorable adjustments were partially offset by tax expense of $ 0.9 million related to a net increase in valuation allowance against certain deferred tax assets and by a $ 0.6 million reduction to state deferred tax assets as a result of state tax law changes that led the company to deem the asset unrealizable in future periods . the net increase in valuation allowance against certain deferred tax assets of $ 0.9 million in 2015 was primarily related to tax valuation allowances of $ 0.8 million recorded against certain net deferred tax assets in the netherlands and china , as future realization of the assets is not reasonably assured . in 2014 , the effective tax rate of 35.1 % was positively impacted by a favorable mix of taxable income generated from countries with lower tax rates compared to that of the united states resulting in a tax benefit of $ 1.2 million and a tax benefit of $ 0.9 million attributable to the domestic production activities deduction . these favorable adjustments were partially offset by tax expense of $ 0.8 million related to nondeductible transaction costs from the industrial filtration acquisition , and a net increase in tax valuation allowances of $ 0.2 million . in 2013 , the effective tax rate of 32.4 % was positively impacted by the release of valuation allowances against state tax credit carryovers of $ 1.1 million , $ 0.8 million of benefit relating to domestic production activities deduction , and a tax benefit of $ 0.5 million related to the conclusion of certain u.s. federal income tax matters through the year ended december 31 , 2009. these favorable tax adjustments were partially offset by an increase in valuation allowance established against a foreign net deferred tax asset . the $ 1.1 million reversal of valuation allowances against state tax credit carryovers included $ 0.3 million of state tax credits which offset 2013 state income taxes and $ 0.8 million expected to benefit future periods . story_separator_special_tag the company and its subsidiaries file a consolidated federal income tax return , as well as returns required by various state and foreign jurisdictions . in the normal course of business , the company is subject to examination by taxing authorities , including such major jurisdictions as the united states , china , france , germany , hong kong , the netherlands and the united kingdom . within the next fiscal year , the company expects to conclude certain federal income tax matters through the year ended december 31 , 2012 and it is reasonably expected that net unrecognized benefits of $ 0.1 million may be recognized . the total amount of net unrecognized tax benefits that would affect the effective tax rate if recognized was $ 1.1 million as of december 31 , 2015. the company is no longer subject to u.s. federal examinations for years before 2012 , state and local examinations for years before 2011 , and non-u.s. income tax examinations for years before 2003 . 22 segment results replace_table_token_14_th replace_table_token_15_th ( 1 ) included in the industrial filtration segment and eliminations and other is $ 13.8 million and $ 1.0 million in intercompany sales to the t/a fibers segment for the years ended 2015 and 2014 , respectively . ( 2 ) other products and services reports results for the period preceding the date of disposition of the life sciences vital fluids business on january 30 , 2015 . ( 3 ) industrial filtration segment reports results for the period following the date of acquisition of february 20 , 2014 through december 31 , 2014 . 23 performance materials segment segment net sales decreased $ 14.4 million , or 12.4 % , in 2015 compared to 2014 , due to decreased sales volumes of $ 7.4 million , or 6.4 % , and the negative impact of foreign currency translation of $ 7.0 million , or 6.0 % . filtration product net sales decreased by $ 8.9 million , or 12.5 % , primarily due to unfavorable foreign currency translation and to a lesser extent , lower demand for air filtration products , particularly in asia and north america . net sales of thermal insulation products were lower by $ 3.1 million , or 9.8 % , in 2015 compared to 2014 due to lower demand in north america and asia . lower insulation product net sales were primarily the result of lower oil prices causing less demand globally for the segment 's cryogenic insulation products serving the liquid natural gas market . net sales of life sciences products were lower by $ 2.4 million , or 18.4 % , in 2015 compared to 2014 , due to lower demand for water purification and life protection application products in large part due to the timing of customer orders . the performance materials segment reported operating income of $ 6.8 million , or 6.7 % of net sales in 2015 , compared to operating income of $ 9.7 million , or 8.4 % of net sales in 2014. the decrease in operating income was primarily the result of lower gross profit of $ 2.8 million due to lower segment net sales as well as a long-lived asset impairment charge of $ 1.4 million , related to intangible assets at the company 's solutech operation , recorded in selling , product development and administrative expenses . excluding the impact of the $ 1.4 million long-lived asset impairment charge , segment selling , product development and administrative expenses decreased $ 1.3 million in 2015 compared to 2014 , primarily related to lower accrued incentive compensation and lower salaries expense . foreign currency translation had minimal impact on operating income in 2015 compared to 2014. segment net sales increased $ 3.9 million , or 3.5 % , in 2014 compared to 2013 , due to increased sales volumes and to a lesser extent , the positive impact of foreign currency translation of $ 0.2 million or 0.2 % . an increase in filtration net sales of $ 6.9 million , or 10.6 % , primarily contributed to the increase in segment net sales due to increased demand for air filtration and fluid power products in north america and europe . net sales of life sciences filtration products increased by $ 2.5 million , or 24.2 % , in 2014 compared to 2013 , due to increased demand for liquid filtration and water application products . these increases were partially offset by lower net sales of thermal insulation products of $ 5.5 million , or 15.0 % , in 2014 compared to 2013 , principally due to a decline in sales to a key customer in the hvac market offset to some extent by increased sales of insulation and automotive filtration products . the performance materials segment reported operating income of $ 9.7 million , or 8.4 % of net sales in 2014 , compared to operating income of $ 9.5 million , or 8.4 % of net sales in 2013. during 2014 , the impact of higher sales volume and lower material costs resulted in increased gross margin of approximately 50 basis points , which was nearly offset by higher selling , product development and administrative expenses of $ 1.2 million , or 7.0 % , in 2014 compared to 2013. the higher segment selling , product development and administrative expenses were primarily related to increased accrued incentive compensation of $ 0.9 million as a result of meeting certain operating performance targets in 2014 compared to 2013 when operating performance targets were not met by the business .
| cash generated from operations was $ 36.1 million in 2015 compared to $ 41.6 million in 2014 . increased working capital requirements were partially offset by an increase in net income and non-cash adjustments in 2015 compared to 2014. outlook entering 2016 , the company sees stable demand for its products at levels consistent with the second half of 2015. performance materials demand continues to remain somewhat soft , but orders in the company 's automotive segments remain healthy . the company is well positioned to execute on its long-term strategy for profitable growth through organic sales growth , geographic expansion , lean initiatives and acquisitions . from a liquidity standpoint , the company has the ability to fund strategic initiatives that will drive profitable growth . 18 consolidated results of operations net sales replace_table_token_6_th net sales in 2015 decreased $ 11.3 million , or 2.1 % , compared to 2014 as volume increases in the t/a fibers , t/a metals and industrial filtration segments were offset by unfavorable foreign currency translation , a divestiture of the life sciences vital fluids business , and lower net sales from the performance materials segment . foreign currency translation had a negative impact of $ 26.4 million , or 4.9 % , on consolidated net sales in 2015 compared to 2014. net sales from the divested life sciences vital fluids business decreased by $ 18.0 million , in 2015 compared to 2014 , as the business was sold on january 30 , 2015. the industrial filtration segment reported growth in net sales of $ 26.9 million , or 24.0 % , in 2015 compared to 2014 , as the industrial filtration business was acquired on february 20 , 2014. this increase in the industrial filtration segment net sales also includes the negative impact of foreign currency translation of $ 2.3 million , or 2.0 % . the t/a fibers segment parts net sales increased $ 11.1 million , or 8.9 % , in 2015 compared to 2014 , and tooling sales decreased
| 12,709 |
although uncertainty in the capital markets continues , there has been some improved access to capital , which has resulted in certain previously stalled projects being released . the expansion of the middle eastern economies and the continued growth in demand for oil and refined products has renewed investment activity in that area . the planned sequential project activity for refineries is encouraging . asia , specifically china , began experiencing renewed demand for refined petroleum products such as gasoline . this renewed demand is driving increased investment in petrochemical and refining projects . 17 south america , specifically brazil , venezuela and colombia , is seeing increased refining and petrochemical investments that are driven by their expanding economies and increased local demand for gasoline and other products that are made from oil as the feedstock . the u.s. refining market has exhibited recent improvement , including near-term increases in orders of short cycle and spare parts . historically , these types of orders have suggested a recovery , as delayed spending is released . we expect the u.s. refining market will not return to the levels experienced during the last upcycle , but will improve compared with its levels over the past few years . we expect that the u.s. refining markets will continue to be an important aspect of our business . investments in north american oil sands projects have recently increased , especially for extraction projects in alberta and foreign investment in alberta which suggest that downstream investments that involve our equipment might increase in the next one to three years . investment in new nuclear power capacity may become subject to increased uncertainty due to political and social pressures , enhanced by the tragic earthquake and tsunami which occurred in japan in march 2011. however , the need for additional safety and back up redundancies at existing plants could increase demand in the near term . we expect that the consequences of these near-term trends will be more pressure on our pricing and gross margins , as the u.s. refining market has historically provided higher margins than certain international markets . because of continued global economic uncertainty and the risk associated with growth in emerging economies , we also expect that we will have continued volatility in our order pattern . we continue to expect our new order levels to remain volatile , resulting in both strong and weak quarters . for example , sequentially the past eight quarters had new order levels of $ 8,838 , $ 29,567 , $ 51,644 , $ 18,268 , $ 8,124 , $ 10,476 , $ 17,784 , and $ 26,838 in the first , second , third and fourth quarters of fiscal 2010 and the first , second , third and fourth quarters of fiscal 2011 , respectively . for the next several quarters , we also expect to see smaller value projects than what we had seen during the last expansion cycle . this will require more orders for us to achieve a similar revenue level . we believe that looking at our order level in any one quarter does not provide an accurate indication of our future expectations or performance . rather , we believe that looking at our orders and backlog over a rolling four-quarter time period provides a better measure of our business . mix shift : stronger international growth in refining and chemical processing with domestic growth in nuclear power and navy projects we expect growth in the refining and chemical processing markets to be driven by emerging markets . we have also expanded our addressable markets through the acquisition of energy steel and our focus on u.s. navy nuclear propulsion projects . we believe our revenue opportunities will be equivalent between the domestic and international markets . over the long-term , we expect our customers ' markets to regain their strength and , while remaining cyclical , continue to grow . we believe the long-term trends remain strong and that the drivers of future growth include : demand trends global consumption of crude oil is estimated to expand significantly over the next two decades , primarily in emerging markets . this is expected to offset estimated flat to slightly declining demand in north america and europe . global oil refining capacity is projected to increase , and is expected to be addressed through new facilities , refinery upgrades , revamps and expansions . increased demand is expected for power , refinery and petrochemical products , stimulated by an expanding middle class in asia . increased development of geothermal electrical power plants in certain regions is expected to meet projected growth in demand for electrical power . 18 increased global regulations over the refining and petrochemical industries are expected to continue to drive requirements for capital investments . increased demand is expected from the nuclear power generation industry . increased focus on safety and redundancy is anticipated in existing nuclear power facilities . long-term increased project development of international nuclear facilities is expected , despite the recent tragedy in japan . construction of new petrochemical plants in the middle east is anticipated , where natural gas is plentiful and less expensive , is expected to continue . increased investments in new power projects are expected in asia and south america to meet projected consumer demand increases . long-term growth potential is believed to exist in alternative energy markets , such as coal-to-liquids , gas-to-liquids and other emerging technologies , such as biodiesel , ethanol and waste-to-energy . shale gas development and the resulting availability of affordable natural gas as feedstock to u.s.-based chemical/petrochemical facilities is expected to lead to renewed investment is chemical/petrochemical markets in the u.s. we believe that all of the above factors offer us long-term growth opportunity to meet our customers ' expected capital project needs . in addition , we believe we can continue to grow our less cyclical smaller product lines and aftermarket businesses . emerging markets require petroleum-based products . story_separator_special_tag these markets are expected to continue to grow at rates faster than the u.s. therefore , we expect international opportunities will be more plentiful relative to domestic projects for these markets . we believe the domestic and international markets will offer similar opportunities for us in the near term . our domestic sales as a percentage of aggregate product sales , which had increased from 50 % in fiscal 2007 to 54 % in fiscal 2008 to 63 % in fiscal 2009 , decreased to 45 % in each of fiscal 2010 and fiscal 2011. our order rates for fiscal 2011 were 48 % domestic and 52 % international , compared with fiscal 2010 , which were 50 % domestic and 50 % international . story_separator_special_tag fiscal 2009. gross profit for fiscal 2010 decreased 47 % , or $ 19,481 , compared with fiscal 2009. gross profit decreased due to lower volume , which resulted in the significant under utilization of our production capacity . the lower volume and utilization declines were partly offset by improved raw material purchasing benefits , especially in the first and second quarters of fiscal 2010 , and continued improvements in productivity . selling , general and administrative , or sg & a , and other expenses for fiscal 2010 were $ 12,189 , down 21 % compared with $ 15,384 in fiscal 2009. included in fiscal 2009 costs was a pre-tax charge of $ 559 for restructuring 20 costs . sg & a and other expenses as a percentage of sales increased in fiscal 2010 to 19.6 % of sales compared with 15.2 % of sales in fiscal 2009. sg & a expenses decreased due to lower variable costs ( e.g. , sales commissions , compensation , headcount expenses ) related to lower sales and cost controls in place throughout fiscal 2010. interest income for fiscal 2010 was $ 55 , down from $ 416 in fiscal 2009. this decrease was due to lower rates of return on our investments , which are primarily short-term u.s. treasury securities . interest expense was $ 36 in fiscal 2010 , up from $ 5 in fiscal 2009. the increase was due to an interest charge of $ 32 for unrecognized tax benefits , as discussed below , taken in fiscal 2010. our effective tax rate in fiscal 2010 was 37 % compared with an effective tax rate of 35 % for fiscal 2009. the increase was due to a charge for unrecognized tax benefits of $ 445 related to research and development tax credits taken in tax years 2006 through 2010. such charge is management 's estimate of our potential exposure related to an ongoing internal revenue service examination of our research and development tax credits . we believe our tax position is correct and we intend to continue to vigorously defend our position . associated with the tax charge was an interest charge of $ 32 , as noted in the above paragraph , and a $ 10 tax credit , related to such interest charge . the combination of these charges and credit was a net charge to earnings of $ 467 ( $ 435 in taxes and $ 32 in interest ) , which lowered our earnings per share in fiscal 2010 by $ 0.05 per share . excluding the tax charge , our effective tax rate in fiscal 2010 was 32.5 % . the total tax benefit related to the research and development tax credit that is under review by the irs was $ 2,218 at march 31 , 2010. in assessing the realizability of deferred tax assets , management determined that a portion of the deferred tax assets related to certain state investment tax credits and net operating losses will not be realized and a valuation allowance of $ 332 was recorded resulting in an increase in the effective tax rate . net income for fiscal 2010 and fiscal 2009 was $ 6,361 and $ 17,467 , respectively . income per diluted share was $ 0.64 and $ 1.71 for the respective periods . stockholders ' equity the following discussion should be read in conjunction with our consolidated statements of changes in stockholders ' equity that can be found in item 8 of part ii of this annual report on form 10-k. the following table shows the balance of stockholders ' equity on the dates indicated : march 31 , 2011 march 31 , 2010 march 31 , 2009 $ 73,655 $ 69,074 $ 61,111 fiscal 2011 compared with fiscal 2010 stockholders ' equity increased $ 4,581 or 7 % , at march 31 , 2011 compared with march 31 , 2010. this increase was primarily due to net income earned in fiscal 2011. we repurchased 59 shares in fiscal 2011. a total of 362 shares have been repurchased , pursuant to our publicly announced stock repurchase program . at march 31 , 2011 and may 27 , 2011 , the number of shares remaining that have been approved for repurchase under the stock repurchase program is 638. on march 31 , 2010 , our net book value was $ 7.47 up 7 % over march 31 , 2010. fiscal 2010 compared with fiscal 2009 stockholders ' equity increased $ 7,963 or 13 % , at march 31 , 2010 compared with march 31 , 2009. this increase was primarily due to net income and an increase in the value of pension assets . dividends paid in fiscal 2010 increased 5 % , to $ 788 , due to a dividend increase which occurred in early fiscal 2009. we repurchased 26 shares in fiscal 2010 , pursuant to our publicly announced stock repurchase program . on march 31 , 2010 , our net book value was $ 7.01 up 13 % over march 31 , 2009 .
| in addition , fiscal 2010 margins , especially in the first half of the year , benefitted from projects won late in the last upcycle . gross profit for fiscal 2011 decreased $ 380 , compared with fiscal 2010. gross profit decreased due to a lower gross margin , which was mostly offset by higher volume . gross profit in fiscal 2011 was adversely impacted by inventory step-up and intangible asset amortization related to the energy steel acquisition . these charges were $ 247 in fiscal 2011. selling , general and administrative , or sg & a , and other expenses for fiscal 2011 were $ 13,076 , up 7 % compared with $ 12,189 in fiscal 2010. the increase in sg & a was related to our acquisition of energy steel , which had $ 764 of sg & a ( including $ 53 of intangible asset amortization costs ) related to post-acquisition operating costs . there were also $ 676 of transaction costs related to the acquisition . sg & a , excluding energy steel , decreased $ 553 , driven by lower pension and variable compensation costs . sg & a and other expenses as a percentage of sales decreased in fiscal 2011 to 17.6 % of sales compared with 19.6 % of sales in fiscal 2010. interest income for fiscal 2011 was $ 77 , up from $ 55 in fiscal 2010. this increase was due to higher average levels of cash during fiscal 2011 compared with fiscal 2010. interest expense was $ 92 in fiscal 2011 , up from $ 36 in fiscal 2010. the increase was due to an interest charge for unrecognized tax benefits . our effective tax rate in fiscal 2011 was 33 % compared with an effective tax rate of 37 % for fiscal 2010. the tax rate in fiscal 2011 was adversely affected by acquisition-related costs which are not tax affected . excluding the acquisition-related tax impact , the effective tax rate in fiscal 2011 was 32 % . included in fiscal 2011 and fiscal 2010 income tax expense was a charge for unrecognized tax benefits of $ 32
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pursuant to our license agreement with allergan , we recognized revenue of zero , $ 3,000 , and $ 0.3 million in reimbursements for research and development expenses for full-time equivalent employees assigned to the license agreement for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . there are no further milestone payments to be earned under our license agreement with allergan , and we expect reimbursements for full-time equivalents assigned to be inconsequential in future periods . beginning in may 2020 , we are entitled to receive tiered royalties from allergan in the low to mid-teens , as a percent of net sales of namzaric in the united states . 58 cost of product sales cost of product sales consist primarily of direct and indirect costs related to the manufacturing of gocovri products sold , including third-party manufacturing costs , packaging services , freight , allocation of overhead costs , and inventory adjustment charges . we began capitalizing inventory manufactured at the fda approved locations upon fda approval of gocovri and upon fda approval of a supplemental nda for a second manufacturing site with our current third-party manufacturer . we recorded inventory acquired prior to the regulatory approvals as research and development expense . research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our wholly-owned product candidates . we recognize all research and development costs as they are incurred . research and development expenses consist of : fees paid to clinical investigators , clinical trial sites , consultants , and vendors , including contract research organizations , or cros , in conjunction with implementing , conducting , and monitoring our clinical trials and acquiring and evaluating clinical trial data , including all related fees , such as for investigator grants , patient screening fees , laboratory work , and statistical compilation and analysis ; expenses related to production of clinical supplies , including fees paid to contract manufacturing organizations , or cmos ; expenses related to establishment and validation of manufacturing capabilities for commercial supply ; expenses related to the buildup of commercial supply to support commercial launch , prior to fda approval ; expenses related to compliance with regulatory requirements ; other consulting fees paid to third parties ; and employee-related expenses , which include salaries , benefits , and stock-based compensation . the following table summarizes our research and development expenses incurred during the years ended december 31 , 2018 , 2017 , and 2016 ( in thousands ) : replace_table_token_3_th ( 1 ) includes program costs we incurred for gocovri ( formerly referred to as ads-5102 ) for the treatment of dyskinesia in patients with parkinson 's disease , and ads-5102 ( gocovri ) for additional potential cns indications , including for the treatment of walking impairment in patients with multiple sclerosis . the program-specific expenses summarized in the table above include costs directly attributable to our product candidates . other research and development expenses include costs for early stage programs and costs not allocated to a specific program . we allocate benefits , stock-based compensation , and indirect costs to our product candidates on a program-specific basis , and we include these costs in the program-specific expenses . we begin to track and report program-specific expenses for early stage programs once they have been nominated and selected for further development and clinical-stage work has commenced . our investment in research and development activities , including the clinical development of our product candidates , has historically represented a significant portion of our total operating expenses . we anticipate incurring significant research and development expenses as we continue to support : clinical trials for ads-5102 ( gocovri ) in 59 indications beyond dyskinesia in patients with parkinson 's disease , including but not limited to : walking impairment in patients with multiple sclerosis , or ms walking , and other indications ; ads-4101 for the treatment of partial onset seizures in patients with epilepsy ; and potentially additional clinical-stage programs in more indications or for future product candidates . the process of conducting the necessary clinical research to obtain fda approval is costly and time consuming . we consider the active management and development of our clinical pipeline to be crucial to our long-term success . the actual probability of success for each product candidate and clinical program may be affected by a variety of factors , including but not limited to , the quality of the product candidate , early clinical data , investment in the program , competition , manufacturing capability , and commercial viability . furthermore , in the past we have entered into licensing arrangements with other pharmaceutical companies to develop and commercialize our product candidates , and we may enter into additional licensing arrangements or collaborations in the future . in situations in which third parties have control over the clinical development of a product candidate , the estimated completion dates are largely under the control of such third parties and not under our control . we can not forecast with any degree of certainty which of our product candidates , if any , will be subject to future licensing or collaboration arrangements or how such arrangements would affect our development plans or capital requirements . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . story_separator_special_tag selling , general and administrative expenses , net selling , general and administrative expenses , net , consist primarily of personnel and related benefit costs , including stock-based compensation , facilities , professional services , insurance , public company related expenses , charitable contribution expenses , as well as the costs associated with supporting the commercialization of gocovri , reduced to a small degree by reimbursement from allergan for external costs related to supporting prosecution and litigation of intellectual property rights under our license agreement . we anticipate our selling , general and administrative expenses will remain significant and continue to increase as we continue to support the commercialization of gocovri . interest and other income , net interest and other income , net , consists of changes in fair value of the embedded derivative liability related to our royalty-backed loan with hcrp , in addition to interest received on our investments . interest expense interest expense consists of accrued interest pursuant to our royalty-backed loan and amortization of debt issuance costs . interest expense accrues using the effective interest rate method over the estimated period the debt is expected to be repaid . interest expense over the life of the royalty-backed loan includes an annual interest rate of 11 % on the outstanding principal , a royalty rate of 6.25 % on net sales of gocovri after the principal amount is paid , and amortization of the debt discount , until a maximum aggregate repayment amount has been reached . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenue generated and expenses incurred during the reporting periods . we base our estimates on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . we have discussed the development , selection , and disclosure of these estimates with the audit committee of our board of directors . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 of our financial statements included in this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . 60 revenue recognition we recognize revenue in accordance with accounting standards codification , or asc , topic 606 , revenue from contracts with customers ( “ asc606 ” ) , which we adopted on january 1 , 2018 , using the full retrospective transition method . adoption of this guidance did not have a material impact on amounts previously reported in our consolidated financial statements . we recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . we expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less . product sales our product sales consist of u.s. sales of gocovri . gocovri was approved by the fda on august 24 , 2017 , and we commenced shipments of gocovri to a specialty pharmacy during october 2017. we sell our products principally to a specialty pharmacy and certain specialty distributors ( each a “ customer ” or collectively our “ customers ” ) . the customer subsequently dispenses product directly to a patient . in addition , except for limited circumstances , the customer has no right of product return to us . we recognize revenue from product sales when the customer obtains control of our product , which occurs at a point in time , typically upon delivery to the customer . we record revenue from product sales after considering the impact of the following variable consideration amounts at the time of revenue recognition : distribution fees : distribution fees include fees paid to our customers for data and prompt payment discounts . we record distribution fees based on contractual terms . rebates : rebates include mandated discounts under the medicaid drug rebate program , medicare part d prescription drug benefit program , and tricare retail pharmacy refunds program ( tricare ) . rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements with benefit providers . we estimate rebates based on statutory discount rates and expected utilization . we estimate for expected utilization of rebates based on data received from the specialty pharmacy and specialty distributor . we use the expected-value method for estimating rebates and estimates are adjusted quarterly to reflect actual experience . product returns : consistent with industry practice , we offer limited product return rights and generally allow for the return of product that is damaged or defective , and within a few months prior to and up to a few months after the product expiration date . we do not allow product returns for product that has been dispensed to a patient . we consider several factors in the estimation of potential product returns , including , expiration dates of the product shipped , the limited product return rights , third-party data in monitoring channel inventory levels , shelf life of the product , prescription trends , and other relevant factors .
| product sales product sales consist of sales of gocovri , which the fda approved on august 24 , 2017. we commenced shipments of gocovri during october 2017 and fully launched with a deployed sales force in january 2018. product sales increased by $ 33.5 million to $ 34.0 million for the year ended december 31 , 2018 from $ 0.6 million for the year ended december 31 , 2017 , due to growth in sales of gocovri since its launch and recognizing a full fiscal year of sales . cost of product sales cost of product sales increased by $ 0.6 million to $ 0.6 million , or 2 % of product sales , for the year ended december 31 , 2018 , from $ 17,000 , or 3 % of product sales , for the year ended december 31 , 2017 . we received 63 regulatory approval for gocovri from the fda in august 2017 and cost of product sales were not incurred for the entire fiscal year 2017. cost of product sales consists of certain fill finish costs incurred after fda approval related to the cost of gocovri products sold , in addition to certain distribution and overhead costs . prior to receiving fda approval , we recorded all inventory costs incurred in the manufacture of gocovri to be sold upon commercialization as research and development expense . we expect to use inventory previously expensed to research and development within the next fifteen months , and accordingly we expect our cost of product sales of gocovri to increase as a percentage of product sales in future periods once this inventory has been sold and we produce and then sell inventory that reflects the full cost of manufacturing the product . research and development expenses research and development expenses increased by $ 12.1 million , or 45 % , to $ 39.3 million for the year ended december 31 , 2018 , from $ 27.2 million for the year ended december 31 , 2017 . the increase in research and development expenses was mainly attributable to our phase 3 study in support of ads-5102 for the treatment of walking impairment in patients with multiple sclerosis . in addition , we incurred
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in addition , the company and a subsidiary of verizon entered into a construction service agreement pursuant to which we agreed to complete the build‑out of the network in exchange for $ 50.0 million ( which approximates our remaining estimate to complete the network build‑out ) , recognized over time as the remaining network elements are completed and accepted . the final build‑out of the network is expected to be completed during the first half of 2019. stock repurchase program on december 14 , 2017 , our board of directors authorized us to repurchase up to $ 50.0 million of our outstanding common stock . as of march 26 , 2018 , we completed the stock repurchase program with total common stock shares repurchased of 5.1 million for $ 50.0 million . 45 on may 10 , 2018 , our board of directors authorized us to repurchase up to $ 25.0 million of our outstanding common stock . as of august 8 , 2018 , we completed the stock repurchase program with total common stock shares repurchased of 2.5 million for $ 25.0 million . interest rate swap on may 9 , 2018 , we entered into interest rate swap agreements for a notional amount covering approximately 60 % of the outstanding principal balance of our floating rate debt to mitigate the risk of rising interest rates . redemption of 10.25 % senior notes on march 20 , 2017 , we utilized cash on hand to redeem $ 95.1 million in aggregate principal amount outstanding of our previously issued 10.25 % senior notes ( the “ senior notes ” ) . in addition to the partial redemption , we paid accrued interest on the senior notes of $ 1.7 million and a call premium of $ 4.9 million . we recorded a loss on early extinguishment of debt of $ 5.0 million , primarily representing the cash call premium paid . on july 17 , 2017 , we used the proceeds of the new term b loans , borrowed $ 180.0 million under our revolving credit facility , proceeds from the ipo , and cash on hand to fully redeem all of the company 's remaining outstanding senior notes and to pay certain fees and expenses . in connection with the redemption of the senior notes , we satisfied and discharged the indenture governing the senior notes . we paid $ 729.9 million in principal amount , incurred prepayment fees of $ 18.7 million and paid accrued interest of $ 37.6 million . we recorded a loss on early extinguishment of debt of $ 19.8 million related to the write‑off of deferred issuance costs , premium , and prepayment fees . redemption of 13.38 % senior subordinated notes during the year ended december 31 , 2016 , we made two payments to partially redeem our previously issued 13.38 % senior subordinated notes . the final redemption payment was made on december 18 , 2016. refinancing of the term b loans and revolving credit facility on july 17 , 2017 , we entered into an eighth amendment ( “ eighth amendment ” ) to our credit agreement , with jpmorgan chase bank , n.a. , as the administrative agent and revolver agent . under the eighth amendment , ( i ) we borrowed new term b loans in an aggregate principal amount of $ 230.5 million , for a total outstanding term b loan principal amount of $ 2.28 billion and ( ii ) the revolving credit commitments were increased by an aggregate principal amount of $ 100.0 million , for a total outstanding revolving credit commitment of $ 300.0 million available to us under the revolving credit facility . the new term b loans will mature on august 19 , 2023 and bear interest , at our option , at a rate equal to abr plus 2.25 % or libor plus 3.25 % . loans under the revolving credit facility will mature on may 31 , 2022 and bear interest , at our option , at a rate equal to abr plus 2.00 % or libor plus 3.00 % . the guarantees , collateral and covenants in the eighth amendment remain unchanged from those contained in the credit agreement prior to the eighth amendment . as a result of the refinancing , we recorded a $ 6.3 million loss on early extinguishment of debt related to the write-off of unamortized debt issuance costs and third party costs . on may 31 , 2017 , we entered into a seventh amendment ( “ seventh amendment ” ) to our credit agreement . the seventh amendment ( i ) refinanced the then existing $ 200.0 million of borrowings available to us under the revolving credit facility and ( ii ) extended the maturity date of the revolving credit facility to may 31 , 2022 , unless an earlier date was triggered under certain circumstances . the interest rate margins applicable to the revolving credit facility bore interest at a rate equal to abr plus 2.00 % or libor plus 3.00 % . additionally , we entered into an incremental commitment letter to our revolving credit facility that increased the available borrowings to $ 300.0 million that became available upon compliance with certain conditions ( see discussion of the redemption of senior notes above , whereby such conditionality was subsequently achieved as a result of the eighth amendment ) . the guarantees , collateral and covenants in the seventh amendment remained unchanged from those contained in the credit agreement prior to the seventh amendment . as a result of the refinancing , we recorded a $ 1.0 million loss on early extinguishment of debt , primarily related to the write-off of unamortized deferred issuance costs and third party costs . story_separator_special_tag 46 sale of lawrence , kansas systems on january 12 , 2017 , we and midcontinent communications ( “ midco ” ) entered into an agreement under which midco acquired our lawrence , kansas systems , for net proceeds of approximately $ 213.0 million in cash , subject to certain normal and customary purchase price adjustments set forth in the agreement . we and midco also entered into a transition services agreement pursuant to which we provided certain services to midco on a transitional basis . charges for the transition services allowed us to fully recover all allowed costs and allocated expenses incurred in connection with providing such services , generally without profit . the results of our lawrence , kansas system are included for the year ended december 31 , 2016 , and the first 12 days for the year ended december 31 , 2017. nulink acquisition on september 9 , 2016 , we finalized our acquisition of hc cable opco , llc d/b/a nulink in newnan , georgia for $ 54.3 million , all of which we paid in cash . the acquisition extended our hsd , video and telephony service and award-winning customer support experience to more than 34 thousand additional homes and businesses . the results of our nulink acquisition are included in our consolidated financial statements for the period september 9 , 2016 through december 31 , 2018. avista and crestview investment on december 18 , 2015 , crestview advisors , llc ( “ crestview ” ) and our former parent consummated a transaction whereby crestview partners iii gp , l.p. became the beneficial owner of approximately 35 % of the membership units of our former parent . under terms of the agreement , crestview 's funds purchased units held by avista capital partners ( “ avista ” ) and other unit holders , and made a $ 125.0 million primary investment in newly‑issued units . on april 29 , 2016 , funds managed by avista and crestview made an additional $ 40.0 million investment in newly‑issued membership units in our former parent . as of december 31 , 2017 , all the proceeds from the funds ' investments of avista and crestview in the amount of $ 143.3 million , net of transaction costs , had been contributed to the company . as of december 31 , 2018 , crestview and avista hold approximately 68 % of the company 's outstanding shares of common stock . critical accounting policies and estimates in the preparation of our consolidated financial statements , we are required to make estimates , judgments and assumptions that we believe are reasonable based upon the information available , in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented . critical accounting policies are defined as those policies that are reflective of significant judgments , estimates and uncertainties , which would potentially result in materially different results under different assumptions and conditions . we believe the following accounting policies are the most critical in the preparation of our consolidated financial statements because of the judgment necessary to account for these matters and the significant estimates involved , which are susceptible to change . valuation of plant , property and equipment and intangible assets carrying value . the aggregate carrying value of our plant , property and equipment and intangible assets ( including franchise operating rights and goodwill ) comprised approximately 94 % and 93 % of our total assets at december 31 , 2018 and december 31 , 2017 , respectively . 47 plant , property and equipment are recorded at cost and include costs associated with the construction of cable transmission and distribution facilities and new service installations at customer locations . capitalized costs include materials , labor and certain indirect costs attributable to the capitalization activity . maintenance and repairs are expensed as incurred . upon sale or retirement of an asset , the cost and related depreciation are removed from the related accounts , and resulting gains or losses are reflected in operating results . we make judgments regarding the installation and construction activities to be capitalized . we capitalize direct labor associated with capitalizable activities and indirect cost using standards developed from operational data , including the proportionate time to perform a new installation relative to the total technical operations activities and an evaluation of the nature of the indirect costs incurred to support capitalizable activities . judgment is required to determine the extent to which indirect costs that have been incurred are related to capitalizable activities and , as a result , should be capitalized . indirect costs include ( i ) employee benefits and payroll taxes associated with capitalized direct labor , ( ii ) direct variable cost of installation and construction vehicle costs , ( iii ) the direct variable costs of support personnel directly involved in assisting with installation activities , such as dispatchers and ( iv ) indirect costs directly attributable to capitalizable activities . intangible assets consist primarily of acquired franchise operating rights , franchise‑related customer relationships and goodwill . franchise operating rights represent the value attributable to agreements with local franchising authorities , which allows access to homes in the public right of way . our franchise operating rights were acquired through business combinations . we do not amortize cable franchise operating rights as we have determined that they have an indefinite life . costs incurred in negotiating and renewing cable franchise agreements are expensed as incurred . franchise‑related customer relationships represent the value of the benefit to us of acquiring the existing cable subscriber base and are amortized over the estimated life of the subscriber base , generally four years , on a straight‑line basis . goodwill represents the excess of the purchase price over the fair value of the identifiable net assets we acquired in business combinations .
| the decrease in other revenue of $ 45.6 million , or 42 % , is partially due to the reclassification of franchise and installation fees to residential video subscription revenue in accordance with the new revenue recognition accounting guidance for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the following table details subscription revenue by service offering for the years ended december 31 , 2018 and december 31 , 2017 : replace_table_token_8_th ( 1 ) average subscribers , presented in thousands , is calculated based on reported subscribers and is not adjusted for changes related to the disposition of our lawrence , kansas system . hsd subscription hsd subscription revenue increased $ 58.3 million , or 14 % , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the increase in hsd subscription revenue includes an increase of $ 8.3 million related to the new revenue recognition guidance , partially offset by a decrease of $ 2.2 million related to credits to revenue associated with hurricane michael and $ 0.6 million related to the disposition of our lawrence , kansas system . after accounting for these non-recurring changes in revenue , the remaining $ 52.8 million increase in hsd subscription revenue is primarily due to a $ 13.4 million increase in average hsd rgus and a $ 39.4 million increase in hsd arpu . video subscription video subscription revenue decreased $ 17.7 million , or 4 % , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the decrease in video subscription revenue includes an increase of $ 36.3 million related to the new revenue recognition guidance , partially offset by a decrease of $ 2.2 million related to credits to revenue associated with hurricane michael and $ 0.6 million related to the disposition of our lawrence , kansas system . after accounting for these non-recurring changes in revenue , the resulting $ 51.2 million decrease in video subscription revenue is primarily due to a $ 42.0 million decrease in average video rgus and a $ 9.2 million decrease in video arpu . 55 telephony subscription telephony subscription revenue decreased $ 17.5 million , or 13 % , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the
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19 story_separator_special_tag 2014 compared with 2013 total realplayer group revenue decreased by $ 36.0 million , or 48 % . this decrease was primarily a result of our transition to a new third party distribution arrangement at significantly lower rates compared to our previous partner that caused our third party distribution revenue to decrease by $ 16 million , and lower subscription revenue of $ 5.5 million due to fewer superpass subscribers . further contributing to the decline was a decrease in realplayer license revenue of $ 7.6 million due to our focus away from our realplayer product and towards increasing realplayer cloud subscriptions , and a decrease of $ 5.9 million in distribution of intellectual property licenses . gross margin decreased by 15 percentage points , due primarily to our transition to a new third party distribution arrangement at significantly lower rates compared to our previous partner . operating expenses decreased by $ 4.7 million primarily due to decreased marketing spend of $ 5.5 million mainly related to our third party distribution arrangements . mobile entertainment mobile entertainment segment results of operations were as follows ( dollars in thousands ) : replace_table_token_5_th 2015 compared with 2014 mobile entertainment revenue decreased by $ 14.5 million , or 18 % . this decrease was primarily due to a decrease of $ 7.6 million in our ringback tone revenue and a decrease in licensing revenue of $ 3.8 million due to the cessation of our helix business in q4 2014. revenue for our messaging business decreased by $ 1.4 million . gross margin declined by 5 percentage points in 2015 , due primarily to a higher proportion of lower margin revenue , such as music on demand , compared to the prior year . operating expenses decreased by $ 13.1 million , due primarily to a reduction in personnel and related expenses of $ 8.7 million . additionally , infrastructure and marketing expenses declined by $ 1.9 million and $ 1.7 million , respectively . 2014 compared with 2013 mobile entertainment revenue decreased by $ 1.3 million , or 2 % . this decrease was primarily due to a decrease of $ 3.4 million due to termination of carrier contracts and a decrease of $ 1.2 million in our helix business . these decreases , along with certain other declines in our saas business , were partially offset by an increase of $ 4.9 million in music on demand revenue , primarily in korea . 21 gross margin declined by 4 percentage points , due primarily to a higher proportion of lower margin revenue , such as music on demand , compared to the prior year . games games segment results of operations were as follows ( dollars in thousands ) : replace_table_token_6_th 2015 compared with 2014 games revenue decreased by $ 6.4 million , or 17 % . $ 1.9 million of the total decline in revenue is related to the sale of our slingo and social casino business in august of 2015. the remaining decline of $ 4.5 million was primarily due to a decrease in subscription revenue . the revenues for pc download games and advertising also declined compared to the prior year but were almost entirely offset by an increase in mobile casual games revenue . cost of revenue decreased by $ 1.8 million , or 16 % . $ 0.9 million of the total decline in cost of revenue is attributed to the sale of our slingo and social casino games business . the remaining $ 0.9 million decrease was due to the decline in advertising expense and in partner royalties expense for our pc download and subscription games sales channels . operating expenses decreased by $ 8.1 million , or 22 % . these reductions in operating expenses were driven by the sale of our slingo and social casino business in august of 2015 . 2014 compared with 2013 games revenue decreased by $ 12.7 million , or 25 % . lower revenue from subscription products , advertising and license sales contributed $ 5.8 million , $ 3.7 million , and $ 2.2 million , respectively , to the decline during the period . cost of revenue decreased by $ 2.3 million , or 17 % . the decrease was primarily due to the decrease in partner royalties expense , which has a direct correlation with the decrease in games revenue , in addition to reduced personnel costs . gross margin decreased due primarily to a higher proportion of lower margin revenue in 2014. operating expenses decreased by $ 10.0 million , or 21 % . the decrease was primarily due to reductions in personnel and related costs of $ 4.9 million , and reductions in marketing expense of $ 4.3 million . corporate we allocate certain corporate expenses which are directly attributable to supporting the business to our reportable segments . these allocated corporate expenses include , but are not limited to a portion of finance , legal , human resources and headquarters facilities . remaining expenses , which are not directly attributable to supporting the business , are reported as corporate items . all restructuring , extinguishment of liability , and lease exit and related charges , are included in the corporate segment . corporate segment results of operations were as follows ( dollars in thousands ) : replace_table_token_7_th 2015 compared with 2014 22 operating expenses decreased by $ 5.6 million , or 17 % . the decrease was due to a reduction in personnel and related costs of $ 6.0 million . 2014 compared with 2013 during the quarter ended march 31 , 2014 certain accrued royalty liabilities of $ 10.6 million associated with our historical music business , which had originally been recorded based on statutory rates , were extinguished . cost of revenue decreased by $ 1.5 million . the decrease was due primarily to lower costs resulting from the 2013 seattle headquarters relocation . operating expenses decreased by $ 21.1 million , or 39 % . story_separator_special_tag the decrease was primarily due to savings from the 2013 relocation of our seattle headquarters totaling $ 5.7 million , reduced restructuring and lease exit charges of $ 3.0 million and the litigation settlements of $ 11.5 million that occurred in 2013. consolidated operating expenses our operating expenses consist primarily of salaries and related personnel costs including stock based compensation , consulting fees associated with product development , sales commissions , amortization of certain intangible assets capitalized in our acquisitions , professional service fees , advertising costs , and restructuring charges . operating expenses were as follows ( dollars in thousands ) : replace_table_token_8_th research and development expenses decreased by $ 9.1 million , or 17 % , in the year ended 2015 , primarily due to reduced personnel and related costs savings of $ 8.4 million , of which $ 3.4 million was related to our slingo and social casino business , compared to 2014. research and development expenses decreased by $ 8.1 million , or 13 % , in the year ended 2014 , compared with 2013 . while we continue to invest in new products , we saw an overall decrease in personnel and related costs of $ 5.4 million , resulting from our ongoing expense re-alignment efforts in addition to $ 3.8 million savings from the relocation of our seattle headquarters . sales and marketing expenses decreased by $ 18.7 million , or 28 % , in the year ended 2015 , compared with 2014 . the decrease was due primarily due to reductions in personnel and related expenses of $ 9.7 million and decreased marketing expenses of $ 7.3 million , mainly related to the change in our third party distribution arrangements . the slingo and social casino business contributed $ 1.6 million of reduced personnel and related expenses , and $ 1.4 million of reduced marketing expenses . sales and marketing expenses decreased by $ 13.1 million , or 16 % , in the year ended 2014 , compared with 2013 . the decrease was due primarily to reductions in marketing expenses of $ 10.5 million , related to our third party distribution arrangements . general and administrative expenses decreased by $ 9.5 million , or 28 % , in the year ended 2015 , compared with 2014 . the decrease was primarily related to a reduction in personnel and related expenses of $ 6.3 million and an expense benefit of $ 2.4 million in 2015 for the release of certain previously accrued sales taxes . general and administrative expenses decreased by $ 2.6 million , or 7 % , in the year ended 2014 , compared with 2013 . contributing to the decrease for the period was a decrease in personnel and related costs of $ 1.8 million resulting from our ongoing expense re-alignment efforts . 23 restructuring and other charges and lease exit and related charges consist of costs associated with the ongoing reorganization of our business operations and our ongoing expense re-alignment efforts . the restructuring expense amounts in all years primarily related to severance costs due to workforce reductions . for additional details on these charges see note 10. restructuring charges and note 11. lease exit and related charges . loss on litigation settlements recorded during 2013 relates to settlement agreements executed in october 2013 , for which we paid in full an aggregate amount of $ 11.5 million during the fourth quarter of 2013 , as discussed in note 16. commitments and contingencies . other income ( expenses ) other income ( expenses ) , net was as follows ( dollars in thousands ) : replace_table_token_9_th as described further in note 4. rhapsody joint venture , we account for our investment in rhapsody under the equity method of accounting . the net carrying value of our investment in rhapsody is not necessarily indicative of the underlying fair value of our investment . the 2014 gain on sale of equity investments , net , was due to a $ 2.4 million gain on the sale of a portion of our shares held in j-stream . the 2013 gain on sale of equity investments , net , was due to a $ 21.4 million gain on the sale of all of our remaining shares of common stock in loen entertainment , inc. for additional details on the j-stream and loen transactions see note 5. fair value measurements . income taxes during the years ended december 31 , 2015 , 2014 , and 2013 , we recognized income tax benefit of $ 0.8 million , and income tax expense of $ 1.3 million and $ 4.9 million , respectively , related to u.s. and foreign income taxes . the tax benefit for the year ended december 31 , 2015 was largely the result of an income tax benefit related to the sale of the slingo and social casino games business in the quarter ended september 30 , 2015 offset by foreign withholding taxes and income taxes in foreign jurisdictions . the tax expense for the year ended december 31 , 2014 was largely the result of foreign withholding taxes and income taxes in foreign jurisdictions . the tax expense for the year ended december 31 , 2013 was largely the result of valuation allowances we recorded in certain foreign jurisdictions . we assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors , including the current economic climate , our expectations of future taxable income , our ability to project such income , and the appreciation of our investments and other assets . we maintain a partial valuation allowance of $ 173.9 million for our deferred tax assets due to uncertainty regarding their realization as of december 31 , 2015. the net increase in the valuation allowance since december 31 , 2014 of $ 24.4 million was the result of an increase in current year deferred tax assets for which the company maintains a valuation allowance .
| the reduction in revenue resulted from a decline of $ 36.0 million in our realplayer group segment , a decline of $ 12.7 million in our games segment , and a decline of $ 1.3 million in our mobile entertainment segment . gross margin decreased to 58 % from 62 % , primarily as a result of our transition to a new third party distribution arrangement at significantly lower rates compared to our previous partner in our realplayer business , and to declining sales in our storefront business in games . these decreases in gross margin were partially offset by the extinguishment in q1 2014 of certain accrued royalty liabilities of $ 10.6 million associated with our historical music business , which had been originally recorded based on statutory rates . operating expenses decreased by $ 38.3 million primarily due to reductions in personnel and related costs of $ 10.9 million , reductions in marketing costs of $ 10.4 million and lower costs related to our 2013 headquarters relocation of $ 5.7 million , which resulted from our ongoing expense re-alignment efforts , as well as litigation settlement costs of $ 11.5 million in the prior year . segment operating results realplayer group realplayer group segment results of operations were as follows ( dollars in thousands ) : replace_table_token_4_th 20 2015 compared with 2014 total realplayer group revenue in 2015 decreased by $ 10.1 million , or 26 % . this decrease was primarily due to our 2014 transition to a new third party distribution arrangement at significantly lower rates compared to our previous partner . this transition caused our third party distribution revenue to decrease by $ 8.8 million when compared to 2014. our superpass subscription revenue declined by $ 2.6 million due to fewer subscribers for this legacy product line and realplayer license revenue decreased by $ 1.6 million . these declines in revenue were offset in part by a $ 2.1 million increase in our ip licensing business . gross margin decreased by 18 percentage points , due primarily to our transition to a new third party distribution arrangement at significantly lower rates compared to
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83 pursuant to our license agreement with kyowa kirin co. , ltd. ( formerly kirin brewery co. , ltd. ) , or kkc , or the kkc agreement , which we entered to in december 2006 , we obtained an exclusive , sublicensable license to develop , manufacture and commercialize tivozanib in all territories in the world except for asia and the middle east , where kkc retained the rights to tivozanib . on august 1 , 2019 , we entered into an amendment to the kkc agreement pursuant to which kkc repurchased the non-oncology rights to tivozanib in our territory , excluding the rights we have sublicensed to eusa under the eusa agreement . we have upfront , milestone and royalty payment obligations to kkc under the kkc agreement , and following the amendment , kkc also has upfront , milestone and royalty payment obligations to us related to non-oncology development by kkc in our territory . pursuant to the amendment to the kkc agreement , kkc was required to make a non-refundable upfront payment to us in the amount of $ 25.0 million that w e received in september 2019 and kkc waived a one-time milestone payment of $ 18.0 million otherwise payable by us upon our obtaining marketing approval for tivozanib in the u.s. pursuant our license agreement with eusa , or the eusa agreement , which we entered into in december 2015 , we are entitled to receive certain milestone payments as well as research and development reimbursement payments . upon commercialization , we are eligible to receive tiered double-digit royalties on net sales , if any , of licensed products in its licensed territories ranging from a low double digit up to mid-twenty percent depending on the level of annual net sales . in november 2017 , we began earning sales royalties upon eusa 's commencement of the first commercial launch of tivozanib ( fotivda ) with the initiation of product sales in germany . ficlatuzumab . we are also developing ficlatuzumab for the treatment of hnscc , aml and pancreatic cancer with biodesix , inc. , or biodesix , under a worldwide co-development and collaboration agreement , or the biodesix agreement . under the biodesix agreement , we and biodesix each contribute half of the development costs of ficlatuzumab . we are currently sponsoring the cyfi-2 trial , which is a randomized phase 2 clinical trial evaluating ficlatuzumab in combination with high-dose cytarabine versus high-dose cytarabine alone in patients with aml that we initiated in november 2019. in addition , we and biodesix are funding an investigator-sponsored study of ficlatuzumab in erbitux® ( cetuximab ) refractory patients in hnscc . we recently announced results from an investigator-sponsored study of ficlatuzumab in combination with nab-paclitaxel and gemcitabine in pancreatic cancer . av-203 . we have partnered with canbridge life sciences ltd. , or canbridge , to develop , manufacture and commercialize av-203 in all countries outside of north america under a collaboration and license agreement with canbridge , or the canbridge agreement . we have retained the north american rights to av-203 . pursuant to the canbridge agreement , we are eligible to receive certain milestone payments and upon commercialization , tiered royalties on net sales from canbridge , which are subject to a sublicense fee payable by us to biogen idec international gmbh , or biogen . in december 2017 , canbridge filed an investigational new drug , or ind , application in china seeking regulatory authorization to initiate clinical trials of av-203 , which canbridge refers to as can017 , in esophageal squamous cell carcinoma , or escc . in august 2018 , the national medical products administration , or nmpa ( formerly the china food and drug administration ) approved this ind application . in march 2020 , canbridge advised us that it is evaluating nrg1 fusion biomarker directed development plans with the potential to initiate a clinical study in 2021. nrg1 fusions , which are certain alterations in the nrg1 gene that may cause increased levels of the growth factor nrg1 , are a potential biomarker for response to av-203 in various tumor types . av-380 . in connection with the av-380 program , we have in-licensed certain patents and patent applications from st. vincent 's hospital sydney limited in sydney , australia , which we refer to as st. vincent 's . pursuant to our license agreement with st. vincent 's , or the st. vincent 's agreement , we are required to make certain milestone payments and upon commercialization , tiered royalties on net sales to st. vincent 's . in august 2015 , we granted novartis international pharmaceutical ltd. , or novartis , the exclusive right to develop and commercialize av-380 and our related antibodies worldwide . novartis subsequently terminated the agreement and in august 2018 , we regained worldwide rights to the av-380 program . in 2019 , we initiated preclinical toxicology studies to support a potential ind filing with the fda in the second half of 2020. av-353 . we are currently evaluating options to develop av-353 . we do not have a history of generating operating profits and , as of december 31 , 2019 , we had an accumulated deficit of $ 585.6 million . our revenue was $ 28.8 million , $ 5.4 million , and $ 7.6 million and losses from operations were $ 0.4 million , $ 25.4 million and $ 28.8 million in the years ended december 31 , 2019 , 2018 and 2017 , respectively . we recorded net income of $ 9.4 million in the year ended december 31 , 2019 and net losses of $ 5.3 million and $ 65.0 million in the years ended december 31 , 2018 and 2017 , respectively . our net income for the year ended december 31 , 2019 was attributable to license revenue recognized during the period as well as other income recognized related to the change in fair value of the pipe warrants as described further within this management 's discussion and analysis of financial condition and results of operations . story_separator_special_tag we anticipate that we will continue to incur significant operating losses over the next several years as we continue our planned development activities for our preclinical and clinical stage assets and commence commercial launch-readiness initiatives in support of a possible commercial launch of tivozanib in rcc . recent events 84 on february 13 , 2020 , the holders of a majority of our outstanding shares of common stock approved the reverse stock split and gave our board of directors discretionary authority to select a ratio for the split ranging from 1-for-5 to 1-for-15 . our board of directors approved the reverse stock split at a ratio of 1-for-10 on february 13 , 2020. on february 19 , 2020 , we effected the reverse stock split of our outstanding shares of common stock at a ratio of one-for-ten pursuant to a certificate of amendment to our certificate of incorporation filed with the secretary of state of the state of delaware . the reverse stock split was reflected on nasdaq beginning with the opening of trading on february 20 , 2020. the primary purpose of the reverse stock split was to enable us to regain compliance with the $ 1.00 minimum bid price requirement for continued listing on nasdaq . the reverse stock split affected all issued and outstanding shares of our common stock , as well as the number of authorized shares of our common stock and the number of shares of common stock available for issuance under our equity incentive plans . the reverse stock split reduced the number of shares of our issued and outstanding common stock from approximately 160.8 million to approximately 16.1 million . in addition , the reverse stock split effected a reduction in the number of shares of our common stock issuable upon the exercise of stock options and warrants outstanding immediately prior to the reverse stock split , with a proportional increase in the respective exercise prices . the reverse stock split proportionately reduced the number of authorized shares of our common stock from 500.0 million shares to 50.0 million shares . the reverse stock split did not change the par value of our common stock or the authorized number of shares of our preferred stock . all references to shares of common stock outstanding and per share amounts in this annual report on form 10-k give effect to the reverse stock split unless otherwise indicated . going concern we have identified conditions and events that raise substantial doubt about our ability to continue as a going concern . to continue as a going concern , we must secure additional funding to support our current operating plan . as of december 31 , 2019 , we had approximately $ 47.7 million in cash , cash equivalents and marketable securities . based on our available cash resources , we do not have sufficient cash on hand to fund current operations for more than twelve months from the date of filing this annual report on form 10-k. this condition raises substantial doubt about our ability to continue as a going concern . we expect that , in order to obtain additional funding , we will need to receive additional milestone payments and royalties from our partners and / or complete additional public or private financings of debt or equity . we may also seek to procure additional funds through future arrangements with collaborators , licensees or other third parties , and these arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates . we may not receive milestone payments or be able to complete financings or enter into third-party arrangements on acceptable terms , if at all . for more information , refer to “ liquidity and capital resources—liquidity and going concern ” below and note 1 , “ — liquidity and going concern ” of the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k. financial overview we do not have a history of being profitable and , as of december 31 , 2019 , we had an accumulated deficit of $ 585.6 million . we anticipate that we will continue to incur significant operating losses over the next several years as we continue our planned development activities for our preclinical and clinical stage assets and commence commercial launch-readiness initiatives in support of a possible commercial launch of tivozanib in rcc . we will require substantial additional funding to continue our planned operating activities , and the timing and nature of activities contemplated for the remainder of 2020 and thereafter will be conducted subject to the availability of sufficient financial resources . refer to the “ liquidity and capital resources—liquidity and going concern ” section for a further discussion of our funding requirements . revenue on january 1 , 2018 , we adopted the provisions of accounting standards codification topic 606 , revenue from contracts with customers , or asc 606. refer to note 3 , “ significant accounting policies - revenue recognition ” and note 4 , “ collaborations and license agreements ” , to our consolidated financial statements included elsewhere in this annual report on form 10-k. our revenues have historically been generated primarily through collaborative research , development and commercialization agreements . payments to us under these arrangements typically include one or more of the following : non-refundable , upfront license fees ; option exercise fees ; funding of research and or development efforts ; milestone payments ; and royalties on future product sales . in november 2017 , we began earning sales royalties upon eusa 's commencement of the first commercial launch of tivozanib ( fotivda ) . 85 in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and research and development payments in connection with strategic partnerships , and royalties resulting from the sales of products developed under licenses of our intellectual property .
| revenues from eusa increased by $ 0.4 million , or 11 % , in 2019 as compared to 2018 and decreased by $ 1.0 million , or 23 % , in 2018 as compared to 2017. the $ 0.4 million increase in 2019 as compared to 2018 was principally due to the increase in royalty revenue from the sales of fotivda to $ 0.9 million in 2019 from $ 0.5 million in 2018. the $ 1.0 million decrease in 2018 as compared to 2017 was principally due to a $ 1.4 million net decrease related to the change in our accounting policy with respect to milestone payments upon the adoption of asc 606 on january 1 , 2018 , offset in part by a $ 0.4 million increase in royalty revenue from the sales of fotivda that commenced in november 2017. we recognized royalty revenue of approximately $ 19,000 in the year ended december 31 , 2017. previously , we recognized regulatory milestones when they were achieved in accordance with asc 605-28 , revenue recognition—milestone method . upon the adoption of asc 606 on january 1 , 2018 , milestone payments are included in the transaction price when they are no longer subject to the variable consideration constraint and , to the extent the milestone payment corresponds to a performance obligation where revenue is recognized over time , the milestone payment is recognized over the performance period . refer to note 4 “ collaborations and license agreements – eusa ” , to our consolidated financial statements included elsewhere in this annual report on form 10-k regarding the specific application of asc 606 to our eusa agreement . in 2019 , we earned a $ 2.0 million milestone payment under the eusa agreement for reimbursement approval for tivozanib ( fotivda ) in the first-line treatment of rcc from the mscbs in spain in february 2019. in 2018 , we earned $ 4.0 million in total milestone payments under the eusa agreement ,
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we recognized foreign currency expense of $ 5.3 million and $ 6.2 million in 2013 and 2012 , compared to a benefit of $ 1.1 million in 2011. the foreign currency benefit/expense related to changes in the value of the british pound sterling and the euro relative to the u.s. dollar . excluding the indemnification benefit and foreign currency benefit/expense , other operating expense increased 4 % in 2013 and 6 % in 2012 mainly due to increased employee compensation and benefits expense . approximately 64 % , 61 % and 62 % of our other operating expense in 2013 , 2012 and 2011 , respectively , related to employee compensation and benefits . other operating expense included $ 16.2 million , $ 13.2 million and $ 12.4 million of stock-based compensation expense in the respective three years . stock-based compensation expense was higher in 2013 due to the timing of vesting and forfeitures of awards . in 2013 , we granted $ 17.2 million of restricted stock awards and units , with a weighted-average life of 3.1 years . at december 31 , 2013 , there was approximately $ 28.3 million of total unrecognized compensation expense related to unvested options , restricted stock awards and units , and our employee stock purchase plan that is expected to be recognized over a weighted-average period of 2.6 years . in 2014 , we expect to recognize $ 11.3 million of expense for all stock-based awards outstanding at year-end 2013. interest expense interest expense was $ 26.2 million , $ 25.6 million and $ 23.1 million in 2013 , 2012 and 2011 , respectively . our interest expense has increased due to a higher amount of outstanding borrowings on our $ 600.0 million revolving loan facility . interest expense included $ 19.3 million per year for our senior notes . income tax expense our income taxes are due to u.s. federal , state , local and foreign jurisdictions . our effective income tax rate was 28.9 % for 2013 , compared to 29.4 % for 2012 and 28.1 % for 2011. fluctuations in our effective tax rates are due to the relationship of pretax income and tax-exempt investment income . our pretax income was substantially higher in 2013 and 2012 than in 2011 , whereas our tax-exempt investment income increased slightly each year . the lower effective rate in 2011 related to the increased benefit from tax-exempt investment income relative to a lower pretax income base . segment operations each of our insurance segments bears risk for insurance coverage written within its portfolio of insurance products . each segment generates income from premium written by our underwriting agencies , through third party agents and brokers , or on a direct basis . certain segments also write facultative or individual account reinsurance , as well as treaty reinsurance business . in some cases , we purchase reinsurance to limit our losses from both individual policy losses and multiple policy losses from catastrophic occurrences . our segments maintain disciplined expense management and a streamlined management structure , which results in favorable expense ratios . the following provides operational information about our insurance underwriting segments and our investing segment . 39 u.s. property & casualty segment the following tables summarize the operations of the u.s. property & casualty segment . replace_table_token_16_th our u.s. property & casualty segment pretax earnings increased $ 51.1 million in 2013 , compared to 2012 , primarily due to : 1 ) net favorable loss development of $ 39.4 million in 2013 , compared to net adverse development of $ 2.3 million in 2012 and 2 ) net catastrophe losses of $ 2.0 million in 2013 , compared to $ 11.3 million in 2012 . 40 the segment 's net earned premium increased in 2013 , compared to 2012 , due to higher writings by our new underwriting teams for the excess casualty , primary casualty and technical property lines of business , as well as for sports and entertainment disability , residual value and title reinsurance ( all grouped in other ) . the increase in net earned premium in 2012 primarily related to the new underwriting teams , as well as increases in aviation , public risk , contingency , residual value and other premium . in 2012 and 2013 , we wrote less premium in some lines of business , particularly aviation and e & o , due to continued competition . changes in the segment 's net written premium relative to gross written premium were primarily due to writing more of the highly ceded disability and other business in 2013. the net ( favorable ) adverse loss development recognized by line of business was as follows : replace_table_token_17_th the net loss development resulted from our annual review of reserves for this segment , which we conducted in the third quarter of each year . the majority of the lines of business in this segment provide primary coverage , and claims are reported and settled on a short to medium-term basis . accordingly , changes to our ultimate losses for a given underwriting year typically result from revised actuarial expectations , as compared to the prior year reserve review , with respect to the settlement value of known claims . we recognized favorable development in 2013 in our aviation line of business primarily for treaty years 2011 and prior due to better than expected actuarially-indicated results since our prior annual review . we experienced substantially lower losses and loss ratios in our e & o line of business in 2013 , due to favorable development in 2013 ( primarily for underwriting years 2010 and 2011 ) , compared to adverse development in 2012 and 2011 ( both years primarily related to underwriting years 2005 2010 ) . story_separator_special_tag the public risk line of business recognized adverse development in 2012 due to deteriorating results compared to actuarial expectations , particularly from large property losses , related to underwriting years 2009 and 2010. this adverse development was partially offset by favorable development from release of $ 2.5 million of catastrophe reserves related to hurricane irene ( 2011 ) . the various lines of business included in other recognized net favorable development of $ 24.2 million , $ 12.1 million and $ 8.3 million in 2013 , 2012 and 2011 , respectively . one product line , which is a run-off assumed quota share contract for business that we wrote from 2003 2008 , recognized favorable development of $ 17.0 million in 2013 , $ 5.6 million in 2012 and $ 7.5 million in 2011 , due to continued better than expected actuarial results since the prior annual review . the remaining net favorable development in other was not material for any one product line in any of the years presented . the public risk line of business incurred catastrophe losses of : 1 ) 2013 midwest tornados ( $ 2.0 million ) ; 2 ) 2012 superstorm sandy ( $ 3.8 million ) and united states spring storms ( $ 3.2 million ) ; and 3 ) 2011 hurricane irene ( $ 5.0 million ) . various lines of business incurred additional catastrophe losses of $ 4.3 million in 2012 , mainly for superstorm sandy , and $ 1.2 million in 2011. operating expense increased in 2012 and 2013 due to increasing compensation costs , mainly related to new underwriting teams . the segment 's expense ratio was lower in 2013 primarily due to higher ceding commissions ( that offset policy acquisition costs ) from increased writings of our highly-ceded sports and entertainment disability product . 41 professional liability segment the following tables summarize the operations of the professional liability segment . replace_table_token_18_th our professional liability segment pretax earnings increased $ 7.5 million in 2013 , compared to 2012 , due to an improved net loss ratio , primarily related to re-underwriting of our diversified financial products ( dfp ) line of business in u.s. d & o beginning in 2012. the segment 's pretax earnings increased $ 74.6 million in 2012 , compared to 2011 , primarily due to $ 25.9 million of net favorable loss development in 2012 compared to $ 47.1 million of net adverse development in 2011. the segment 's premium decreased from 2011 to 2013 due to lower writings of our directors ' and officers ' liability and dfp products , mainly due to pricing competition and re-underwriting our dfp business . net written premium and net earned premium also reflect the impact of reduced retention under our reinsurance program during the past two years . 42 the segment had net favorable loss development of $ 26.3 million in 2013 and $ 25.9 million in 2012 , compared to net adverse development of $ 47.1 million in 2011. the development in each period resulted from our annual review of reserves for this segment , which we conducted in the third quarter of each year . the majority of the insurance coverage in this segment is provided through claims made policies , and the final settlement value of these claims is not expected to be determined for several years due to the underlying complex nature of the claims . accordingly , changes to our ultimate losses for a given underwriting year typically result from management 's revised expectations , as compared to the prior year reserve review , with respect to the settlement value of known claims . the 2013 net favorable development consisted of $ 15.5 million in u.s. d & o and $ 10.8 million in international d & o . our 2013 review indicated better than expected experience for underwriting years prior to 2007 as well as 2009 and 2010 ( totaling $ 64.2 million ) , partially offset by reserve strengthening of $ 37.9 million in underwriting years 2007 and 2008 , which were impacted by the worldwide financial crisis . reserves for dfp performed slightly better than expected in the past year , but no changes were made to the estimated ultimate losses given the continued evaluation and re-underwriting of this line of business . the 2012 net favorable development consisted of $ 9.0 million in u.s. d & o and $ 16.9 million in international d & o . our 2012 review indicated that incurred loss development , primarily for underwriting years 2005 and 2006 , was lower than expected as compared to our 2011 review , primarily due to actual outcomes on reported claims . this favorable development was partially offset by higher estimates of ultimate losses in the 2008 underwriting year , driven by our revised expectations with regard to the expected outcomes on outstanding claims , based upon actuarial loss development and other information available since the prior review . the 2011 net adverse development related to our dfp line of business , which provides coverage for private equity partnerships , hedge funds , investment managers and similar groups . in 2011 , dfp recorded $ 104.2 million of adverse development , as well as $ 37.3 million of additional losses related to our increase in the ultimate loss ratio for accident year 2011. these reserve changes resulted primarily from revised assumptions with regards to the frequency and severity of claims in the 2008 2011 accident years , with the majority of the impact in the 2009 2011 accident years . our expectation prior to our third quarter 2011 review was that the frequency and severity of claims after 2008 would be more consistent with our experience prior to the worldwide financial crisis in 2007 and 2008. however , our reserve review indicated that loss experience was emerging consistent with the financial crisis period , prompting our revised assumptions at that time .
| 35 revenue we generate our revenue from five primary sources : risk-bearing earned premium produced by our insurance underwriting segments , investment income earned on our consolidated investment portfolio by our investing segment , fee and commission income received from third party insurers for premium produced for them by our underwriting agencies , transaction-based revenues , primarily related to residual value and mortgage reinsurance products in our u.s. property & casualty segment , and realized investment gains and losses related to our investment portfolio . total revenue increased $ 11.1 million in 2013 , compared to 2012 , primarily due to higher net realized investment gains . total revenue increased $ 151.8 million in 2012 , compared to 2011 , primarily due to higher net earned premium , net investment income and net realized investment gains . gross written premium , net written premium and net earned premium are detailed below by segment . replace_table_token_12_th the 2013 and 2012 growth in gross written premium from our insurance underwriting segments occurred primarily in : 1 ) the u.s. property & casualty segment , from new business lines started in 2011 and increased writings of our disability product , 2 ) the accident & health segment , from the growth of our medical stop-loss product and 3 ) the international segment , from new business and price increases in 2012 in our energy line of business . our net written premium was flat in 2013 compared to 2012 due to increased quota share reinsurance in 2013. see the segment operations section below for further discussion of the relationship and changes in premium revenue within each insurance segment . 36 net investment income , which is included in our investing segment , decreased 1 % in 2013 , primarily due to reduced reinvestment yields . net investment income increased 5 % in 2012 due to growth in our investment portfolio , partially offset by the effect of reduced reinvestment yields . the cost basis of our fixed maturity and equity securities portfolios increased 4 % in 2013 and 11 % in 2012 , from $ 5.5 billion at december 31 ,
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new business awards and backlog we add new business awards to backlog when we enter into a contract or when we receive a written commitment from the customer selecting us as its service provider , provided that ( i ) the customer has received appropriate internal funding approval , ( ii ) the project or projects are not contingent upon completion of another trial or event , ( iii ) the project or projects are expected to commence within the next 12 months and ( iv ) in the case of a written commitment from a customer , the customer intends to enter into a comprehensive contract as soon as practicable . contracts generally have terms ranging from several months to several years . we recognize revenue on these awards as services are performed , provided we have entered into a contractual commitment with the customer . our new business awards , net of cancellations of prior awards , for the years ended december 31 , 2014 , 2013 and 2012 were $ 949.8 million , $ 814.2 million and $ 676.3 million , respectively , representing a 16.7 % increase from 2013 to 2014 and a 20.4 % increase from 2012 to 2013. net new business awards were negatively impacted for the twelve months ended december 31 , 2014 , as a result of a cancellation of approximately $ 132.0 million of interrelated programs during the second quarter of 2014 due to scientific concerns a customer had with the viability of the compound under development . this cancellation reduced net awards by $ 85.0 million during the twelve months ended december 31 , 2014 . new business awards have varied and will continue to vary significantly from quarter to quarter . the dollar amount of our backlog consists of anticipated future net service revenue from business awards that either have not started but are anticipated to begin in the future , or that are in process and have not been completed . our backlog also reflects any cancellation or adjustment activity related to these contracts . the average duration of our contracts will fluctuate from period to period in the future based on the contracts comprising our backlog at any given time . the majority of our contracts can be terminated by our customers with 30 days ' notice . the dollar amount of our backlog is adjusted each quarter for foreign currency fluctuations . during the year ended december 31 , 2014 our backlog was negatively impacted by foreign currency fluctuations of approximately $ 44.5 million . our backlog as of december 31 , 2014 , 2013 and 2012 was $ 1.6 billion , $ 1.5 billion and $ 1.3 billion , respectively , representing a 6.6 % increase from 2013 to 2014 and a 12.9 % increase from 2012 to 2013. included within backlog at december 31 , 2014 is approximately $ 0.8 billion that we expect to generate revenue in 2015 , with the remainder expected to generate revenue beyond 2015. we believe that backlog and net new business awards might not be consistent indicators of future revenue because they have been , and likely will be , affected by a number of factors , including the variable size and duration of projects , many of which are performed over several years , and cancellations and changes to the scope of work during the course of projects . additionally , projects may be canceled or delayed by the customer or delayed by regulatory authorities . projects that have been delayed for less than 12 months remain in backlog , but the anticipated timing of the recognition of revenue is uncertain . we generally do not have a contractual right to the full amount of the revenue reflected in our backlog . if a customer cancels an award , we might be reimbursed for the costs we have incurred . fluctuations in our reported backlog and net new business award levels also result from the fact that we may receive a small number of relatively large orders in any given reporting period . because of these large orders , our backlog and net new business awards in that reporting period might reach levels that are not sustained in subsequent reporting periods . as we increasingly compete for and enter into large contracts that are more global in nature , we expect the rate at which our backlog and net new business awards convert into revenue to decrease , or lengthen . see part i , item 1a `` risk factors—risks related to our business—our backlog might not be indicative of our future revenues , and we might not realize all of the anticipated future revenue reflected in our backlog '' for more information . 53 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:10px ; padding-top:10px ; font-size:10pt ; '' > selling , general and administrative expenses for the years ended december 31 , 2014 , 2013 and 2012 , selling , general and administrative expenses were as follows ( dollars in thousands ) : replace_table_token_8_th the following is a summary of the year-over-year fluctuation in components of our selling , general and administrative expenses during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 and the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 ( in thousands ) : replace_table_token_9_th selling , general and administrative expenses increased by $ 27.3 million , or 23.1 % , to $ 145.1 million for the year ended december 31 , 2014 from $ 117.9 million for the year ended december 31 , 2013 . story_separator_special_tag the increase was primarily driven by ( i ) an increase in salaries , benefits , and incentive compensation from increased headcount and incentive compensation resulting from our growth in new business awards and operational performance , ( ii ) an increase in professional services fees as a result of our ipo , including costs associated with internal control documentation and the review of our quarterly results , ( iii ) an increase in allowance for doubtful accounts commensurate with the growth in our business , ( iv ) an increase in facilities and information technology related cost to support our headcount growth and ( v ) an increase in travel costs as a result of 56 increased headcount and growth in our global operations . partially offsetting these increases is a decrease in marketing expense due to the launch of our new branding campaign in the fourth quarter of 2013. selling , general and administrative expenses for the year ended december 31 , 2013 were $ 117.9 million , compared to $ 109.4 million for the year ended december 31 , 2012 . the increase of $ 8.5 million , or 7.7 % , was primarily driven by an increase in business development expense in line with the increase in net new business awards and revenue , marketing expense associated with our new branding campaign and incentive compensation expense due to improved company performance . as a result of our cost savings initiatives and our ability to leverage the selling , general and administrative functions as we have grown revenue , these expenses as a percentage of net service revenue declined to 17.9 % from 18.1 % and 18.9 % for years ended december 31 , 2014 , 2013 and 2012 , respectively , despite increased cost related to our ipo and increases in our allowance for doubtful accounts . while we expect to continue to leverage our selling , general and administrative costs in the future such that these costs grow at a lower rate than revenues over the long-term , during 2015 our ability to leverage these costs will be negatively impacted by an expected increase in administrative and compliance costs of between $ 3.0 million and $ 5.0 million associated with being a public company . restructuring and other costs restructuring and other costs were $ 6.2 million for the year ended december 31 , 2014 , primarily consisting of facilities closure expenses totaling $ 3.4 million and severance costs totaling $ 2.7 million . our restructuring activities consisted primarily of the closure of our glasgow facility and partial closure of our cincinnati facility initiated in the second quarter of 2014. restructuring and other costs were $ 11.8 million for the year ended december 31 , 2013 , primarily comprised of severance costs of $ 7.9 million and lease costs of $ 1.8 million for abandoned facilities related to the 2013 restructuring plan . this plan was adopted to better align headcount and costs with our current geographic sources and mix of revenue and included a reduction of approximately 325 employee and contract positions . restructuring and other costs also include $ 2.1 million in legal fees and consulting fees , primarily incurred in connection with legal entity restructuring related to the 2011 acquisition of kendle . restructuring and other costs were $ 35.4 million for the year ended december 31 , 2012 , primarily comprised of $ 13.9 million in lease obligation and termination costs in connection with the abandonment and closure of redundant facilities and $ 13.3 million in severance costs . restructuring costs also include it and other professional fees of $ 8.2 million , primarily related to our integration activities associated with the 2011 acquisition of kendle . transaction expenses transaction expenses were $ 7.9 million for the year ended december 31 , 2014 and primarily consisted of ( i ) $ 4.2 million of debt issuance costs and third party fees associated with the debt refinancings in february 2014 and november 2014 , ( ii ) a $ 3.4 million payment to avista to terminate our consulting services agreement , and ( iii ) $ 0.3 million of legal fees associated with our march 2014 acquisition of mek consulting , a full service cro with operations in the middle east . transaction expenses were $ 0.5 million for the year ended december 31 , 2013 , primarily consisting of third-party fees associated with the debt refinancing and legal fees associated with the mek consulting acquisition . goodwill and intangible asset impairment charges we evaluate goodwill for impairment annually , or more frequently if events or changes in circumstances indicate that goodwill might be impaired . we perform our annual impairment test by estimating the fair value of each reporting unit using a combination of the income and market approaches for purposes of estimating our total fair value of the reporting unit . during the second quarter of 2014 , we determined that phase i services and global consulting reporting units were not performing according to management 's expectations , requiring an evaluation of the impairment of the goodwill and intangible assets . as a result of this evaluation , we recorded a $ 9.2 million impairment of goodwill and an $ 8.0 million impairment of intangible assets associated with our phase i services and global consulting reporting units for the year ended december 31 , 2014 . in connection with our annual goodwill 57 impairment analysis performed in the fourth quarter , our phase i services reporting unit failed step i of the goodwill impairment test . we performed step ii of the goodwill impairment test to asses if the goodwill has been impaired , which resulted in no further impairment during 2014. the goodwill balance of our phase i services reporting unit was $ 2.9 million as of december 31 , 2014 . we will continue to evaluate our phase i services reporting unit for potential future impairment as warranted .
| reimbursable out-of-pocket expenses increased 7.7 % , or $ 26.4 million , to $ 369.1 million for the year ended december 31 , 2014 from $ 342.7 million for the year ended december 31 , 2013 . reimbursable out-of-pocket expenses increased 18.4 % , or $ 53.2 million , to $ 342.7 million for the year ended december 31 , 2013 , compared to $ 289.5 million for the year ended december 31 , 2012 . these increases were principally due to overall increases in net service revenue during both periods , as well as an increase in the number of studies in which we procured principal investigator services . these reimbursements are offset by an equal amount in direct costs and , accordingly , have no impact on gross margin . reimbursable out-of-pocket expenses fluctuate significantly from period to period based on the timing of program initiation or closeout and the mix of program complexity and do not necessarily change in correlation to net service revenues . net service revenue from our top five customers accounted for approximately 37 % , 34 % and 26 % of total net service revenue for the years ended december 31 , 2014 , 2013 and 2012 , respectively . various subsidiaries of otsuka holdings co. , ltd. accounted for approximately 14 % , 15 % and 12 % of total net service revenue for the years ended december 31 , 2014 , 2013 and 2012 , respectively . various subsidiaries of astellas pharma , inc. accounted for 12 % of net service revenue for the year ended december 31 , 2014 . direct costs and reimbursable out-of-pocket expenses for the years ended december 31 , 2014 , 2013 and 2012 , direct costs and reimbursable out-of-pocket expenses were as follows ( dollars in thousands ) : replace_table_token_6_th the following is a summary of the year-over-year fluctuation in components of direct costs during the year ended december 31 , 2014 as compared to
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net earnings attributable to the company were $ 861.7 million , or diluted eps of $ 11.47 for 2018 compared to net earnings attributable to the company of $ 971.6 million , or diluted eps of $ 12.98 for 2017 . the decrease in eps was primarily attributable to higher inflation , higher start-up costs , and costs due to temporarily reducing production to align with softer market conditions , partially offset by the favorable net impact of price and product mix , increased sales volume , productivity gained from capital investments , cost reduction initiatives and decreased income tax expense . the company benefited from a lower effective tax rate as a result of the recent reforms in the u.s. and belgium . for the year ended december 31 , 2018 , the company generated $ 1,181.3 million of cash from operating activities . as of december 31 , 2018 , the company had cash and cash equivalents of $ 119.1 million , of which $ 31.0 million was in the united states and $ 88.1 million was in foreign countries . recent events on november 16 , 2018 , the company completed its acquisition of eliane s/a revestimentos ceramicos , one of the largest ceramic tile companies in brazil , further extending mohawk 's global position in new markets . pursuant to the purchase agreement , the company ( i ) acquired the entire issued share capital of eliane and ( ii ) acquired $ 99.0 million of indebtedness of eliane , with total cash consideration paid of $ 148.7 million including cash held in escrow of $ 5.3 million . on january 31 , 2019 , the company completed an acquisition of a hard surface flooring distribution company based in the netherlands for approximately 60.6 million . 24 index to financial statements story_separator_special_tag temporarily reducing production , and approximately $ 13 million of costs associated with investments in new product development , sales personnel , marketing , and the net impact of unfavorable foreign exchange rates partially offset by the favorable net impact of price and product mix of approximately $ 68 million , increased sales volume of approximately $ 9 million , and savings from capital investments and cost reduction initiatives of approximately $ 35 million . global ceramic segment —operating income was $ 442.9 million ( 12.5 % of segment net sales ) for 2018 reflecting a decrease of $ 82.5 million , or 15.7 % , compared to operating income of $ 525.4 million ( 15.4 % of segment net sales ) for 2017 . the decrease in operating income was primarily attributable to higher inflation costs of approximately $ 97 million , the unfavorable net impact of price and product mix of approximately $ 28 million , approximately $ 25 million of costs due to temporarily reducing production , and approximately $ 11 million of costs associated with investments in new product development , sales personnel , and marketing , partially offset by savings from capital investments and cost reduction initiatives of approximately $ 63 million , and increased sales volume of approximately $ 24 million . flooring na segment —operating income was $ 347.9 million ( 8.6 % of segment net sales ) for 2018 reflecting a decrease of $ 192.4 million , or 35.6 % , compared to operating income of $ 540.3 million ( 13.5 % of segment net sales ) for 2017 . the decrease in operating income was primarily attributable to higher inflation costs of approximately $ 126 million , including increased material costs of approximately $ 108 million , an increase in costs of approximately $ 64 million due to lower than expected production volumes , the ramp up of new products and higher logistics costs , lower sales volume of approximately $ 23 million , approximately $ 16 million of start-up costs associated with large investments to expand sales , add product categories , and enter new markets , and approximately $ 13 million of costs due to temporarily reducing production , partially offset by the favorable net impact of price and product mix of approximately $ 43 million , and savings from capital investments and cost reduction initiatives of approximately $ 17 million . flooring row segment —operating income was $ 345.8 million ( 14.4 % of segment net sales ) for 2018 reflecting an increase of $ 16.7 million , or 5.1 % , compared to operating income of $ 329.1 million ( 15.9 % of segment net sales ) for 2017 . the increase in operating income was primarily attributable to the favorable net impact of price and product mix of approximately $ 54 million , savings from capital investments and cost reduction initiatives of approximately $ 20 million , increased sales volume of approximately $ 4 million , partially offset by approximately $ 27 million of start-up costs associated with large investments to expand sales , add product categories , and enter new markets , higher inflation costs of approximately $ 23 million , and $ 16 million due to the unfavorable impact of higher restructuring , acquisition and integration-related costs . interest expense interest expense was $ 38.8 million for 2018 , reflecting an increase of $ 7.7 million compared to interest expense of $ 31.1 million for 2017 . the increase was primarily attributable to the increase in interest rates during 2018 and the early extinguishment of acquisition debt . other expense ( income ) other expense was $ 7.3 million for 2018 , reflecting an unfavorable change of $ 2.1 million compared to other income of $ 5.2 million for 2017 . the change was primarily due to the increased unfavorable impact of foreign exchange rates on transactions in the current year . story_separator_special_tag 27 index to financial statements income tax expense for 2018 , the company recorded income tax expense of $ 184.3 million on earnings before income taxes of $ 1,049.2 million for an effective tax rate of 17.6 % , as compared to an income tax expense of $ 343.2 million on earnings before income taxes of $ 1,317.9 million , resulting in an effective tax rate of 26.0 % for 2017 . the decrease in the year-over-year tax expense of $ 158.9 million was primarily driven by the geographic dispersion of the company 's earnings for 2018 , subject to tax at the reduced rates in effect in the u.s. and belgium , of $ 181.6 million , and the reduction to the transition tax and related tax planning initiatives of $ 163.4 million , partially offset by the one-time 2017 restatement of the company 's deferred tax liabilities of $ 139.9 million , the one-time italian tax planning election of $ 10.3 million , the restatement of certain state deferred tax assets of $ 20.4 million , and various other items of $ 15.5 million . in december of 2017 , the u.s. and belgium enacted tax reform legislation . the u.s. legislation , the tax cuts and jobs act ( “ tcja ” ) , is the most significant and complex change to the u.s. tax law in more than 30 years and requires the combined effort of the company 's finance , tax , and treasury departments to ensure the proper accounting of its comprehensive changes . the most significant provisions of the tcja , were the reduction of the corporate income tax rate from 35 % to 21 % effective january 1 , 2018 , implementation of a territorial income tax regime , and imposition of a transition tax on the deemed repatriation of the accumulated earnings of the company 's foreign subsidiaries . the most significant provisions of the belgium legislation were the reduction of the corporate income tax rate from 33.99 % to 29.58 % for 2018 and 2019 , with a further reduction to 25 % effective january 1 , 2020 , an annual limitation on the utilization of net operating losses , and creation of a consolidated corporate income tax regime . as a result of the tax reform legislation , for the year ended december 31 , 2017 , the company recorded a net tax expense of $ 0.8 million related primarily to the non-cash tax benefit of the revaluation of its belgian deferred tax liabilities , the non-cash tax benefit of the provisional revaluation of its u.s. deferred tax liabilities , and the tax expense of the provisional accrual associated with the deemed repatriation transition tax . this represented a reasonable estimate of the impact of all tax law changes on the company 's financial statements in accordance with sab 118. in accordance with the sab 118 measurement period , the company has completed its accounting for the income tax effects of all elements of the tcja . see note 13-income taxes . year ended december 31 , 2017 , as compared with year ended december 31 , 2016 net sales net sales for 2017 were $ 9,491.3 million , reflecting an increase of $ 532.2 million , or 5.9 % , from the $ 8,959.1 million reported for 2016. the increase was primarily attributable to higher sales volume of approximately $ 245 million , or 3 % , which includes sales volumes attributable to acquisitions of approximately $ 137 million and legacy sales volumes of approximately $ 107 million , the favorable net impact of price and product mix of approximately $ 218 million , or 2 % , and the favorable impact of foreign exchange rates of approximately $ 69 million , or 1 % . global ceramic segment —net sales increased $ 230.4 million , or 7.3 % , to $ 3,405.1 million for 2017 , compared to $ 3,174.7 million for 2016. the increase was primarily attributable to higher sales volume of approximately $ 162 million , or 5 % , which includes sales volume attributable to acquisitions of approximately $ 137 million and legacy sales volume of approximately $ 24 million , the favorable net impact of foreign exchange rates of approximately $ 39 million , or 1 % , and the favorable net impact of price and product mix of approximately $ 29 million , or 1 % . flooring na segment —net sales increased $ 145.1 million , or 3.8 % , to $ 4,010.9 million for 2017 , compared to $ 3,865.7 million for 2016. the increase was primarily attributable to higher sales volumes of approximately $ 39 million , or 1 % , and the favorable net impact of price and product mix of $ 105 million , or 3 % . flooring row segment —net sales increased $ 156.8 million , or 8.2 % , to $ 2,075.5 million for 2017 , compared to $ 1,918.6 million for 2016. the increase was primarily attributable to higher sales volume of approximately $ 44 million , or 2 % , the favorable net impact of price and product mix of approximately $ 83 million , or 4 % , and the favorable net impact of foreign exchange rates of approximately $ 30 million , or 2 % . 28 index to financial statements quarterly net sales and the percentage changes in net sales by quarter for 2017 versus 2016 were as follows ( dollars in millions ) : replace_table_token_6_th gross profit gross profit for 2017 was $ 2,996.4 million ( 31.6 % of net sales ) , an increase of $ 183.6 million or 6.5 % , compared to gross profit of $ 2,812.8 million ( 31.4 % of net sales ) for 2016. as a percentage of net sales , gross profit increased 20 basis points .
| flooring row segment —net sales increase d $ 326.2 million , or 15.7 % , to $ 2,401.6 million for 2018 , compared to $ 2,075.5 million for 2017 . the increase was primarily attributable to higher sales volume of approximately $ 179 million , or 9 % , which includes sales volume attributable to acquisitions of approximately $ 147 million and legacy sales volume of approximately $ 32 million , the favorable net impact of price and product mix of approximately $ 71 million , or 3 % , and the favorable net impact of foreign exchange rates of approximately $ 76 million , or 4 % . quarterly net sales and the percentage changes in net sales by quarter for 2018 versus 2017 were as follows ( dollars in millions ) : replace_table_token_5_th gross profit gross profit for 2018 was $ 2,838.1 million ( 28.4 % of net sales ) , a decrease of $ 158.3 million or 5.3 % , compared to gross profit of $ 2,996.4 million ( 31.6 % of net sales ) for 2017 . as a percentage of net sales , gross profit decreased 314 basis points . the decrease in gross profit dollars was primarily attributable to higher inflation costs of approximately $ 230 million , including increased material costs of approximately $ 140 million , approximately $ 40 million of start-up costs associated with large investments to expand sales , add product categories and enter new markets , approximately $ 37 million of costs due to temporarily reducing production , and the unfavorable impact of higher restructuring , acquisition and integration-related and other costs of approximately $ 13 million , partially offset by the favorable net impact of price and product mix of approximately $ 68 million , higher sales volume of approximately $ 54 million and savings from capital investments and cost reduction initiatives of approximately $ 28 million and the net impact of favorable foreign exchange rates of approximately $ 12
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license and collaboration agreement with biogen ampyra is marketed as fampyra outside the u.s. by biogen international gmbh ( formerly biogen idec international gmbh ) , or biogen , under a license and collaboration agreement that we entered into in june 2009. fampyra has been approved in a number of countries across europe , asia and the americas . biogen anticipates making fampyra available in additional markets in 2016. under our agreement with biogen , we are entitled to receive double-digit tiered royalties on sales of fampyra and we are also entitled to receive additional payments based on achievement of certain regulatory and sales milestones . we received a $ 25 million milestone payment from biogen in 2011 , which was triggered by biogen 's receipt of conditional approval from the european 92 commission for fampyra . the next expected milestone payment would be $ 15 million , due when ex-u.s. net sales exceed $ 100 million over four consecutive quarters . ampyra patent update we have five issued patents listed in the orange book for ampyra , as follows : · the first is u.s. patent no . 8,007,826 , with claims relating to methods to improve walking in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . based on the final patent term adjustment calculation of the united states patent and trademark office , or uspto , this patent will extend into 2027 . · the second is u.s. patent no . 5,540,938 , the claims of which relate to methods for treating a neurological disease , such as ms , and cover the use of a sustained release dalfampridine formulation , such as ampyra ( dalfampridine ) extended release tablets , 10 mg for improving walking in people with ms. in april 2013 , this patent received a five year patent term extension under the patent restoration provisions of the hatch-waxman act . with a five year patent term extension , this patent will expire in 2018. we have an exclusive license to this patent from alkermes ( originally with elan , but transferred to alkermes as part of its acquisition of elan 's drug technologies business ) . · the third is u.s. patent no . 8,354,437 , which includes claims relating to methods to improve walking , increase walking speed , and treat walking disability in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . this patent is set to expire in 2026 . · the fourth is u.s. patent no . 8,440,703 , which includes claims directed to methods of improving lower extremity function and walking and increasing walking speed in patients with ms by administering less than 15 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . this patent is set to expire in 2025 . · the fifth is u.s. patent no . 8,663,685 with claims relating to methods to improve walking in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . absent patent term adjustment , the patent is set to expire in 2025. ampyra also has orphan drug designation , which gives it marketing exclusivity in the u.s. until january 2017. our orange book-listed patents for ampyra are the subject of lawsuits relating to paragraph iv certification notices received from several generic drug manufacturers , and also inter partes review ( ipr ) petitions filed by a hedge fund with the u.s. patent and trademark office . an adverse outcome in these legal proceedings could result in our loss of some or all orange-book listed patents that we rely on for ampyra . these legal proceedings are described in part i , item 3 of this report . in 2011 , the european patent office , or epo , granted ep 1732548 , with claims relating to , among other things , use of a sustained release aminopyridine composition , such as dalfampridine ( known under the trade name fampyra in the european union ) , to increase walking speed . in march 2012 , synthon b.v. and neuraxpharm arzneimittel gmbh filed oppositions with the epo challenging the ep 1732548 patent . we defended the patent , and in december 2013 , we announced that the epo opposition division upheld amended claims in this patent covering a sustained release formulation of dalfampridine for increasing walking in patients with ms through twice daily dosing at 10 mg. both synthon b.v. and neuraxpharm arzneimittel gmbh have appealed the decision . in december 2013 , synthon b.v. , neuraxpharm arzneimittel gmbh and actavis group ptc ehf filed oppositions with the epo challenging our ep 2377536 patent , which is a divisional of the ep 1732548 patent . on february 24 , 2016 , the epo opposition division rendered a decision that revoked the ep 2377536 patent . we 93 believe the claims of this patent are valid and we have appealed the decision . both european patents , if upheld as valid , are set to expire in 2025 , absent any additional exclusivity granted based on regulatory review timelines . fampyra also has 10 years of market exclusivity in the european union that is set to expire in 2021. we will vigorously defend our intellectual property rights . zanaflex zanaflex capsules and zanaflex tablets are fda-approved as short-acting drugs for the management of spasticity , a symptom of many central nervous system disorders , including ms and spinal cord injury . these products contain tizanidine hydrochloride , one of the two leading drugs used to treat spasticity . we launched zanaflex capsules in april 2005 as part of our strategy to build a commercial platform for the potential market launch of ampyra . story_separator_special_tag combined net revenue of zanaflex capsules and zanaflex tablets was $ 24.4 million for the year ended december 31 , 2015 and $ 1.5 million for the year ended december 31 , 2014. net revenue includes the impact of a one-time increase in net revenue of $ 22.2 million in the quarter ended september 30 , 2015 , representing the cumulative impact of our conversion from the sell-through to the sell-in method of revenue recognition . under the sell-in method of revenue recognition , revenue is recognized when the product is shipped to the distributor , whereas under the sell-through method , revenue is recognized when the product is prescribed to the patient . going forward , zanaflex revenue will be recognized under the sell-in method of revenue recognition . in 2012 , apotex commercially launched a generic version of tizanidine hydrochloride capsules , and we also launched our own authorized generic version , which is being marketed by an allergan subsidiary as part of its actavis business ( originally watson pharma , inc. ) . in march 2013 , mylan pharmaceuticals commercially launched their own generic version of zanaflex capsules . the commercial launch of generic tizanidine hydrochloride capsules has caused a significant decline in net revenue from the sale of zanaflex capsules , and the launch of these generic versions and the potential launch of other generic versions is expected to cause the company 's net revenue from zanaflex capsules to decline further in 2016 and beyond . qutenza qutenza is a dermal patch containing 8 % prescription strength capsaicin the effects of which can last up to three months and is approved by the fda for the management of neuropathic pain associated with post-herpetic neuralgia , also known as post-shingles pain . we acquired commercialization rights to qutenza in july 2013 from neurogesx , inc. these rights include the u.s. , canada , latin america and certain other territories . qutenza was approved by the fda in 2010 and launched in april 2010 but neurogesx discontinued active promotion of the product in march 2012. in january 2014 , we re-launched qutenza in the u.s. using our existing commercial organization , including our specialty neurology sales force as well as our medical and safety reporting infrastructure . net revenue for qutenza was $ 1.0 million for the year ended december 31 , 2015 and $ 0.9 million for the year ended december 31 , 2014. astellas pharma europe ltd. has exclusive commercialization rights for qutenza in the european economic area ( eea ) including the 28 countries of the european union , iceland , norway , and liechtenstein as well as switzerland , certain countries in eastern europe , the middle east and africa . research & development programs we have one of the leading pipelines in the industry of novel neurological therapies . we are currently developing a number of clinical and preclinical stage therapies . this pipeline addresses a range of disorders , including chronic post-stroke walking deficits ( pswd ) , parkinson 's disease , epilepsy , heart failure , ms , and spinal cord injury . our pipeline includes the programs described below . cvt-301 , cvt-427 and arcus technology we acquired cvt-301 in october 2014 with our acquisition of civitas . cvt-301 is a phase 3-ready inhaled formulation of levodopa , or l-dopa , for the treatment of off periods in parkinson 's disease . parkinson 's 94 disease is a progressive neurodegenerative disorder resulting from the gradual loss of certain neurons in the brain responsible for producing dopamine . the disease is characterized by symptoms such as impaired ability to move , muscle stiffness and tremor . the standard of care for the treatment of parkinson 's disease is oral levodopa ( l-dopa ) , but there are significant challenges in creating a dosing regimen that consistently maintains therapeutic effects as parkinson 's disease progresses . the re-emergence of symptoms is referred to as an off period , and despite optimized regimens with current therapeutic options and strategies , off periods remain one of the most challenging aspects of the disease . cvt-301 is based on the proprietary arcus technology platform that we acquired with civitas . the arcus technology is a dry-powder pulmonary delivery system that we believe has potential applications in multiple disease areas . this platform allows delivery of significantly larger doses of medication than are possible with conventional dry powder formulations . this in turn provides the potential for pulmonary delivery of a much wider variety of pharmaceutical agents . in december 2014 , we announced that the first patient has been enrolled in a phase 3 study of cvt-301 for the treatment of off periods in parkinson 's disease . we expect results from the efficacy trial in the fourth quarter of 2016 , and pending timely recruitment for clinical trials , our goal to file a new drug application , or nda , in the u.s. in the first quarter of 2017. we expect that the nda will be filed under section 505 ( b ) ( 2 ) of the food drug and cosmetic act , referencing data from the branded l-dopa product sinemet® . based on civitas 's interactions with the fda , we believe a single phase 3 efficacy study will be needed for filing an nda , supported by existing phase 2b data . a separate long-term safety study will also be required . we are projecting that , if approved , annual peak net revenue of cvt-301 in the u.s. alone could exceed $ 500 million . in june 2015 , we presented data from a phase 2b clinical trial of cvt-301 at the 19th international congress of parkinson 's disease and movement disorders ( mds ) .
| discounts and allowances also consist of discounts provided to medicare beneficiaries whose prescription drug costs cause them to be subject to the medicare part d coverage gap ( i.e. , the “ donut hole ” ) . payment of coverage gap discounts is required under the affordable care act , the health care reform legislation enacted in 2010. discounts and allowances may increase as a percentage of sales as we enter into managed care contracts in the future . zanaflex prior to the third quarter of 2015 , the company accounted for zanaflex product shipments using a deferred revenue recognition model ( sell-through ) . under the deferred revenue recognition model , the company did not recognize revenue upon product shipment . for product shipments , the company invoiced the wholesaler , recorded deferred revenue at gross invoice sales price , and classified the cost basis of the product held by the wholesaler as a separate component of inventory . the company recognized revenue when prescribed to the end-user , on a first-in first-out ( fifo ) basis . the company 's revenue to be recognized was based on the estimated prescription demand , based on pharmacy sales for its products using third-party information , including third-party market research data . the company 's sales and revenue recognition reflected the company 's estimate of actual product prescribed to the end-user . beginning in the third quarter of 2015 , the company began recognizing sales for zanaflex products when the product is shipped to its wholesale distributors ( sell-in ) , as the company believes there is now sufficient history to reasonably estimate expected returns . we also recognize product sales on the 100 transfer price of product sold for an authorized generic of zanaflex capsules . we recognized net revenue from the sale of zanaflex products of $ 24.4 million for the year ended december 31 , 2015 , as compared to $ 1.5 million for the year ended december 31 , 2014. the company recognized a one-time increase in net revenue of $ 22.2
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our fourth and final boeing 757 combi aircraft entered service in the first quarter of 2014 after completing the necessary regulatory certification and serves as a maintenance spare . at the end of 2012 , we ceased boeing 727 operations at the company 's former airline , capital cargo international airlines , inc. ( `` ccia '' ) , and dc-8 freighter operations at ati . during the first quarter of 2013 , we merged ccia with and into ati , with ati as the surviving entity . the combined operation benefits from a standardized fleet , two person flight crew , improved reliability of the boeing 767 and 757 aircraft and from a common pilot type rating . additionally , we have reduced administrative and overhead costs as a result of combining positions , information technology and facilities . in january 2014 , we acquired a 25 percent equity interest in west atlantic ab of gothenburg , sweden ( `` west '' ) for $ 15 million . west , through its two airlines , atlantic airlines ltd. and west air sweden ab , operates a fleet of approximately 40 aircraft and is europe 's largest regional cargo aircraft operator . west operates its aircraft on behalf of european regional mail carriers and express logistics providers . the airlines operate a combined fleet of british aerospace atps , bombardier crj-200-pfs , and boeing 737 aircraft . in addition , west air sweden ab is adding the boeing 767 aircraft to its operating capability . results of operations 2014 and 2013 summary the consolidated net earnings from continuing operations were $ 32.1 million for 2014 compared with a net loss of $ 19.6 million for 2013. the pre-tax earnings from continuing operations were $ 51.8 million for 2014 , including a one-time charge of $ 6.7 million for pension obligation settlements . the pre-tax loss from continuing operations for 2013 was $ 0.4 million which included a goodwill impairment charge of $ 52.6 million that is not deductible for u.s. federal income tax purposes . adjusted pre-tax earnings from continuing operations , a non-gaap measure ( a definition and reconciliation of adjusted pre-tax earnings follows ) , after removing the pension settlement charge and the impairment charge , were $ 57.4 million for 2014 compared to $ 51.6 million for 2013. adjusted pre-tax earnings from continuing operations for 2014 increased compared to 2013 due to operating improvements primarily in the acmi services segment . improved earnings were driven by improved fleet utilization , including deployment of the more fuel efficient boeing 757 combi aircraft for the u.s. military , reduced employee expenses and lower aircraft maintenance expenses compared to 2013. external customer revenues from continuing operations increased by $ 9.6 million to $ 589.6 million during 2014 compared to 2013. excluding directly reimbursed revenues , customer revenues decreased 1 % , or by $ 6.8 million during 2014 compared with 2013. increased external customer revenues from cam , aircraft maintenance and support services were offset by lower revenues from airline services . airline service revenues declined primarily due to the discontinuation of acmi service for dhl 's middle east operations in the first quarter of 2014. the notification from dhl that it would cease using three ati boeing 767 aircraft for services in the middle east by the end of february 2014 and stagnant growth conditions , including projections published by the u.s. military that reflected continued reductions in their demand for cargo ( non combi ) airlift caused us to allocate fewer boeing 767 aircraft to ati . as a result , we recorded an impairment charge of $ 52.6 million at the end of 2013 to write-off ati 's goodwill . subsequently , during 2014 , we deployed more boeing 767 aircraft with external airlines . during 2014 , we offered vested , former employee participants of the qualified pension plan and vested employee participants of the crewmembers qualified pension plan a one-time option to settle their pension benefit with the company through a single payment or a nonparticipating annuity contract . as a result , abx settled $ 98.7 million of pension obligations in december of 2014 funded by pension plan assets . the settlement resulted in a pre-tax charge of $ 6.7 million to continued operations . 23 a summary of our revenues and pre-tax earnings from continuing operations is shown below ( in thousands ) : replace_table_token_4_th reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers . such costs include fuel expense , landing fees and certain aircraft maintenance expenses . the types of costs that are reimbursed varies by customer operating agreement . reimbursed revenues increased during 2014 due to additional aircraft fuel expenses for dhl 's u.s. domestic network . adjusted pre-tax earnings , a non-gaap measure , is pre-tax earnings excluding asset impairment charges , interest rate derivative gains and losses and the pension settlement costs . management uses adjusted pre-tax earnings to compare the performance of core operating results between periods . adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . cam cam offers aircraft leasing and related services to external customers and also leases aircraft internally to the company 's airlines . aircraft leases normally cover a term of five to seven years . in a typical leasing agreement , customers pay rent and maintenance deposits on a monthly basis . as of december 31 , 2014 , cam had 53 freighter aircraft either under or available for lease , 28 of them leased internally to the company 's airlines . cam 's revenues grew $ 6.0 million during 2014 compared to 2013 , primarily as a result of additional aircraft leases to external customers . as of december 31 , 2014 and 2013 , cam had 24 and 20 aircraft under lease to external customers , respectively . revenues from external customers totaled $ 77.7 million and $ 71.6 million for 2014 and 2013 , respectively . story_separator_special_tag cam 's revenues from the company 's airlines totaled $ 88.6 million during 2014 , compared to $ 88.7 million for 2013. cam 's 2014 revenues were temporarily reduced during the time necessary to prepare and transfer four aircraft to external customers . 24 cam 's pre-tax earnings , inclusive of an interest expense allocation , were $ 53.2 million and $ 66.2 million during 2014 and 2013 , respectively . reduced earnings reflect additional external lease revenues offset by higher depreciation expense for boeing 767 and boeing 757 aircraft and increased expenses to place and support the larger fleet of boeing 767 and 757 aircraft . since mid -2013 , we have added nine boeing aircraft to cam 's fleet through december 31 , 2014. during 2014 , cam 's fourth and final boeing 757 combi aircraft completed its airworthiness certification and began operations for ati . cam completed the modification of a boeing 767-300 in the first quarter of 2014. cam purchased two boeing 767-300 freighter aircraft in september of 2014 and leased the aircraft to abx . as of december 31 , 2014 , cam had one boeing 767-300 aircraft available for lease . the aircraft was subsequently placed with an external customer in february 2015 under a multi-year lease . acmi services segment the acmi services segment provides airline operations to its customers , typically under contracts providing for a combination of aircraft , crews , maintenance and insurance ( `` acmi '' ) . our customers are usually responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses such as landing fees , ramp expenses , certain aircraft maintenance expenses and fuel procured directly by the airline . aircraft charter agreements , including those for the u.s. military , usually require the airline to provide full service , including fuel and other operating expenses for a fixed , all-inclusive price . as of december 31 , 2014 , acmi services included 44 in-service aircraft , including 28 leased internally from cam , three leased from external providers and 13 cam-owned freighter aircraft which are under lease to dhl and operated by abx under the cmi agreement . revenues from acmi services declined $ 4.6 million during 2014 compared with 2013 to $ 439.9 million . airline services revenues from external customers , which do not include revenues for the reimbursement of fuel and certain operating expenses , declined $ 20.9 million . lower revenues resulted primarily from operating fewer international cargo lanes for our customers , including the dhl routes in the middle east and the for the u.s. military . billable block hours declined 7 % for 2014 compared to 2013. excluding billable block hours for dhl 's middle east operations which ati stopped servicing in february 2014 , block hours grew 2 % for 2014 compared to 2013. block hours flown for the u.s. military were down 1 % compared to 2013 , due to fewer ad hoc and expansion flying opportunities . acmi services incurred pre-tax losses of $ 12.1 million during 2014 , compared to pre-tax losses of $ 78.2 million for 2013. excluding pension settlement charges of $ 6.7 million and asset impairment charges of $ 52.6 million recorded during 2014 and 2013 , respectively , acmi services incurred pre-tax losses of $ 5.4 million and $ 25.6 million in 2014 and 2013 , respectively . smaller pre-tax losses in 2014 compared to 2013 were primarily a result of improved fleet utilization , lower aircraft maintenance expense and reduced airline personnel expenses . during 2014 , acmi services returned under-utilized aircraft to cam , which subsequently leased those aircraft to external customers . additionally the number of scheduled airframe heavy checks that were expensed , declined by three during 2014 compared to 2013. beginning in may of 2014 , dhl terminated the services of three of the company 's boeing 767 aircraft which abx operated under short term contracts in lower volume u.s. markets and replaced them with smaller boeing 737 aircraft operated by another airline . we do not expect dhl to replace more boeing 767 aircraft operated by abx with additional boeing 737 aircraft . abx submitted bids to dhl to retain the operation of four boeing 767-200 aircraft that are owned by dhl and operated by abx under the cmi agreement . however , in august 2014 , abx received termination notices for these four aircraft and at the end of 2014 , two of the dhl owned boeing 767-200 aircraft were returned to dhl . we expect the last two dhl-owned boeing 767-200 aircraft to be returned to dhl by the end of the first quarter of 2015. we expect the recent operational improvements in acmi services to continue during 2015. however , due to higher pension expense as actuarially determined , aircraft maintenance schedules and the new pricing structure under the restated cmi , we expect this segment to generate a larger pre-tax loss for the full year in 2015. under the new pricing structure of the restated cmi agreement , abx will assume responsibility , effective april 1 , 2015 , for the cost of complying with faa airworthiness directives , the cost of boeing 767 airframe maintenance and certain engine maintenance events for the aircraft leased to dhl that it operates . achieving profitability in the acmi services segment will depend on new revenue opportunities for airline services , the number of aircraft we operate , crewmember productivity , the cost of employee benefits and other factors . our airlines may return lower utilized aircraft to cam for lease to external customers after considering a number of factors including the duration of the customer commitment , 25 the underlying credit quality of the customer and market pricing for each opportunity . the acmi services segment currently has one aircraft that is underutilized at this time . other activities the company sells aircraft parts and provides aircraft maintenance and modification services primarily through its aircraft maintenance and repair business , airborne maintenance and engineering services , inc.
| million during 2013 , compared to $ 80.0 million for 2012. since the beginning of 2012 , cam has placed one boeing 767-200 freighter aircraft , four boeing 767-300 freighter aircraft , one boeing 757-200 freighter aircraft and three boeing 757 combi aircraft under leases with internal airlines . as of december 31 , 2013 and 2012 , cam leased 20 aircraft to external customers . revenues from external customers decreased $ 3.0 million for 2013 compared to 2012. during the fourth quarter of 2012 , a regional carrier returned a boeing 767-200 aircraft to cam before the end of the original lease term . the aircraft was redeployed internally within acmi services . cam 's pre-tax earnings , inclusive of an interest expense allocation were $ 66.2 million and $ 68.5 million during 2013 and 2012 , respectively . reduced earnings reflect additional internal lease revenues offset by higher depreciation expense for boeing 767 and boeing 757 aircraft , increased expenses to place and support the larger fleet of boeing 767 and 757 aircraft and higher allocated interest expense compared to 2012. acmi services segment revenues from acmi services were $ 444.5 million and $ 479.0 million during 2013 and 2012 , respectively . acmi services incurred pre-tax losses of $ 78.2 million during 2013 , compared to pre-tax losses of $ 14.5 million for 2012. excluding asset impairment charges of $ 52.6 million recorded during 2013 , acmi services incurred pre-tax losses of $ 25.6 million in 2013. larger pre-tax losses in 2013 compared to 2012 were primarily a result of lower revenues . revenues from acmi services declined $ 34.5 million during 2013 compared with 2012. airline services revenues from external customers , which do not include revenues for the reimbursement of fuel and certain operating expenses , declined $ 26.2 million . lower revenues resulted from operating fewer international cargo lanes for our customers , including the u.s. military , as well as
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we also established a collaboration with les laboratoires servier and institut de recherches internationales servier , or servier , in january 2017 and entered into an exclusive license agreement with aska pharmaceutical co. , ltd. , or aska , in february 2017. in may 2017 , we entered into a license and collaboration agreement , and a non-exclusive anticalin platform technology license agreement with astrazeneca ab , or astrazeneca . in february 2018 we entered into a collaboration and license agreement with seattle genetics inc. ( `` seattle genetics '' ) . we have also in-licensed different antibodies to drive the advancement of our multispecific immuno-oncology pipeline . these include existing agreements with sanofi group , or sanofi , and f. hoffmann-la roche ltd. and hoffmann-la roche inc. , or roche . since inception , we have devoted nearly all of our efforts and resources to our research and development activities and have incurred significant net losses . for the years ended december 31 , 2017 and 2016 , we reported net loss of $ 17.6 million and $ 22.8 million , respectively . as of december 31 , 2017 , we had an accumulated deficit of $ 120.3 million . we expect to continue incurring substantial losses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . our operating expenses are comprised of research and development expenses and general and administrative expenses . we have not generated any revenues from product sales to date , and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the fiscal years ended december 31 , 2017 and 2016 were primarily from license and collaboration agreements with our partners . a significant portion of our operations are conducted in countries other than the united states . since we conduct our business in u.s. dollars , our main exposure , if any , results from changes in the exchange rates between the euro and the u.s. dollar . at each period end , we remeasure assets and liabilities to the functional currency of that entity ( for example , u.s. dollar payables recorded by pieris gmbh ) . remeasurement gains and losses are recorded in the statement of operations line item other income ( expense ) , net . all assets and liabilities denominated in euros are translated into u.s. dollars at the exchange rate on the balance sheet date . revenues and expenses are translated at the average rate during the period . equity transactions are translated using historical exchange rates . all adjustments resulting from translating foreign currency financial statements into u.s. dollars are included in accumulated other comprehensive loss . key financial terms and metrics the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . revenues we have not generated any revenues from product sales to date , and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the last two years have been primarily from the license and collaboration agreements with roche , servier and astrazeneca . the revenues from roche , servier and astrazeneca have been comprised primarily of upfront payments , research and development services , and milestone payments . we recognized revenues from upfront payments under these agreements based on multiple-element arrangement guidance as we have determined that the licenses to which the payments related did not have standalone value . research service revenue is recognized when the costs are incurred and the services have been performed . for revenues from research , development , and commercial milestone payments , if the milestones are deemed substantive and the milestone payments are nonrefundable , such amounts are recognized entirely upon successful accomplishment of the milestones , assuming all other revenue recognition criteria are met . milestones that are not considered substantive are accounted for as contingent revenue and will be recognized when achieved to the extent the company has no remaining performance obligations under the arrangement . revenues from sales milestone payments are accounted for as royalties and are 76 recorded as revenue upon achievement of the milestone , assuming all other revenue recognition criteria are met . royalty payments are recognized in revenues based on the timing of royalty payments earned in accordance with the agreements , which typically is the period when the relevant sales occur , assuming all other revenue recognition criteria are met . we expect our revenues for the next several years to consist of upfront payments , research funding and milestone payments from strategic collaborations we currently have or may establish in the future . research and development expenses the process of researching and developing drugs for human use is lengthy , unpredictable , and subject to many risks . we expect to continue incurring substantial expenses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . we are unable , with any certainty , to estimate either the costs or the timelines in which those expenses will be incurred . our current development plans focus on the following activities : our prs 300-series , which is a franchise currently comprised of the prs-343 and prs-332 programs as well as multiple additional programs with servier , prs-080 , and prs-060 . these programs consume a large proportion of our current , as well as projected , resources . our research and development costs include costs that are directly attributable to the creation of certain of our anticalin ® drug candidates and are comprised of : internal recurring costs , such as labor and fringe benefits , materials and supplies , facilities and maintenance costs ; and fees paid to external parties who provide us with contract services , such as preclinical testing , manufacturing and related testing , and clinical trial activities . story_separator_special_tag general and administrative expenses general and administrative expenses consist primarily of payroll , employee benefits , equity compensation , and other personnel-related costs associated with executive , administrative and other support staff . other significant general and administrative expenses include the costs associated with professional fees for accounting , auditing , insurance costs , consulting and legal services . story_separator_special_tag style= '' line-height:120 % ; padding-top:24px ; font-size:10pt ; '' > general and administrative expenses general and administrative expenses were $ 17.6 million for the fiscal year ended december 31 , 2017 as compared to $ 8.9 million for the fiscal year ended december 31 , 2016. the period-over-period increase is due to an additional $ 3.4 million increase in professional services including $ 2.9 million of transaction fees for our license and collaboration agreements with astrazeneca , servier and aska . additionally , investments in our g & a functions including $ 2.8 million in personnel costs , $ 0.3 million in recruiting costs , $ 1.2 million professional services ( audit , tax , legal and communications ) and $ 1.0 million in other costs ( travel , computer expenses & office supplies ) , have increased to support the growing business . non-operating expense ( income ) , net our non-operating expense was $ 2.0 million for the year ended december 31 , 2017 as compared to a net non-operating income of $ 0.1 million for the year ended december 31 , 2016. this increase in expense is mainly a result of net foreign currency transaction losses due to the strengthening of the euro against the u.s. dollar , including foreign currency re-measurement of monetary assets , primarily u.s. dollar cash accounts and u.s. dollar receivables in germany . income tax expense income tax expense was $ 1.1 million for the year ended december 31 , 2017 as compared to $ 0.2 million income tax expense for the year ended december 31 , 2016. the increase in income tax expense is related to our australian jurisdiction , net of loss carryforwards , resulting from taxable income from the astrazeneca agreement . liquidity and capital resources through december 31 , 2017 , we have funded our operations with $ 280.6 million of cash that has been obtained from the following main sources : $ 122.0 million from sales of equity ; $ 137.8 million in total payments received under license and collaboration agreements , including $ 15.1 million for research and development services costs received from our collaboration partners ; $ 14.2 million from government grants and $ 6.5 million from loans . as of december 31 , 2017 , we had a total of $ 82.6 million in cash , cash equivalents and investments . we have incurred losses in every period since inception including the years ended december 31 , 2017 and 2016 , respectively , and have a total accumulated deficit of $ 120.3 million as of december 31 , 2017. in february 2018 , we completed an underwritten public offering of its common stock in which it sold 6,325,000 shares of common stock , including the exercise in full by the underwriters of their option to purchase an additional 825,000 shares of common stock , to the public at a price of $ 8.00 per share . the offering was completed under the shelf registration statement that was filed on form s-3 and declared effective by the sec on august 3 , 2016. net proceeds of the underwritten public offering , after deducting the underwriting discounts and commissions , were $ 47.6 million , excluding our offering expenses of approximately $ 0.3 million . we have several research and development programs underway in varying stages of development and we expect they will continue to require increasing amounts of cash for development , conducting clinical trials , and testing and manufacturing of product material . we expect cash necessary to fund operations will increase significantly over the next several years as we continue to conduct these activities necessary to pursue governmental regulatory approval of our 300-series programs prs-343 and prs-332 , and prs-080 and prs-060 , and our other product candidates . the following table provides a summary of operating , investing , and financing cash flows for the years ended december 31 , 2017 and 2016 respectively ( in thousands ) : 79 replace_table_token_4_th net cash provided by operating activities of $ 49.8 million for the year ended december 31 , 2017 is comprised principally of operating expenses of $ 39.3 million , net of non-cash items , offset by aggregate receipts of $ 85.7 million from astra zeneca , servier , aska , and roche and an increase in net working capital of $ 2.5 million . net cash used in operating activities was $ 14.4 million for the year ended december 31 , 2016 , comprised principally of operating expenses amounting to $ 26.2 million offset by aggregate receipts of $ 9.5 million from roche and daiichi and an increase in net working capital of $ 2.2 million . net cash used in investing activities for the year ended december 31 , 2017 is mainly attributable to purchase of investments and to a lesser extend to purchase of property and equipment . net cash used in investing activities for the year ended december 31 , 2016 is attributable to purchases of property and equipment . net cash provided by financing activities for the year ended december 31 , 2017 was primarily due to the exercise of warrants and stock options . net cash provided by financing activities for the year ended december 31 , 2016 was due to the issuance of common and preferred stock under our 2016 private placement .
| the collaboration with servier commenced in january 2017. the $ 10.9 million increase in milestone revenue resulted from the achievement of one milestone during the twelve months ended december 31 , 2017 under our collaboration with astrazeneca compared to one milestone achieved under our prior collaboration with daiichi during the twelve months ended december 31 , 2016. research and development expenses the following table provides a comparison of the research and development expenses for our drug candidates and projects for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_3_th the $ 4.4 million decrease in our prs-300 series period-over-period is due primarily to a $ 4.4 million decrease in external manufacturing costs for drug supply in preparation of running clinical trials expected to be initiated in 2017. additionally , higher pre-clinical and lab supply costs incurred in 2016 were offset by higher clinical costs , license fees , and compensation related expenses for clinical personnel in 2017 for the prs-343 program which dosed its patient in the fourth quarter of 2017 ; the $ 3.3 million increase for our prs-060 program period-over-period is due primarily to increases of $ 0.8 million in our preclinical and cmc costs , $ 1.2 million for toxicology studies , $ 0.7 million in license fee payments to tum and selexis , and an additional $ 0.2 million for professional services . payroll expenses increased by $ 0.1 million period-over-period . in addition , we recorded $ 0.8 million research and development tax credit , in connection with our prs-060 program , in 2016 and no tax credit was available in the 2017 period . these amounts were offset by a $ 0.5 million decrease in clinical expenses year-over-year ; 78 the $ 0.9 million increase for prs-080 period-over-period is mainly due to higher cmc and clinical costs related to the phase ib study and preparation of the phase iia study which we initiated in the third quarter of 2017 ; the $ 2.8 million increase in other research and development activities is mainly due to increases of $ 1.6 million of personnel expenses including bonus and stock compensation , $ 1.6 million in preclinical and cmc costs , $ 0.7 million in general lab supply expenses , and an additional $ 0.2 million for other costs including travel , maintenance and recruiting expenses . these amounts are offset by $ 1.0 million in license fees paid to enumeral in 2016 and a $ 0.3 million license fee to tum in connection with
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subject to the provisions of our charter , some of these investments may be made in connection with programs sponsored , managed or advised by our affiliates or those of our advisor . although the above outlines our target portfolio , we may make adjustments based on , among other things , prevailing real estate market conditions and the availability of attractive investment opportunities . we will not forego an attractive investment because it does not fit within our targeted asset class or portfolio composition . we may use the proceeds of the initial public offering to purchase or invest in any type of real estate or real estate-related investment which we determine is in the best interest of our stockholders , subject to the provisions of our charter which limit certain types of investments . our primary objectives are to raise capital and to take advantage of favorable investment opportunities . we believe that the current economic environment will result in investment opportunities for many high-quality real estate investments . to the extent that we have capital available to invest , we plan to actively pursue investment opportunities to continue to execute our business plan . 14 story_separator_special_tag text-align : justify ; text-indent : 0.25in '' > replace_table_token_4_th ( 1 ) please see table above for a reconciliation of our equity in net income ( loss ) of unconsolidated joint ventures to the noi of our properties . 16 interest expense , net increased $ 87,809 from $ 258,753 for the year ended december 31 , 2010 to $ 346,562 for the year ended december 31 , 2011 and relates to the affiliate loans for the joint venture investments acquired during 2010 and the borrowing on the meadowmont line of credit in 2011. year ended december 31 , 2010 as compared to the year ended december 31 , 2009 net loss increased $ 1.9 million when compared to the 2009 period . we began our operations on december 3 , 2009 with our acquisition of our 37.5 % indirect equity interest in the springhouse property . during 2010 we acquired indirect equity interests in four additional properties . we accounted for the acquisitions of our interests in properties through managing member llcs in accordance with the provisions of the consolidation topic of the fasb asc . we analyze our investments in joint ventures to determine if the joint venture is a variable interest entity ( a “ vie ” ) and would require consolidation . we ( a ) evaluate the sufficiency of the total equity at risk , ( b ) review the voting rights and decision-making authority of the equity investment holders as a group , and whether there are any guaranteed returns , protection against losses , or capping of residual returns within the group and ( c ) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this vie determination . we would consolidate a venture that is determined to be a vie if we were the primary beneficiary . beginning january 1 , 2010 , a new accounting standard became effective and changed the method by which the primary beneficiary of a vie is determined to a primarily qualitative approach whereby the variable interest holder , if any , that has the power to direct the vie 's most significant activities is the primary beneficiary . to the extent that our joint ventures do not qualify as vies , we further assess the existence of a controlling financial interest under a voting interest model to determine whether the venture should be consolidated . management and oversight fees were approximately $ 223,000 for the year ended december 31 , 2010. this represents the 1 % asset management fee due to the advisor for oversight of the properties and was $ 214,000 higher than 2009 due to the acquisitions made in 2010. acquisition costs were approximately $ 363,000 for the year ended december , 31 , 2010 and relate to the acquisitions of creekside , meadowmont , augusta and hillsboro properties . acquisition costs were approximately $ 192,000 in 2009 as a result of the springhouse acquisition . general and administrative expenses were approximately $ 315,000 and include allowable operating expenses up to the 2 % of average invested assets threshold . general and administrative expenses were approximately $ 45,000 in 2009. the increase in 2010 is due to increased assets on which to base the average invested assets calculation and a full year of operations compared to 2 ½ months in 2009. equity in loss of unconsolidated joint ventures was approximately $ 1.1 million for the year ended december 31 , 2010 and represents our ownership share of net loss from our investments in the managing member jv entities . 17 the table below reflects the components of the $ 1,147,224 equity loss of unconsolidated joint ventures : replace_table_token_5_th ( 1 ) we evaluate the performance of our properties based upon noi , which is a non-generally accepted accounting principle ( “ gaap ” ) supplemental financial measure . we use noi to evaluate the operating performance of our real estate and to make decisions concerning the operation of the property . we believe that noi is essential to the investor in understanding the value of income-producing real estate . net income is the gaap measure that is most directly comparable to noi ; however , noi should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as depreciation and amortization , interest expense and corporate general and administrative expenses . additionally , noi as defined by us may not be comparable to other reits or companies as their definitions of noi may differ from our definition . ( 2 ) aggregate debt service ratio of 1.64. interest expense was approximately $ 259,000 and was for interest related to our affiliate notes used to fund our interests in the joint ventures . story_separator_special_tag interest expense was $ 15,000 for 2009 and was related to an affiliate loan to fund our interest in the springhouse joint venture . organization and offering costs our organization and offering costs ( other than selling commissions and dealer manager fees ) may be paid by our advisor , our dealer manager or their affiliates on our behalf . other offering costs include all expenses to be incurred by us in connection with our initial public offering . organization costs include all expenses incurred by us in connection with our formation , including but not limited to legal fees and other costs to incorporate . organization costs are expensed as incurred and offering costs , which include selling commissions and dealer manager fees , are charged as incurred as a reduction to stockholders ' equity . pursuant to the advisory agreement and the dealer manager agreement , we are obligated to reimburse our advisor , the dealer manager or their affiliates , as applicable , for organization and other offering costs paid by them on our behalf ; however , our advisor is obligated to reimburse us to the extent selling commissions , dealer manager fees and organization and other offering costs incurred by us exceed 15 % of gross proceeds from our initial public offering . through december 31 , 2011 , including shares issued through our distribution reinvestment plan , we had sold 1,120,693 shares in the offering for gross offering proceeds of $ 10,339,123 and recorded organization costs of $ 49,931 , other offering costs of $ 2,256,663 and selling commissions and dealer manager fees of $ 958,386. in addition our advisor has incurred on our behalf $ 2,407,524 of offering costs which will become payable as additional offering proceeds are raised to the extent that selling commissions , dealer manager fees and other organization and offering costs do not exceed 15 % of gross offering proceeds . operating expenses under our advisory agreement our advisor and its affiliates have the right to seek reimbursement from us for all costs and expenses they incur in connection with their provision of services to us , including our allocable share of our advisor 's overhead , such as rent , employee costs , utilities and information technology costs . we do not , however , reimburse our advisor for personnel costs in connection with services for which our advisor receives acquisition , origination or disposition fees or for personnel costs related to the salaries of our executive officers . from january 1 , 2009 through march 31 , 2011 , our advisor and its affiliates incurred $ 677,415. our charter limits our total operating expenses at the end of the four preceding fiscal quarters to the greater of ( a ) 2 % of our average invested assets , or ( b ) 25 % of our net income determined ( 1 ) without reductions for any additions to reserves for depreciation , bad debts or other similar non-cash reserves and ( 2 ) excluding any gain from the sale of our assets for the period , notwithstanding the above limitation , we may reimburse amounts in excess of the limitation if a majority or our independent directors determines that such excess amounts were justified based on unusual and non-recurring factors . due to the limitations discussed above and because operating expenses incurred directly by us have exceeded the 2 % threshold , the amount due to the advisor had not been recorded in the financial statements as of december 31 , 2010. further , $ 973,607 had been recorded as a receivable from the advisor as of december 31 , 2010 for the excess operating expenses incurred directly by us over the 2 % threshold . our board of directors , including all of our independent directors , reviewed our total operating expenses for the four fiscal quarters ended december 31 , 2009 ( and the four fiscal quarters ended each quarter after ) and an estimate of our total operating expenses for the four fiscal quarters to end march 31 , 2011 and unanimously determined the excess amounts to be justified because of the costs of operating a public company in our early stages of operating . upon approval of these costs on march 22 , 2011 , $ 1,646,818 of total costs , were expensed and $ 677,415 became a liability to us , payable to our advisor and its affiliates . as of the board of directors has approved such expenses , all 2011 operating expenses have been and will be expensed as incurred . as of december 31 , 2011 , $ 4,204 has been reimbursed to the advisor and the advisor has agreed to defer further repayment of these costs until a later date . 18 liquidity and capital resources we are offering a maximum of $ 1,000,000,000 in shares of our common stock in our primary offering , at an offering price of $ 10.00 per share , with discounts available for certain categories of purchasers . we also are offering up to $ 285,000,000 in shares pursuant to our distribution reinvestment plan at $ 9.50 per share . our principal demands for cash will be for acquisition costs , including the purchase price of any properties , loans or securities we acquire , and construction , renovation and development costs and the payment of our operating and administrative expenses , continuing debt service obligations and distributions to our stockholders . generally , we will fund our acquisitions from the net proceeds of our initial public offering . we intend to acquire our assets with cash and mortgage or other debt , but we may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in units of limited partnership interest in our operating partnership .
| we did not acquire any properties or make other investments in the year ended december 31 , 2011. asset management and oversight fees to affiliates increased $ 106,720 from $ 223,436 for the year ended december 31 , 2010 to $ 330,156 for the year ended december 31 , 2011. the increase is due to the acquisitions made during 2010 and represents the asset management fee due , but unpaid , to the advisor . we expect asset management fees to increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments . acquisition costs to affiliates was zero for the year ended december 31 , 2011 as there were no acquisitions . general and administrative expenses increased $ 3,250,257 from $ 314,691 for the year ended december 31 , 2010 to $ 3,564,948 for the year ended december 31 , 2011. in 2010 , we expensed allowable expenses up to the 2 % limitation of our average invested assets in our income statement and the remainder was recorded as a receivable for the expenses exceeding the 2 % threshold until approved by the board during the first quarter of 2011 , resulting in a significant increase over the prior year 's recorded amount . upon approval , these costs totaling $ 1,646,818 were expensed in 2011. all other amounts represent all expenses incurred during the periods . equity loss of unconsolidated joint ventures decreased by $ 1,073,559 from a loss of $ 1,147,224 for the year ended december 31 , 2010 to a loss of $ 73,665 for the year ended december 31 , 2011. this represents our ownership share of net income ( loss ) from our real estate investments as detailed in note 4 ( equity method investments ) to our consolidated financial statements . the 2011 results included a full year of operating activity at all owned properties . additionally , 2010 included one-time acquisitions costs incurred during the year for the properties purchased . while revenue variations may occur at any of our properties , the augusta and springhouse properties ' revenues are specifically subject to unplanned troop deployment . the property management team is working to fully diversify the tenant mix
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in connection with the sale of the manufacturing operations , we entered into a long-term , global manufacturing services agreement with a catalent affiliate for the supply of inbrija . as part of the transaction , catalent hired substantially all of our prior employees at the chelsea facility as well as certain of our other employees at our waltham , massachusetts facility . we intend to use the net proceeds received from the transaction for general corporate purposes , subject to compliance with the terms of the 2024 notes , which may include funding capital expenditures and the repayment of indebtedness . also , we expect to save approximately $ 10 million in annual operating expenses related to the operation of the manufacturing facility . more information about the catalent transaction is set forth in part i of this report under catalent transaction . see note 7 to our consolidated financial statements included in this report for additional information on the assets classified as held for sale as a result of the transaction . financial management in january 2021 , we announced a corporate restructuring to reduce costs and focus our resources on inbrija , which is our key strategic priority for 2021. as part of the restructuring , we reduced headcount by approximately 16 % through a reduction in force ( excluding the employees that transferred to catalent at the closing of the sale of our chelsea manufacturing operations ) . all of the reduction in personnel will take place in the first quarter of 2021. as a result , we expect to realize estimated annualized cost savings related to headcount reduction of approximately $ 6 million beginning in the second quarter of 2021. we estimate that we will incur approximately $ 3.2 million of pre-tax charges , substantially all of which will be cash expenditures , for severance and other employee separation-related costs in the first quarter of 2021. in january 2021 , we entered into an at the market ( atm ) offering agreement with h.c. wainwright & co. , llc as sales agent . pursuant to the atm agreement , we may offer and sell shares of our common stock having an aggregate value of up to $ 15.25 million in an at-the-market offering , subject to a 3 % sales commission payable to h.c. wainwright . if we elect to use the atm agreement , h.c. wainwright would be obligated to use commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell shares in accordance with our instructions ( including as to price , time or size limit or other parameters or conditions that we may impose ) . on july 13 , 2020 , we received a u.s. income tax refund from the internal revenue service of approximately $ 12.4 million plus interest of $ 0.3 million , pursuant to the coronavirus aid , relief , and economic security act ( cares act ) . under the cares act , among other things , net operating losses arising in a taxable year beginning after december 31 , 2017 , and before january 1 , 2021 , can be carried back to the preceding five years to apply against taxable income reported in such years . pursuant to this provision of the cares act , the company was eligible to carry back 2019 net operating losses to tax years 2017 and 2018 , resulting in the refund . as of december 31 , 2020 , we had cash , cash equivalents , short-term investments and restricted cash of approximately $ 102.9 million . restricted cash includes $ 31.1 million in escrow related to the 6 % semi-annual interest portion of the convertible senior secured notes due 2024 , payable in cash or stock . as further described in note 9 to our consolidated financial statements included in this report as well as in financing arrangements in the management 's discussion and analysis of financial condition and results of operations section of this report , if we are permitted under the notes indenture and we elect to pay interest due in stock , the cash equivalent will be released from escrow . in december 2020 , we issued 68 1,484,871 shares to the holders of the 2024 notes in satisfaction of approximately $ 6.2 million in interest due on december 1 , 2020 , and a corresponding amount was released from the escrow in late december 2020. nasdaq listing rules and reverse stock split on january 19 , 2021 , we received a letter from the nasdaq stock market , llc notifying us that we had regained compliance with listing rule 5450 ( a ) ( 1 ) , which requires that listed securities maintain a minimum closing bid price of at least $ 1.00 per share ( the “ minimum bid requirement ” ) . we regained compliance with the minimum bid requirement based on the closing bid price of our common stock on the nasdaq global select market between january 4 , 2021 and january 15 , 2021. we had previously been notified , on july 23 , 2020 , of our non-compliance with the minimum bid requirement . on december 31 , 2020 , we filed an amendment to our certificate of incorporation which effected , as of 4:01 p.m. eastern time on december 31 , 2020 , a 1-for-6 reverse stock split of the shares of our outstanding common stock and proportionate reduction in the number of authorized shares of our common stock from 370,000,000 to 61,666,666. our board of directors approved the reverse stock split as part of plan to regain compliance with the minimum bid requirement . the reverse stock split had previously been authorized by our stockholders at a special meeting convened on july 31 , 2020. our common stock began trading on a split-adjusted basis on the nasdaq global select market commencing upon market open on january 4 , 2021. the common stock continued to trade under the symbol “ acor ” after the reverse stock split became effective . story_separator_special_tag the reverse stock split applied equally to all outstanding shares of the common stock and did not modify the rights or preferences of the common stock . the reverse stock split also resulted in a corresponding adjustment to outstanding equity awards as well as shares reserved for future issuance under our incentive compensation plans . all figures in this report relating to shares of our common stock ( such as share amounts , per share amounts , and conversion rates and prices ) , including in the financial statements and accompanying notes to the financial statements , have been retroactively restated to reflect the 1-for-6 reverse stock split of our common stock . covid-19 pandemic our business and financial condition have been impacted by , and are subject to risks resulting from , the covid-19 ( novel coronavirus ) pandemic . the covid-19 pandemic has caused significant disruptions in the healthcare industry . the duration of the pandemic is difficult to predict , and it is likely to have ongoing impacts as it continues . the travel restrictions , “ shelter in place ” orders , quarantine policies , and general concerns about the spread of covid-19 have disrupted the delivery of healthcare to patients , for example making it more difficult for some patients to visit with their physician and obtain pharmaceutical prescriptions . also , healthcare office staffing shortages may delay the administrative work , and particularly insurance-related documentation , needed to obtain reimbursement for prescriptions . we believe these factors contributed to volatility in new inbrija prescriptions during 2020. the covid-related policies , restrictions and concerns may disrupt our operations and those of our customers and suppliers . also , our operations could be interrupted if we or our customers or suppliers lose the services of key employees or consultants who become ill from covid-19 . these types of disruptions could potentially affect any of our critical business functions , and thus harm our business , including for example our manufacturing , sales and marketing operations as well compliance and certain general and administrative functions . the ultimate impact of the covid-19 pandemic , or any other health epidemic , is highly uncertain and subject to change . we do not yet know the full extent of potential delays or impacts on our business , healthcare systems or the global economy as a whole . as the pandemic continues , it may result in a sustained economic downturn that could affect demand for our products and our ability to access capital on reasonable terms , or at all . inbrija ( levodopa inhalation powder ) /parkinson 's disease inbrija ( levodopa inhalation powder ) is the first and only inhaled levodopa , or l-dopa , for intermittent treatment of off episodes , also known as off periods , in people with parkinson 's disease treated with carbidopa/levodopa regimen . our new drug application , or nda , for inbrija was approved by the u.s. food and drug administration , or fda , on december 21 , 2018. the approval is for a single dose of 84 mg ( administered as two capsules ) , which may be taken up to five times per day . inbrija became commercially available in the u.s. on february 28 , 2019. currently , inbrija is available in the u.s. without the need for a medical exception for approximately 96 % of commercial health insurance plan and approximately 69 25 % of medicare plan lives . net revenue for inbrija was $ 24.2 million for the year ended december 31 , 2020. we project peak u.s. annual net revenue of inbrija to be in the range of $ 300 to $ 500 million . in september 2019 , we announced that the european commission , or ec , approved our marketing authorization application , or maa , for inbrija . the approved dose is 66 mg ( administered as two capsules ) up to five times per day ( per european union , or eu , convention , this reflects emitted dose and is equivalent to the 84 mg labelled dose in the u.s. ) . under the maa , inbrija is indicated in the eu for the intermittent treatment of episodic motor fluctuations ( off episodes ) in adult patients with parkinson 's disease treated with a levodopa/dopa-decarboxylase inhibitor . the maa approved inbrija for use in what were then the 27 countries of the eu , as well as iceland , norway and liechtenstein . following the ratification of the withdrawal agreement between the united kingdom and the eu , the uk left the eu on january 31 , 2020. following the ratification of the withdrawal agreement between the united kingdom and the eu , the uk left the eu on january 31 , 2020. effective january 1 , 2021 , acorda was granted a grandfathered marketing authorization ( ma ) by the medicines and healthcare products regulatory agency ( mhra ) in the uk which is subject to certain administrative filings that are due by december 31 , 2021. we are in discussions with potential partners regarding the distribution of inbrija outside of the u.s. , with potential partners in europe and japan . inbrija is marketed in the u.s. through our own specialty sales force and commercial infrastructure , which we are supplementing with sales representatives provided by a contract commercial organization . inbrija is distributed in the u.s. primarily through : alliance rx walgreens prime , or walgreens , a specialty pharmacy that delivers the medication to patients by mail ; and asd specialty healthcare , inc. ( an amerisource bergen affiliate ) . during 2020 , we transitioned from a network of several specialty pharmacies to walgreens as the sole specialty pharmacy for u.s. sales of inbrija , which we believe has potential benefits to patients and our business .
| for example , some patients refill their prescriptions earlier ahead of the new year , in the fourth quarter , in anticipation of the year-end reset of health plan deductibles and the medicare donut hole , or a year-end switch of their insurance plans or pharmacy benefit providers . also , we believe specialty pharmacies may increase their stock , within contractual limits , to account for the holidays and new year . these factors may seasonally have a positive impact on fourth quarter revenues and a negative impact on first quarter revenues . also , discounts and allowances typically are highest in the first quarter , and lowest in the fourth quarter , and when this occurs this increases fourth quarter revenues , and decreases first quarter revenues , on a relative basis . in the case of the fourth quarter of 2020 , we believe our transition from a network of several specialty pharmacies to alliance rx walgreens prime , or walgreens , as the sole specialty pharmacy for u.s. sales of inbrija was another factor that positively impacted inbrija net sales on a one-time basis , as walgreens initiated stocking for newly-transferred patients during the quarter . ampyra we recognize product sales of ampyra following receipt of product by companies in our distribution network , which for ampyra primarily includes specialty pharmacies , which deliver the medication to patients by mail . we recognized net revenue from the sale of ampyra to these customers of $ 98.9 million and $ 164.9 million for the years ended december 31 , 2020 and 2019 , respectively . these amounts are inclusive of mylan ag revenue of $ 0.8 million and $ 1.7 million for the years ended december 31 , 2020 and 2019 , respectively . the decrease in ampyra net revenue was composed of a decrease in net volume of $ 79.5 million partially offset by price increase and discount and allowance adjustments of $ 14.4 million . net 73 revenue from sales of ampyra decreased for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 due to the entry of generic versions of ampyra as a result of the invalidation of our ampyra patents in 2017. discounts
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19 we finance our acquisitions primarily through operating cash flow , proceeds from the sale of land and income-producing properties and debt financing primarily in the form of property-specific first-lien mortgage loans from commercial banks and institutional lenders . we finance our development projects principally with short-term , variable interest rate construction loans that are converted to long-term , fixed rate amortizing mortgages when the development project is completed and occupancy has been stabilized . the company will , from time to time , also enter into partnerships with various investors to acquire income-producing properties or land and to sell interests in certain of its wholly-owned properties . when the company sells assets , it may carry a portion of the sales price generally in the form of a short-term , interest bearing seller-financed note receivable . the company generates operating revenues primarily by leasing apartment units to residents and leasing office , retail and industrial space to commercial tenants . the company has historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition and dispositions . transactions involving related parties can not be presumed to be carried out on an arm 's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities . related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . since april 30 , 2011 , pillar is the company 's external advisor and cash manager under a contractual arrangement that is reviewed annually by our board of directors . pillar 's duties include , but are not limited to , locating , evaluating and recommending real estate and real estate-related investment opportunities . pillar also arranges , for tci 's benefit , debt and equity financing with third party lenders and investors . pillar also serves as an advisor and cash manager to arl and iot . as the contractual advisor , pillar is compensated by tci under an advisory agreement that is more fully described in part iii , item 10 . “ directors , executive officers and corporate governance – the advisor ” . tci has no employees . employees of pillar render services to tci in accordance with the terms of the advisory agreement . effective since january 1 , 2011 , regis manages our commercial properties and provides brokerage services . regis is entitled to receive a fee for its property management and brokerage services . see part iii , item 10 . “ directors , executive officers and corporate governance – property management and real estate brokerage. ” the company contracts with third-party companies to lease and manage our apartment communities . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . the accompanying consolidated financial statements include our accounts , our subsidiaries , generally all of which are wholly-owned , and all entities in which we have a controlling interest . arrangements that are not controlled through voting or similar rights are accounted for as a variable interest entity ( vie ) , in accordance with the provisions and guidance of asc topic 810 “ consolidation ” , whereby we have determined that we are a primary beneficiary of the vie and meet certain criteria of a sole general partner or managing member as identified in accordance with emerging issues task force ( “ eitf ” ) issue 04-5 , investor 's accounting for an investment in a limited partnership when the investor is the sole general partner and the limited partners have certain rights ( “ eitf 04-5 ” ) . vies are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability , the obligation to absorb expected losses or residual returns of the entity , or have voting rights that are not proportional to their economic interests . the primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks , authorizes certain capital transactions , or makes operating decisions that materially affect the entity 's financial results . all significant intercompany balances and transactions have been eliminated in consolidation . in determining whether we are the primary beneficiary of a vie , we consider qualitative and quantitative factors , including , but not limited to : the amount and characteristics of our investment ; the obligation or likelihood for us or other investors to provide financial support ; our and the other investors ' ability to control or significantly influence key decisions for the vie ; and the similarity with and significance to the business activities of us and the other investors . significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these vies and general market conditions . for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary , the entities are accounted for using the equity method of accounting . accordingly , our share of the net earnings or losses of these entities are included in consolidated net income . tci 's investment in arl is accounted for under the equity method . in accordance with the vie guidance in asc 810 “ consolidations , ” the company consolidated 50 multifamily residential properties at december 31 , 2016 and 48 at december 2015 , located throughout the united states ranging from 32 units to 260 units . story_separator_special_tag assets totaling approximately $ 442 million and approximately $ 457 million at december 31 , 2016 and 2015 , respectively , are consolidated and included in “ real estate , atcost ” on the balance sheet and are all collateral for their respective mortgage notes payable , none of which arerecourse to the partnership in which they are in or to the company . 20 real estate upon acquisitions of real estate , we assess the fair value of acquired tangible and intangible assets , including land , buildings , tenant improvements , “ above- ” and “ below-market ” leases , origination costs , acquired in-place leases , other identified intangible assets and assumed liabilities in accordance with asc topic 805 “ business combinations ” , and allocate the purchase price to the acquired assets and assumed liabilities , including land at appraised value and buildings at replacement cost . we assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates , as well as available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known and anticipated trends , and market and economic conditions . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant . we also consider an allocation of purchase price of other acquired intangibles , including acquired in-place leases that may have a customer relationship intangible value , including ( but not limited to ) the nature and extent of the existing relationship with the tenants , the tenants ' credit quality and expectations of lease renewals . based on our acquisitions to date , our allocation to customer relationship intangible assets has been immaterial . we record acquired “ above- ” and “ below-market ” leases at their fair values ( using a discount rate which reflects the risks associated with the leases acquired ) equal to the difference between ( 1 ) the contractual amounts to be paid pursuant to each in-place lease and ( 2 ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases . other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant 's lease . factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . transfers to or from our parent , arl , or other related parties reflect a basis equal to the cost basis in the asset at the time of the sale . depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other direct project costs incurred during the period of development . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc topic 835-20 “ interest - capitalization of interest ” and asc topic 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value . fair value is determined by a recent appraisal , comparable based upon prices for similar assets , executed sales contract , a present value and or a valuation technique based upon a multiple of earnings or revenue . if such impairment is present , an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value . the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results in future periods . if we determine that impairment has occurred , the affected assets must be reduced to their face value . real estate assets held for sale we classify properties as held for sale when certain criteria are met in accordance with gaap .
| the total property portfolio represents all income-producing properties held as of december 31 for the year presented . sales subsequent to year end represent properties that were held as of year-end for the years presented , but sold in subsequent years . continued operations represents all properties that have not been reclassed to discontinued operations as of december 31 , 2016 for the year presented . the table below shows the number of income-producing properties held by year : replace_table_token_10_th 23 comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 : for the year ended december 31 , 2016 , we reported net loss applicable to common shares of $ 0.9 million or ( $ 0.10 ) per diluted earnings per share compared to a net loss applicable to common shares of $ 8.5 million or ( $ 0.98 ) per diluted earnings per share for the year ended december 31 , 2015. the current year net loss applicable to common shares of $ 0.9 million included gain on sale of income-producing properties of $ 16.2 million and gain on land sales of $ 3.1 million compared to the prior year net loss applicable to common shares of $ 8.5 million which includes gain on land sales of $ 18.9 million and net income from discontinued operations of $ 0.9 million . revenues rental and other property revenues were $ 118.5 million for the year ended december 31 , 2016. this represents an increase of $ 16.3 million , as compared to the prior year revenues of $ 102.2 million . the change by segment is an increase in the apartment portfolio of $ 13.8 million and an increase in the commercial portfolio of approximately $ 2.5 million . we purchased 12 apartment communities during the year ended december 31 , 2015 , which produced rental revenue of $ 21.7 million and $ 10.2 million during the years ended december 31 , 2016 and 2015 , respectively , for a
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as we look ahead to 2014 we believe further opportunities will arise from the evolution of the housing finance market . we expect that market conditions will continue to impact our operating results and will cause us to adjust our investment and financing strategies over time as new opportunities emerge and risk profiles of our business change . investment activities we are currently invested in agency rmbs , non-agency rmbs , abs , cmbs , other real estate-related assets . for the period from our ipo to december 31 , 2011 , the risk-reward profile of investment opportunities supported the deployment of a majority of our capital in agency rmbs . labor , housing and economic fundamentals , together with u.s. monetary policy designed to keep interest rates low , supported our agency rmbs investments in this period . overweighting of these investments was also favored by the relative ease of funding and superior liquidity . we also acquired a limited amount of non-agency rmbs , abs , cmbs and mortgage loan assets for our investment portfolio . in 2012 , we accomplished our goal of increasing our exposure to credit securities and leveraging the broader angelo , gordon platform . in particular , subsequent to the announcement of qe3 by the federal reserve in september 2012 , we elected to minimize additional investments in agency rmbs . throughout the first part of 2013 , we remained positioned in agency rmbs assets that we believed would perform well in an ongoing elevated prepayment environment . during the second quarter of 2013 however , we concurrently elected to increase our hedging activity , perceiving the potential for an increase in interest rate volatility and benchmark interest rates . we have since then reduced our hedging activity and rotated into shorter duration agency rmbs . we will continue to base our investment decisions on a variety of factors , including liquidity , duration , interest rate expectations and hedging , and the mix of assets in our portfolio may accordingly shift over time . we finance our investments in real estate securities primarily through short-term borrowings structured as repurchase agreements . subject to maintaining our qualification as a reit and our investment company act exemption , to the extent leverage is deployed , we utilize derivative financial instruments ( or hedging instruments ) , including interest rate swap agreements and interest rate swaptions in an effort to hedge the interest rate risk associated with the financing of our portfolio . specifically , we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates . in utilizing leverage and interest rate hedges , our objectives are to improve risk-adjusted returns and , where possible , to lock in , on a long-term basis , a spread between the yield on our assets and the cost of our financing . as discussed further in the critical accounting policies section below , if we purchase a security and finance it with a repurchase agreement , and the transaction is considered linked under asc 860-10 , we will record the initial transfer and repurchase financing on a net basis and record a forward commitment to purchase assets as a derivative instrument with changes in market value being recorded on the statement of operations . throughout item 7 where we disclose our unlinked investment portfolio and the related repurchase agreements that finance it , we have shown the repurchase agreements inclusive of those treated as linked transactions for gaap along with reconciliation to gaap . the presentation inclusive of linked transactions is consistent with how the company 's management evaluates the s business , and the company believes this presentation provides the most accurate depiction its investment portfolio and financial condition . 53 the following table presents a reconciliation of certain information related to securities inclusive of unlinked securities to securities on a gaap basis as of december 31 , 2013 : replace_table_token_10_th the following table presents a reconciliation of certain information related to securities inclusive of unlinked securities to securities on a gaap basis as of december 31 , 2012 : replace_table_token_11_th ( 1 ) equity residual investments with a zero coupon rate are excluded from this calculation . 54 the following table presents certain information grouped by vintage as it relates to our credit portfolio inclusive of unlinked securities as of december 31 , 2013. we have also presented a reconciliation to gaap . replace_table_token_12_th the following table presents certain information grouped by vintage as it relates to our credit portfolio inclusive of unlinked securities as of december 31 , 2012. we have also presented a reconciliation to gaap . replace_table_token_13_th ( 1 ) equity residual investments with a zero coupon rate are excluded from this calculation . 55 the following table presents the fair value of our credit portfolio by credit rating as of december 31 , 2013 and december 31 , 2012 : replace_table_token_14_th ( 1 ) represents the minimum rating for rated assets of s & p , moody and fitch credit ratings , stated in terms of the s & p equivalent . our non-agency rmbs , abs , cmbs and mortgage loans are subject to risk of loss with regard to principal and interest payments . we evaluate each investment based on the characteristics of the underlying collateral and securitization structure . we maintain a comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management team and a quarterly credit review process for each investment that examines the need for a potential reduction in accretable yield , missed or late contractual payments , significant declines in collateral performance , prepayments , projected defaults , loss severities and other data which may indicate a potential issue in our ability to recover our capital from the investment . these processes are designed to enable our manager to evaluate and proactively manage asset-specific credit issues and identify credit trends on a portfolio-wide basis . story_separator_special_tag nevertheless , we can not be certain that our review will identify all issues within our portfolio due to , among other things , adverse economic conditions or events adversely affecting specific assets ; therefore , potential future losses may also stem from investments that are not identified by our credit reviews . as mentioned above , our investments have been focused in agency rmbs given the relative ease of funding and superior liquidity . we evaluate investments in agency rmbs using factors including expected future prepayment trends , supply and demand , costs of financing , costs of hedging , expected future interest rate volatility and the overall shape of the u.s. treasury and interest rate swap yield curves . prepayment speeds , as reflected by the cpr , and interest rates vary according to the type of investment , conditions in financial markets , competition and other factors , none of which can be predicted with any certainty . in general , as prepayment speeds on our agency rmbs portfolio increase , the related purchase premium amortization increases , thereby reducing the net yield on such assets . the following table presents the cpr experienced on our agency rmbs portfolio , on an annualized basis , for the quarterly periods presented . replace_table_token_15_th ( 1 ) represents the weighted average monthly cprs published during the quarter for our in-place portfolio during the same period . ( 2 ) source : bloomberg securities in an unrealized loss position as of december 31 , 2013 have been determined to be temporary . any decline in fair value of these real estate securities is solely due to market conditions and not the quality of the assets . these securities in unrealized loss positions are not considered other than temporarily impaired because we currently have the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments and we are not required to sell for regulatory or other reasons . further , all of the principal and interest payments on the agency rmbs have an explicit guarantee by either an agency of the u.s. government or a u.s. government-sponsored enterprise . 56 the company has used leverage to complete the purchase of securities in its investment portfolio . through december 31 , 2013 the leverage has been in the form of repurchase agreements . repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date . the amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount , referred to as a “ haircut. ” repurchase agreements entered into by the company are accounted for as financings and require the repurchase of the transferred securities at the end of each agreement 's term , typically 30 to 90 days . the company maintains the beneficial interest in the specific securities pledged during the term of the repurchase agreement and receives the related principal and interest payments . interest rates on these borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings , and interest is paid at the termination of the repurchase agreement at which time the company may enter into a new repurchase agreement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty . in response to declines in fair value of pledged securities due to changes in market conditions or the publishing of monthly security paydown factors , lenders typically require the company to post additional securities as collateral , pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements , referred to as margin calls . the company finances certain of its agency rmbs , non-agency rmbs , abs and cmbs through the use of repurchase agreements . on april 9 , 2012 , ag mit , a direct , wholly-owned subsidiary of the company , entered into a master repurchase and securities contract , or the repurchase agreement , with wells fargo bank , national association to finance the company 's acquisition of certain residential , non-agency rmbs . effective april 12 , 2013 , ag mit entered into an amended and restated master repurchase and securities contract , or the renewal agreement , to the repurchase agreement . the renewal agreement was entered into for multiple purposes , including the amendment of the repurchase agreement to finance ag mit 's acquisition of not only residential , non-agency securities , but also certain consumer asset-backed securities and commercial mortgage-backed securities . each transaction under the renewal agreement will also have its own specific terms , such as identification of the assets subject to the transaction , sale price , repurchase price and rate . the renewal agreement increases the aggregate maximum borrowing capacity of the repurchase agreement from $ 75 million to $ 125 million and extends the maturity date from april 8 , 2013 to april 11 , 2014. the renewal agreement also includes the same provisions in the repurchase agreement permitting the maturity date to be extended for an additional 90 days . the renewal agreement contains representations , warranties , covenants , events of default and indemnities that are substantially identical to those in the repurchase agreement and are customary for agreements of this type .
| liquidity evaporated across many segments of the broader mortgage-backed securities market . towards the end of the second quarter and into the third quarter of 2013 we sold a material portion of our fixed rate agency rmbs portfolio , and rotated out of extended agency rmbs duration assets into shorter duration agency rmbs . shorter amortizing securities enable us to redeploy this capital as rates rise in conjunction with tapering . our reinvestment of proceeds from the security sales was allocated primarily to our credit portfolio . to further help protect book value and manage the additional risk , we materially increased our hedge ratio going from a 63 % hedge ratio at the end of the first quarter to a 95 % hedge ratio as a percentage of total repo at the end of the second quarter . we utilize interest rate derivatives to mitigate exposure to increases in interest rates . our hedge ratio is how we measure our exposure to increases in interest rates and is measured as a percentage of derivative notional to total repurchase agreements . this ratio was subsequently reduced over the remainder of the year , ending at 67 % as of december 31 , 2013 . 63 investment income , financing and hedging costs our primary source of income is the net interest earned on our investment portfolio . our current portfolio is primarily comprised of fixed rate agency rmbs . the portfolio has been financed with repurchase agreements . the difference between the interest earned on our assets and the interest accrued on our repurchase agreements and hedges is our net interest margin . during the year ended december 31 , 2013 , we had a weighted average cost of securities and repurchase agreements of $ 4.4 billion and $ 3.8 billion , respectively . the average yield earned on the assets was 3.85 % , and the average rate paid on repurchase agreements was 0.83 % . the
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upon the consummation of the acquisition , the issued and outstanding shares of epocrates common stock will be canceled and automatically converted into the right to receive $ 11.75 in cash , without interest , and all outstanding options and restricted stock unit awards under epocrates ' equity compensation plans will be assumed by the company . each outstanding option and restricted stock unit award shall be exercisable or shall be settled upon the same terms and conditions as under the applicable epocrates equity compensation plan , except that each option shall be exercisable for , and each restricted stock unit shall be converted into the right to receive , shares of the company 's common stock using an exchange ratio based on the average closing sales prices per share of the company 's common stock for the ten trading days ending on the second trading day prior to the closing of the acquisition . the acquisition is expected to enable the company to accelerate awareness of athenahealth 's services across the physician market and deliver high-value information to the clinical community . the transaction is expected to close in the early part of 2013 and is subject to various closing conditions , including the requisite epocrates stockholder approval and the expiration or termination of any waiting period under hart-scott rodino antitrust improvements act of 1976 , as amended . during the year ended december 31 , 2012 , the company incurred legal and professional fees in connection with the acquisition of $ 0.5 million , which are included in general and administrative expenses . watertown , ma corporate headquarters - arsenal on the charles on december 5 , 2012 , we entered into a purchase and sale agreement with the president and fellows of harvard college to acquire the real estate commonly known as the arsenal on the charles , an expansive 29 acre , multi-building , commercial property situated less than 10 miles outside of downtown boston where we currently lease our headquarters , and related operating activities . the purchase price will be approximately $ 169 million , subject to the terms and conditions of the purchase and sale agreement , and the transaction is expected to close in the second quarter of 2013 , subject to the satisfactory completion of due diligence by athenahealth . we have incurred legal and professional fees in connection with the acquisition of $ 0.7 million during the year ended december 31 , 2012 , which are included in general and administrative expenses . 2013 commitment letter on january 7 , 2013 , we entered into a commitment letter , pursuant to which bank of america , n.a . committed to increase its commitment to provide revolving loans under our credit facility by an amount up to $ 55 million as a source of funding for the epocrates transaction . critical accounting policies our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . in connection with the preparation of our consolidated financial statements , we are required to make assumptions and estimates about future events , and apply judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and the related disclosures . we base our assumptions , estimates and judgments on historical experience , current trends and other factors we believe to be relevant at the time we prepared our consolidated financial statements . on a regular basis , we review the accounting policies , assumptions , estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . the preparation of our consolidated financial statements in conformity with gaap requires us to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . significant estimates and assumptions are used for , but are not limited to : ( 1 ) revenue recognition ; including our estimated expected customer life ; ( 2 ) asset impairments ; ( 3 ) depreciable lives of assets ; ( 4 ) fair value of stock options ; ( 5 ) allocation of direct and indirect expenses ; ( 6 ) fair value of contingent consideration and acquired intangible assets in a business combination ; and ( 7 ) litigation reserves . future events and their effects can not be predicted with certainty , and accordingly , our accounting estimates require the exercise of judgment . the accounting estimates used in the preparation of our consolidated financial statements will change as new events occur , as more experience is acquired , as additional information is 40 obtained , and as our operating environment changes . we evaluate and update our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations . actual results could differ from the estimates we have used . our significant accounting policies are discussed in note 1 , nature of operations and summary of significant accounting policies , to our accompanying consolidated financial statements . we believe the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results , as they require management to make difficult , subjective or complex judgments , and to make estimates about the effect of matters that are inherently uncertain . we have reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors . story_separator_special_tag 41 description judgment and uncertainties effect if actual results differ from assumptions revenue recognition we derive our revenue from business services associated with revenue cycle management , electronic health record management , patient communication management , referral cycle management and analytics offerings and from implementation and other services . our clients typically purchase one-year contracts that renew automatically upon completion . in most cases , our clients may terminate their agreements with 90 days notice without cause . we typically retain the right to terminate client agreements in a similar timeframe . our clients are billed monthly , in arrears , based either upon a percentage of collections posted to athenanet , minimum fees , flat fees , or per-claim fees where applicable . invoices are generated within the first two weeks of the subsequent month and delivered to clients primarily by email . for most of our clients , fees are then deducted from a pre-defined bank account one week after invoice receipt via an auto-debit transaction . amounts that have been accrued are recorded as revenue or deferred revenue , as appropriate , and are included in our accounts receivable balances . we recognize revenue when all of the following conditions are satisfied : - there is evidence of an arrangement ; - the service has been provided to the client ; - the collection of the fees is reasonably assured ; and - the amount of fees to be paid by the client is fixed or determinable . all revenue , other than implementation revenue , is recognized when the service is performed . relative to our business services offering that is based on the collections of amounts by our customers ; we do not recognize revenue until our customers have been paid . each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit if both of the following criteria are met : ( 1 ) the delivered item or items have value to the customer on a standalone basis and ( 2 ) for an arrangement that includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . we consider a deliverable to have standalone value if we sell this item separately or if the item is sold by another vendor or could be resold by the customer . further , our revenue arrangements generally do not include a general right of return relative to delivered products . deliverables not meeting the criteria for being a separate unit of accounting are combined with a deliverable that does meet that criterion . the appropriate allocation of arrangement consideration and recognition of revenue is then determined for the combined unit of accounting . if and when we are not able to deliver all separate units of account in the same period , we allocate arrangement consideration to each deliverable in an arrangement based on its relative selling price . although we believe that our approach to estimates and judgments as described herein is reasonable , actual results could differ and we may be exposed to increases or decreases in revenue that could be material . 42 description judgment and uncertainties effect if actual results differ from assumptions we recognize our non-refundable up-front fees over the contract term or estimated expected customer life , whichever is longer . as the implementation service is not separable from the ongoing business services , we record implementation fees as deferred revenue until the implementation service is complete , at which time we recognize revenue ratably on a monthly basis over the longer of the estimated expected customer life or contract life . the determination of the amount of revenue we can recognize each accounting period requires management to make estimates and judgments on the estimated expected customer life . we determined the estimated customer life considering the following key factors : - renewal rate considerations - economic life of the product or service - industry data the estimated customer life , or expected performance period , for the years presented is 12 years . our estimate of expected performance period may prove to be inaccurate , in which case we may have understated or overstated the revenue recognized in an accounting period . for example , if in the future , we need to increase our estimated expected performance period to a period longer than 12 years , the amount we would recognize in each accounting period would decrease . on the other hand , if in the future , we need to decrease our estimated expected performance period to a period shorter than 12 years , the amount we would recognize in each accounting period would increase . the amount of deferred revenue related to non-refundable up-front fees is $ 53.7 million as of december 31 , 2012 . 43 description judgment and uncertainties effect if actual results differ from assumptions business combinations : purchased intangibles and contingent consideration business combinations , including purchased intangibles and contingent consideration , are accounted for at fair value . acquisition costs are generally expensed as incurred and recorded in general and administrative expenses . all changes to purchase accounting that do not qualify as measurement period adjustments are included in current period earnings . the accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business , the allocation of those cash flows to identifiable intangible assets , estimated useful lives of these intangible assets and a probability-weighted income approach based on scenarios in estimating achievement of operating results and earn-out targets related to estimating the value of the contingent considerations . significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period . we review acquired intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable .
| the total claims submitted on behalf of clients are as follows : replace_table_token_8_th also contributing to this increase was the direct operating employee-related costs , including stock-based compensation , which increased $ 28.2 million from the year ended december 31 , 2011 , to the year ended december 31 , 2012 , primarily due to the 28 % increase in headcount since december 31 , 2011 , and an increase fair value of our recently issued stock-based compensation expense . we increased headcount to meet the current and anticipated demand for our services as our customer base has expanded and includes larger medical groups . amortization related to purchased intangible assets increased $ 1.1 million from the year ended december 31 , 2011 , to the year ended december 31 , 2012 . replace_table_token_9_th selling and marketing expense . the increase in selling and marketing expense was primarily due to employee-related costs , including stock-based compensation expense , internal sales commissions and external partner channel commission of $ 15.7 million , or 31 % , from $ 50.0 million for the year ended december 31 , 2011 , to $ 65.8 million for the year ended december 31 , 2012 . our sales and marketing headcount increased by 28 % since december 31 , 2011 , as we hired additional sales personnel to focus on adding new customers and increasing penetration within our existing markets . the increase was also due to a $ 3.4 million increase in travel-related expenses and consulting and $ 5.4 million increase in online marketing , offline marketing and other marketing events for the year . research and development expense . research and development expense increased due to higher employee-related costs , including stock-based compensation expense of $ 8.5 million , or 42 % , from $ 20.5 million for the year ended december 31 , 2011 , to $ 29.0 million for the year ended december 31 , 2012 . this increase is due in part to a 45 % increase in headcount from december 31 , 2011 , as we hired additional research and development personnel in order to upgrade and extend our service
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30 the impact of our adoption of the new revenue standard is presented in note 1 – summary of significant accounting policies of the notes to the consolidated financial statements and in the following table which presents a comparison of selected financial information under both the new revenue standard and the previous revenue standard for the year ended december 31 , 2018 : replace_table_token_6_th statement of cash flows on january 1 , 2018 , we adopted the new cash flow standard which impacted the presentation of our cash flows related to our beneficial interests in securitization transactions , which is the deferred purchase price , resulting in a reclassification of cash inflows from operating activities to investing activities in our consolidated statements of cash flows . the new cash flow standard also impacted the presentation of our cash payments for debt prepayment and debt extinguishment costs , resulting in a reclassification of cash outflows from operating activities to financing activities in our consolidated statements of cash flows . we have applied the new cash flow standard retrospectively to all periods presented . for additional information regarding the new cash flow standard and the impact of our adoption , see “ selected financial data ” and note 1 – summary of significant accounting policies of the notes to the consolidated financial statements . financial instruments in january 2016 , the financial accounting standards board ( “ fasb ” ) issued asu 2016-01 , “ financial instruments ( topic 825 ) : recognition and measurement of financial assets and financial liabilities. ” the standard addresses certain aspects of recognition , measurement , presentation and disclosure of financial instruments . the standard became effective for us , and we adopted the standard , on january 1 , 2018. the standard requires the impact of adoption to be recorded to retained earnings under a modified retrospective approach . the implementation of this standard did not have a material impact on our consolidated financial statements . income taxes in october 2016 , the fasb issued asu 2016-16 , “ accounting for income taxes : intra-entity transfers of assets other than inventory. ” the standard requires that the income tax impact of intra-entity sales and transfers of property , except for inventory , be recognized when the transfer occurs . the standard became effective for us , and we adopted the standard , on january 1 , 2018. the standard requires any deferred taxes not yet recognized on intra-entity transfers to be recorded to retained earnings under a modified retrospective approach . the implementation of this standard did not have a material impact on our consolidated financial statements . derivatives and hedging in august 2017 , the fasb issued asu 2017-12 , “ derivatives and hedging ( topic 815 ) : targeted improvement to accounting for hedging activities. ” the standard modified the guidance for the designation and measurement of qualifying hedging relationships and the presentation of hedge results . we adopted this standard on october 1 , 2018 , and have applied the standard to hedging transactions prospectively . 31 hurricane impacts during 2018 , we recognized $ 61 million in costs related to hurricanes , including $ 36 million in incremental costs to maintain services primarily in puerto rico related to hurricanes that occurred in 2017 and $ 25 million related to hurricanes that occurred in 2018. additional costs related to a hurricane that occurred in 2018 are expected to be immaterial in the first quarter of 2019. during 2018 , we received reimbursement payments from our insurance carriers of $ 307 million related to hurricanes , of which $ 93 million was previously accrued for as a receivable as of december 31 , 2017. we have accrued insurance recoveries related to a hurricane that occurred in 2018 of approximately $ 5 million for the year ended december 31 , 2018 as an offset to the costs incurred within cost of services in our consolidated statements of comprehensive income and as an increase to other current assets in our consolidated balance sheets . the following table shows the impacts of hurricanes to our results , operating metrics and non-gaap financial measures for the years ended december 31 , 2018 and 2017. there were no significant hurricane impacts in 2016 . replace_table_token_7_th 32 story_separator_special_tag name= '' sd147d01ec796430091e2f1d79ea39a8b '' > the following discussion and analysis is for the year ended december 31 , 2018 , compared to the same period in 2017 unless otherwise stated . total revenues increased $ 2.7 billion , or 7 % , as discussed below . branded postpaid revenues increased $ 1.4 billion , or 7 % , primarily from : higher average branded postpaid phone customers , primarily from growth in our customer base driven by the continued growth in existing and greenfield markets including the growing success of new customer segments and rate plans such as t-mobile one unlimited 55+ , t-mobile one military , t-mobile for business and t-mobile essentials , along with lower churn ; and higher average branded postpaid other customers ; partially offset by lower branded postpaid phone average revenue per user ( “ arpu ” ) . see “ branded postpaid phone arpu ” in the “ performance measures ” section of this md & a and the negative impact of the new revenue standard of $ 25 million , primarily due to the impact of certain promotions previously recognized as a reduction in equipment revenues now recognized as a reduction in branded postpaid revenues , partially offset by certain equipment revenues reclassified to branded postpaid revenues . branded prepaid revenues increased $ 218 million , or 2 % , primarily from : higher average branded prepaid customers driven by the success of our metro by t-mobile brand ; partially offset by lower branded prepaid arpu . story_separator_special_tag see “ branded prepaid apru ” in the “ performance measures ” section of this md & a and the negative impact of the new revenue standard of $ 10 million , primarily due to the impact of certain promotions previously recognized as a reduction in equipment revenues now recognized as a reduction in branded prepaid revenues . wholesale revenues increased $ 81 million , or 7 % , primarily from the continued success of our mvno partnerships . roaming and other service revenues increased $ 119 million , or 52 % , primarily from an increase in international and domestic roaming revenues . equipment revenues increased $ 634 million , or 7 % , primarily from : an increase of $ 1.1 billion in device sales revenues , excluding purchased leased devices , primarily due to : higher average revenue per device sold due to an increase in the high-end device mix ; and a positive impact from the new revenue standard of $ 393 million primarily related to : ▪ commission costs of $ 438 million previously recorded as a reduction in equipment revenues now recorded as selling , general and administrative expenses and certain promotions previously recorded as a reduction in equipment revenues now recorded as a reduction in service revenues ; partially offset by ▪ certain promotional bill credits now capitalized as contract assets and certain equipment revenues now recognized as service revenues ; partially offset by a 6 % decrease in the number of devices sold , excluding purchased leased devices ; partially offset by a decrease of $ 310 million from lower volumes of purchased leased devices at the end of the lease term ; and a decrease of $ 185 million in lease revenues from jump ! on demand customers preferring affordable device options on leasing programs with lower monthly lease payments and shifting focus to our eip financing option for high-end devices . under our jump ! on demand program , upon device upgrade or at lease end , customers must return or purchase their device . revenue for purchased leased devices is recorded as equipment revenues when revenue is recognition criteria have been met . 35 other revenues increased $ 240 million , or 22 % , primarily due to revenue share agreements with third parties , the positive impact from $ 71 million in insurance reimbursements related to the hurricanes , and higher amortized imputed discount on eip receivables due to continued growth in eip sales . our operating expenses consist of the following categories : cost of services primarily includes costs directly attributable to providing wireless service through the operation of our network , including direct switch and cell site costs , such as rent , network access and transport costs , utilities , maintenance , associated labor costs , long distance costs , regulatory program costs , roaming fees paid to other carriers and data content costs . in addition , certain costs for customer appreciation programs are included in cost of services . cost of equipment sales primarily includes costs of devices and accessories sold to customers and dealers , device costs to fulfill insurance and warranty claims , costs related to returned and purchased leased devices , write-downs of inventory related to shrinkage and obsolescence , and shipping and handling costs . selling , general and administrative primarily includes costs not directly attributable to providing wireless service for the operation of sales , customer care and corporate activities . these include commissions paid to dealers and retail employees for activations and upgrades , labor and facilities costs associated with retail sales force and administrative space , marketing and promotional costs , customer support and billing , bad debt expense , losses from sales of receivables and back office administrative support activities . operating expenses increased $ 2.3 billion , or 6 % , primarily from higher selling , general and administrative expenses , depreciation and amortization expense , cost of equipment sales , cost of services , and lower gains on disposal of spectrum licenses as discussed below . cost of services increased $ 207 million , or 3 % , primarily from : higher lease , employee-related and repair and maintenance expenses associated with network expansion ; and the impact from the new revenue standard of $ 74 million primarily related to certain contract fulfillment costs reclassified to cost of services from selling , general and administrative expenses ; partially offset by lower regulatory program costs ; and the positive impact from insurance reimbursements related to hurricanes , net of costs , of $ 76 million in the year ended december 31 , 2018 , compared to costs incurred related to hurricanes , net of insurance recoveries , of $ 105 million for the year ended december 31 , 2017 . cost of equipment sales increased $ 439 million , or 4 % , primarily from : an increase of $ 947 million in device cost of equipment sales , excluding purchased leased devices , primarily due to : a higher average cost per device sold , primarily due to an increase in the high-end device mix ; partially offset by a 6 % decrease in the number of devices sold , excluding purchased lease devices . this increase was partially offset by a decrease of $ 342 million in leased device cost of equipment sales , primarily from lower volumes of purchased leased devices at the end of the lease term ; and a decrease of $ 178 million primarily due to lower inventory adjustments and lower warranty program costs . under our jump ! on demand program , upon device upgrade or at the end of the lease term , customers must return or purchase their device . the cost of purchased leased devices is recorded as cost of equipment sales . returned devices transferred from property and equipment , net are recorded as inventory and are valued at the lower of cost or market with any write-down to market recognized as cost of equipment sales .
| operating income for the year ended december 31 , 2018 included the positive impacts from the adoption of the new revenue standard of $ 398 million and from insurance reimbursements related to hurricanes , net of costs incurred , of $ 158 million as well as the negative impact of costs associated with the transactions of $ 196 million . operating income also included gains on disposal of spectrum licenses of $ 235 million and the negative impact from hurricanes of $ 201 million for the year ended december 31 , 2017 . net income of $ 2.9 billion for the year ended december 31 , 2018 decreased $ 1.6 billion , or 36 % , primarily due to higher income tax ( expense ) benefit , partially offset by higher operating income and lower other income ( expense ) , net . net income for the year ended december 31 , 2018 included the positive impacts from the adoption of the new revenue standard of $ 295 million and from insurance reimbursements related to hurricanes , net of costs , of $ 99 million as well as the negative impact of costs associated with the transactions of $ 180 million . net income also included the negative impact from hurricanes of $ 130 million and net , after-tax gains on disposal of spectrum licenses of $ 174 million for the year ended december 31 , 2017 . adjusted ebitda of $ 12.4 billion for the year ended december 31 , 2018 increased $ 1.2 billion , or 11 % , primarily due to higher operating income driven by the factors described above . see “ performance measures ” for additional information . net cash provided by operating activities of $ 3.9 billion for the year ended december 31 , 2018 increased $ 68 million , or 2 % . see “ liquidity and capital resources ” for additional information . free cash flow of $ 3.6 billion for the year ended december 31 , 2018 increased $ 827 million , or 30 % . see “ liquidity and capital resources ” for additional information . 33 set
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we offer the wireless phone service only as part of our bundled service offerings to residential customers that subscribe to our high-speed internet service within our cable distribution footprint and may in the future also offer wireless phone service to our small business customers on similar terms . the wireless phone service has success-based working capital requirements , primarily associated with the procurement of handsets , which customers are able to pay for upfront or finance interest-free over 24 months , and other equipment . replace_table_token_42_th 2017 developments the following are the more significant developments in our businesses during 2017 : cable communications segment an increase in revenue of 4.9 % to $ 52.5 billion and an increase in adjusted ebitda of 5.3 % to $ 21.2 billion an increase in operating margin from 40.2 % to 40.3 % that reflects increases in high-speed internet , video and business services revenue , offset by higher programming expenses an increase in capital expenditures of 4.7 % to $ 8.0 billion that reflects : increased investments in scalable infrastructure to increase network capacity ; increased investments in line extensions , primarily for the expansion of our business services ; and decreased spending on customer premise equipment nbcuniversal segments an increase in total nbcuniversal revenue of 4.4 % to $ 33.0 billion ; total nbcuniversal revenue increased 10.1 % excluding $ 1.6 billion of revenue associated with our broadcast of the rio olympics in august 2016 an increase in total nbcuniversal adjusted ebitda of 14.1 % to $ 8.2 billion an increase in cable networks segment revenue of 1.6 % and a decrease in broadcast television segment revenue of 5.9 % , including the impact of our broadcast of the 2016 rio olympics ; excluding revenue associated with the olympics , cable networks and broadcast television segments revenue increased 6.0 % and 6.6 % , respectively , primarily due to increases in distribution revenue an increase in filmed entertainment segment revenue of 20.4 % primarily due to the success of the fate of the furious , despicable me 3 and fifty shades darker an increase in theme parks segment revenue of 10.0 % reflecting the continued success of the wizarding world of harry potter attraction in hollywood , which opened in april 2016 , and the openings of minion park in japan in april 2017 and volcano bay in orlando in may 2017 the acquisition of the remaining interests in universal studios japan that we did not already own for $ 2.3 billion corporate and other the launch of our wireless phone service in the second quarter of 2017 to our residential cable customers the acquisition of rights to $ 1.7 billion of spectrum , as well as the receipt of proceeds of $ 482 million related to nbcuniversal 's relinquishment of spectrum rights cash capital contributions to atairos totaling $ 994 million , which brought our investment in atairos to $ 2.4 billion as of december 31 , 2017 the enactment of new federal tax reform legislation in december 2017 which , among other things , reduced the federal corporate tax rate to 21 % from 35 % , effective january 1 , 2018 , resulting in a $ 12.7 billion net income tax benefit recorded in the fourth quarter of 2017 primarily due to a reduction of our net deferred tax liability competition the results of operations of our reportable business segments are affected by competition , as all of our businesses operate in intensely competitive , consumer-driven and rapidly changing environments and compete with a growing number of companies that provide a broad range of communications products and services and entertainment , news and information content to consumers . technological changes are further intensifying and complicating the competitive landscape and challenging existing business models . in particular , consumers are increasingly turning to online sources for viewing and purchasing content , which has and likely will continue to reduce the number of our video customers and subscribers to our cable networks even as it makes our high-speed internet services more valuable to consumers . in addition , the increasing number of entertainment choices available has intensified audience fragmentation , which has and likely will continue to adversely affect the audience ratings of our cable networks and broadcast television programming . for additional information on the competition our businesses face , see item 1 : business and item 1a : risk factors . within the business section , refer to the “ competition ” discussion , and within the risk factors section , refer to the risk factors entitled “ our businesses currently face a wide range of competition , and our businesses and results of operations could be adversely affected if we do not compete effectively ” and “ changes in consumer behavior driven by online distribution platforms for viewing content could adversely affect our businesses and challenge existing business models. ” replace_table_token_43_th seasonality and cyclicality each of our businesses is subject to seasonal and cyclical variations . in our cable communications segment , our results are impacted by the seasonal nature of residential customers receiving our cable services in college and vacation markets . this generally results in fewer net customer relationship additions in the second quarter of each year . revenue in our cable communications , cable networks and broadcast television segments is subject to cyclical advertising patterns and changes in viewership levels . advertising revenue in the u.s. is generally higher in the second and fourth quarters of each year , due in part to increases in consumer advertising in the spring and in the period leading up to and including the holiday season . advertising revenue in the u.s. is also cyclical , with a benefit in even-numbered years due to advertising related to candidates running for political office and issue-oriented advertising . revenue in our cable networks and broadcast television segments fluctuates depending on the timing of when our programming is aired , which typically results in higher advertising revenue in the second and fourth quarters of each year . story_separator_special_tag our revenue and operating costs and expenses ( comprised of total costs and expenses , excluding depreciation and amortization expense and other operating gains ) are cyclical as a result of our periodic broadcasts of major sporting events , such as the olympic games , which affect our cable networks and broadcast television segments , and the super bowl , which affects our broadcast television segment . in particular , our advertising revenue increases due to increased demand for advertising time and our distribution revenue increases in the period of these broadcasts . our operating costs and expenses also increase as a result of our production costs for these broadcasts and the amortization of the related rights fees . revenue in our filmed entertainment segment fluctuates due to the timing , nature and number of films released in movie theaters , on standard-definition digital video discs and blu-ray discs ( together , “ dvds ” ) , and through various other distribution platforms . release dates are determined by several factors , including competition and the timing of vacation and holiday periods . as a result , revenue tends to be seasonal , with increases experienced each year during the summer months and around the holiday season . content licensing revenue in our cable networks , broadcast television and filmed entertainment segments also fluctuates due to the timing of when our content is made available to licensees . revenue in our theme parks segment fluctuates with changes in theme park attendance that result from the seasonal nature of vacation travel and weather variations , local entertainment offerings and the opening of new attractions as well as with changes in currency exchange rates . our theme parks generally experience peak attendance during the spring holiday period , the summer months when schools are closed and the holiday season . consolidated operating results replace_table_token_44_th all percentages are calculated based on actual amounts . minor differences may exist due to rounding . percentage changes that are considered not meaningful are denoted with nm . ( a ) adjusted ebitda is a non-gaap performance measure . refer to the “ non-gaap financial measure ” section on page 5 0 for additional information , including our definition and our use of adjusted ebitda , and for a reconciliation from net income attributable to comcast corporation to adjusted ebitda . replace_table_token_45_th consolidated revenue the following graph illustrates the contributions to the increases in consolidated revenue made by our cable communications and nbcuniversal segments , as well as by corporate and other activities including eliminations . the primary drivers of the changes in revenue were as follows : 2017 growth in our cable communications segment driven by revenue from residential high-speed internet and video services and business services growth in our nbcuniversal segments driven by filmed entertainment and theme parks , partially offset by revenue in 2016 associated with our broadcast of the 2016 rio olympics 2016 growth in our cable communications segment driven by revenue from residential high-speed internet and video services and business services our broadcast of the 2016 rio olympics , which was reported in our nbcuniversal segments revenue for our segments is discussed separately below under the heading “ segment operating results. ” revenue for our other businesses and business development initiatives is discussed separately under the heading “ corporate and other results of operations. ” replace_table_token_46_th consolidated costs and expenses the following graph illustrates the contributions to the increases in consolidated operating costs and expenses made by our cable communications and nbcuniversal segments , as well as by corporate and other activities including eliminations . the primary drivers of the changes in operating costs and expenses were as follows : 2017 an increase in programming expenses in our cable communications segment an increase in programming and production expenses in our filmed entertainment segment , partially offset by expenses in 2016 associated with our broadcast of the 2016 rio olympics an increase in corporate and other activities driven by the launch of our wireless phone service 2016 an increase in programming expenses in our cable communications segment our broadcast of the 2016 rio olympics , which was reported in our nbcuniversal segments operating costs and expenses for our segments is discussed separately below under the heading “ segment operating results. ” operating costs and expenses for our corporate operations , other businesses and business development initiatives is discussed separately below under the heading “ corporate and other results of operations. ” replace_table_token_47_th consolidated depreciation and amortization expense increased in 2017 and 2016 primarily due to increases in capital expenditures , as well as expenditures for software , in our cable communications segment in recent years . we continue to invest to increase our network capacity and in customer premise equipment , primarily for our x1 platform , cloud dvr technology and wireless gateways . certain of these assets in our cable communications segment have relatively short estimated useful lives , which increased depreciation expense in 2017 and 2016 and will continue to increase depreciation expense in 2018 . nbcuniversal depreciation and amortization expense also increased primarily due to our continued investment in new attractions in our theme parks segment , including for universal studios japan . replace_table_token_48_th consolidated other operating gains consolidated other operating gains for 2017 included $ 337 million related to nbcuniversal 's relinquishment of spectrum rights ( see note 5 to comcast 's consolidated financial statements and note 4 to nbcuniversal ' s consolidated financial statements ) and $ 105 million related to the sale of a business in corporate and other ( see note 7 to comcast ' s consolidated financial statements ) . segment operating results our segment operating results are presented based on how we assess operating performance and internally report financial information . we use adjusted ebitda as the measure of profit or loss for our operating segments .
| we continue to deploy set-top boxes for our internet protocol ( “ ip ” ) and cloud-enabled video platform , referred to as our x1 platform , and cloud dvr technology throughout our footprint . video revenue increased 3.5 % and 3.9 % in 2017 and 2016 , respectively . the increases in revenue in both years were primarily due to rate adjustments and increases in the number of residential customers subscribing to additional services such as premium channels and advanced services , which accounted for substantially all of the increases in both 2017 and 2016 . the increase in 2017 was partially offset by a decrease in the number of residential video customers . as of december 31 , 2017 , 15.0 million customers subscribed to at least one of our hd or dvr advanced services compared to 14.8 million customers and 13.9 million customers as of december 31 , 2016 and 2015 , respectively . we have experienced , and may experience in the future , declines in the number of residential video customers due to competitive pressures and the impact of rate adjustments . competition is intense , both from traditional multichannel video providers and from new technologies and distribution platforms for viewing content . we are responding to this competition , and have attempted to mitigate industry-wide declines in residential video customers at traditional multichannel video providers , through our x1 platform and sales and marketing programs , such as promotions , bundled service offerings and service offerings targeted at specific market segments . as of december 31 , 2017 , 39.1 % of the homes and businesses in the areas we serve subscribed to our video services , compared to 39.9 % and 40.1 % as of december 31 , 2016 and 2015 , respectively . high-speed internet we offer high-speed internet services with downstream speeds that range up to 1 gigabit per second ( “ gbps ” ) and fiber-based speeds that range up to 2 gbps . throughout our footprint , we continue to deploy wireless gateways that combine a customer 's wireless router , cable modem and voice adapter to improve the performance of multiple ip-enabled devices used
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we expect the stock repurchase program to deliver value to shareholders , while capitalizing on attractive market valuations . avista and crestview partners investment on december 18 , 2015 , crestview advisors , llc ( `` crestview '' ) and our former parent consummated a transaction whereby crestview became the beneficial owner of approximately 35 % of our former parent . under terms of the agreement ( `` crestview purchase agreement '' ) , crestview 's funds purchased units held by avista capital partners ( `` avista '' ) and other unit holders , and separately made a $ 125.0 million primary investment in newly-issued units . on april 29 , 2016 , funds managed by avista and crestview made an additional $ 40.0 million investment in newly-issued membership units in our former parent . as of december 31 , 2017 , all the proceeds from the funds ' investments of avista and crestview in the amount of $ 143.3 million , net of transaction costs , have been contributed to the company . redemption of 10.25 % senior notes on march 20 , 2017 , we utilized cash on hand to redeem $ 95.1 million in aggregate principal amount outstanding of our former 10.25 % senior notes due 2019 ( `` senior notes '' ) . in addition to the partial redemption , we paid accrued interest on the senior notes of $ 1.7 million and a call premium of $ 4.9 million . we recorded a loss on early extinguishment of debt of $ 5.0 million , primarily representing the cash call premium paid . on july 17 , 2017 , we used the proceeds of the new term b loans , and borrowed $ 180.0 million under our revolving credit facility and cash on hand to fully redeem all of the company 's remaining outstanding senior notes and to pay certain fees and expenses . in connection with the redemption of the senior notes , we satisfied and discharged the indenture governing the senior notes . we paid $ 729.9 million in principal amount , incurred prepayment fees of $ 18.7 million and paid accrued interest of $ 37.6 million . we recorded a loss on early extinguishment of debt of $ 19.8 million related to the write-off of deferred issuance costs , premium , and prepayment fees . redemption of 13.38 % senior subordinated notes during the year ended december 31 , 2016 , we made two redemption payments to early redeem our 13.38 % senior subordinated notes . the final redemption payment was made on december 18 , 2016. refinancing of the term b loans and revolving credit facility on july 17 , 2017 , the company entered into an eighth amendment ( `` eighth amendment '' ) to its credit agreement , with jpmorgan chase bank , n.a. , as the administrative agent and revolver agent . under the eighth amendment , ( i ) we borrowed new term b loans in an aggregate principal amount of $ 230.5 million , for a total outstanding term b loan principal amount of $ 2.28 billion and ( ii ) the revolving credit commitments were increased by an aggregate principal amount of $ 100.0 million , for a total outstanding revolving credit commitment of $ 300.0 million available to us under the revolving 50 credit facility . the new term b loans will mature on august 19 , 2023 and bear interest , at our option , at a rate equal to abr plus 2.25 % or libor plus 3.25 % . loans under the revolving credit facility will mature on may 31 , 2022 and bear interest , at our option , at a rate equal to abr plus 2.00 % or libor plus 3.00 % . the guarantees , collateral and covenants in the eighth amendment remain unchanged from those contained in the credit agreement prior to the eighth amendment . on may 31 , 2017 , the company entered into a seventh amendment ( `` seventh amendment '' ) to its credit agreement . the seventh amendment ( i ) refinanced the then existing $ 200.0 million of borrowings available to the company under the revolving credit facility and ( ii ) extended the maturity date of the revolving credit facility to may 31 , 2022 , unless an earlier date was triggered under certain circumstances . the interest rate margins applicable to the revolving credit facility bore interest at a rate equal to abr plus 2.00 % or libor plus 3.00 % . additionally , the company entered into an incremental commitment letter to its revolving credit facility that increased the available borrowings to $ 300.0 million that became available upon compliance by the company with certain conditions ( see the discussion of the redemption of senior notes above whereby such conditionality was subsequently achieved as a result of the eighth amendment ) . the guarantees , collateral and covenants in the seventh amendment remain unchanged from those contained in the credit agreement prior to the seventh amendment . sale of chicago fiber network on december 14 , 2017 , the company sold a portion of its fiber network in the chicago market to a subsidiary of verizon for $ 225.0 million in cash . in addition , the company and verizon entered into a new construction agreement pursuant to which the company will complete the build-out of the network in exchange for approximately $ 50.0 million ( which approximates the company 's remaining estimate to complete the network build-out ) , payable as the remaining network elements are completed . the final build-out of the network is expected to be completed during the second half of 2018. sale of lawrence , kansas system on january 12 , 2017 , we and midcontinent communications ( `` midco '' ) entered into an agreement under which midco acquired our lawrence , kansas systems , for gross proceeds of approximately $ 213.0 million in cash , subject to certain normal and customary purchase price adjustments set forth in the agreement . story_separator_special_tag we and midco also entered into a transition services agreement pursuant to which the company provides certain services to midco on a transitional basis . charges for the transition services generally allow us to fully recover all allowed costs and allocated expenses incurred in connection with providing these services , generally without profit . the results of our lawrence , kansas system are included for the year ended december 31 , 2016 and 2015 , and the first 12 days for the year ended december 31 , 2017. nulink acquisition on september 9 , 2016 , we finalized our acquisition of hc cable opco , llc d/b/a nulink in newnan , georgia for $ 54.3 million , all of which we paid in cash . the acquisition extended our hsd , video and telephony service and award-winning customer support experience to more than 34 thousand additional homes and businesses . the results of our nulink acquisition from september 9 , 2016 through december 31 , 2017 are reflected in our consolidated financial statements . critical accounting policies and estimates in the preparation of our consolidated financial statements , we are required to make estimates , judgments and assumptions that we believe are reasonable based upon the information available , in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . 51 the estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented . critical accounting policies are defined as those policies that are reflective of significant judgments , estimates and uncertainties , which would potentially result in materially different results under different assumptions and conditions . we believe the following accounting policies are the most critical in the preparation of our consolidated financial statements because of the judgment necessary to account for these matters and the significant estimates involved , which are susceptible to change . ownership and basis of presentation in the following context , the terms `` we '' , `` us '' , `` wow '' or the `` company '' may refer , as the context requires , to wow or , collectively , wow and its subsidiaries . see further discussion in part 1 item 1 `` ownership and basis of presentation . '' prior to our ipo , certain employees of wow participated in equity plans administered by the company 's former parent . the management units from the equity plan were issued from the former parent 's ownership structure , the management units ' value directly correlated to the results of wow , as the primary asset of the former parent 's investment in wow . the management units for the equity plan were `` pushed down '' to the company , as the management units had been utilized as equity-based compensation for wow management . immediately prior to the company 's ipo , these management units were cancelled . the financial statements presented herein include the consolidated accounts of wow and its subsidiaries . prior to the company 's ipo , the former parent 's primary asset was its investment in wow , the former parent 's ownership structure related to its ultimate ownership of wow and consisting of various classes of common units that have been `` pushed down '' to the company . valuation of plant , property and equipment and intangible assets carrying value . the aggregate carrying value of our plant , property and equipment and intangible assets ( including franchise operating rights and goodwill ) comprised approximately 93 % and 95 % of our total assets at december 31 , 2017 and december 31 , 2016 , respectively . plant , property and equipment are recorded at cost and include costs associated with the construction of cable transmission and distribution facilities and new service installations at customer locations . capitalized costs include materials , labor and certain indirect costs attributable to the capitalization activity . maintenance and repairs are expensed as incurred . upon sale or retirement of an asset , the cost and related depreciation are removed from the related accounts , and resulting gains or losses are reflected in operating results . we make judgments regarding the installation and construction activities to be capitalized . we capitalize direct labor associated with capitalizable activities and indirect cost using standards developed from operational data , including the proportionate time to perform a new installation relative to the total technical operations activities and an evaluation of the nature of the indirect costs incurred to support capitalizable activities . judgment is required to determine the extent to which indirect costs that have been incurred are related to capitalizable activities and , as a result , should be capitalized . indirect costs include ( i ) employee benefits and payroll taxes associated with capitalized direct labor , ( ii ) direct variable cost of installation and construction vehicle costs , ( iii ) the direct variable costs of support personnel directly involved in assisting with installation activities , such as dispatchers and ( iv ) indirect costs directly attributable to capitalizable activities . 52 intangible assets consist primarily of acquired franchise operating rights , franchise-related customer relationships and goodwill . franchise operating rights represent the value attributable to agreements with local franchising authorities , which allows access to homes in the public right of way . our franchise operating rights were acquired through business combinations . we do not amortize cable franchise operating rights as we have determined that they have an indefinite life . costs incurred in negotiating and renewing cable franchise agreements are expensed as incurred . franchise-related customer relationships represent the value of the benefit to us of acquiring the existing cable subscriber base and are amortized over the estimated life of the subscriber base , generally four years , on a straight-line basis . goodwill represents the excess purchase price over the fair value of the identifiable net assets we acquired in business combinations . asset impairments .
| the decrease in other revenue of $ 7.5 million , or 6 % , is partially due to decreases in advertising revenue and other regulatory fees , which correlates with the reduction in video subscribers over the same period . the following table details subscription revenue by service offering for the years ended december 31 , 2017 and december 31 , 2016 : replace_table_token_7_th ( 1 ) average subscribers , presented in thousands , is calculated based on reported subscribers and is not adjusted for changes related to the disposition of our lawrence , kansas system and acquisition of nulink . 61 hsd subscription revenue increased $ 35.7 million , or 10 % , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase in hsd subscription revenue is primarily attributable to a $ 35.8 million increase year over year in hsd arpu , a $ 9.7 million increase related to a year over year increase in average hsd rgus and an increase of $ 7.3 million in hsd subscription revenue related to our nulink acquisition . partially offsetting the overall increase is a $ 17.1 million decrease related to the disposition of our lawrence , kansas system . video subscription revenue decreased $ 50.0 million , or 9 % , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the decrease is primarily attributable to a year over year decrease of $ 58.0 million in video rgu 's and a $ 17.1 million decrease related to the disposition of our lawrence , kansas system . this overall decrease is partially offset by an increase of $ 19.3 million in video arpu and a $ 5.8 million increase in video subscription revenue related to our nulink acquisition . phone subscription revenue decreased $ 21.4 million , or 14 % during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the decrease is primarily attributable to a $ 20.4 million decrease year over year in phone rgu 's and $ 4.8 million decrease related to the disposition of
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the sale of the property will result in a reduction in lemon and avocado production and related agriculture revenues , agriculture costs and expenses and operating income of approximately $ 1,300,000 , $ 1,000,000 and $ 300,000 , respectively , off-set by fees from the anticipated lemon packing agreement . story_separator_special_tag 0pt ; margin-right : 0pt '' > · real estate revenue was $ 3.3 million for fiscal year 2010 compared to $ 39,000 for fiscal year 2009. the $ 3.2 million increase was primarily the result of the sale of the cactus wren project in arizona for $ 3,000,000 . 34 costs and expenses total costs and expenses for fiscal year 2010 were $ 51.2 million compared to $ 42.3 million for fiscal year 2009. this 21 % increase of $ 8.9 million was primarily attributable to increases in our agriculture costs , real estate development expenses net of impairment charges , and selling , general and administrative expenses of $ 4.2 million , $ 0.3 million and $ 4.2 million , respectively . costs associated with our agriculture business include packing costs , harvest costs , growing costs , costs related to the lemons we process and sell for third-party growers , and depreciation expense . these costs are discussed further below : · harvest costs for fiscal year 2010 were $ 6.5 million compared to $ 4.6 million for fiscal year 2009. this 41 % increase of $ 1.9 million primarily resulted from 15.3 million more pounds of avocados being harvested during fiscal year 2010 compared to fiscal year 2009 . · costs related to the lemons that we process and sell for third-party growers were $ 5.2 million for fiscal year 2010 compared to $ 3.7 million for fiscal year 2009. this 41 % increase of $ 1.5 million was attributable to higher sales prices per carton , which directly correlates to amounts expensed and paid to third party growers in fiscal year 2010 compared to fiscal year 2009. this increase was partially offset by a $ 0.3 million decrease in lemon packing costs . · growing costs for fiscal year 2010 were $ 10.2 million compared to $ 9.1 million for fiscal year 2009. this 12 % increase of $ 1.1 million was primarily attributable to higher expenditures for fertilization , water , soil amendments and general tree care during fiscal year 2010 compared to fiscal year 2009. due to reduced agriculture revenue in fiscal year 2009 , the company delayed expenditures for certain growing costs until fiscal year 2010. real estate development expenses consist of costs incurred for our various real estate projects , impairment charges and depreciation expense . real estate development expenses for fiscal year 2010 were $ 6.8 million compared to $ 6.5 million for fiscal year 2009. this 5 % increase of $ 0.3 million was primarily attributable to the following : · operating expenses of $ 1.1 million at our windfall investors , llc ( “ windfall investors ” ) real estate development project in creston , california , which was not a part of our operations until fiscal year 2010 . · cost of sales of $ 3.0 million during fiscal year 2010 associated with the sale of the cactus wren property . · offsetting the increased costs noted above was a $ 3.8 million decrease in the impairments of real estate development assets for fiscal year 2010 compared to fiscal year 2009. as the rate of decline in real estate values slowed , the company incurred $ 2.4 million of impairment charges during fiscal year 2010 compared to $ 6.2 million for fiscal year 2009. selling , general and administrative expenses for fiscal year 2010 were $ 10.7 million compared to $ 6.5 million for fiscal year 2009. this 65 % increase of $ 4.2 million is primarily attributable to the following : · legal and accounting expenses of $ 1.4 million associated with the filing of our form 10 and other costs associated with the filing of quarterly reports on form 10-q and current reports on form 8-k as well as our compliance with other obligations of the securities exchange act of 1934 and the listing of our common stock on the nasdaq global market . incremental costs of being a public company are estimated to be approximately $ 1.0 million per year going forward . · a $ 1.3 million charge associated with the forgiveness of notes receivable from three of our senior executive officers . these notes were issued to the officers to allow them to pay the payroll taxes associated with compensation for shares issued to them under our stock grant performance bonus plan . during the first quarter of fiscal 2010 , the outstanding balances of these loans were repaid by the officers by exchanging 6,756 of the shares issued to them valued at $ 150.98 per shares , which was the current market value on the date they were exchanged ( and was prior to our 10-for-1 stock split ) and loan forgiveness by the company totaling $ 0.7 million . the loan forgiveness resulted in additional compensation to the officers and the company paid on their behalf , $ 0.6 million in payroll taxes associated with this compensation . · a $ 0.6 million expense associated with the first-year vesting of a stock grant to management for fiscal year 2010 performance . · employee incentive expenses of $ 0.4 million , compared to employee incentive expenses of zero in fiscal year 2009. additionally , labor and benefits expenses were $ 0.4 million higher in fiscal year 2010 compared to fiscal year 2009 due to an increase in salaries and personnel associated with our registration under the exchange act and the related periodic reporting and other requirements related thereto . story_separator_special_tag 35 other income/expense other income ( expense ) for fiscal year 2010 was $ 3.2 million of expense compared to $ 2.5 million of income for fiscal year 2009. the $ 5.7 million increase in expense consists of the following : · for fiscal 2010 , other expense includes $ 1.6 million of interest expense , $ 2.0 million of interest expense related to derivative instruments , $ 0.1 million of interest income and $ 0.3 million of other miscellaneous income . · for fiscal 2009 , other income includes $ 0.7 million of interest expense , $ 2.7 million of gain on sale of 335,000 shares of stock in calavo growers , inc. , $ 0.2 million of interest income and $ 0.3 million of other miscellaneous income . the $ 0.9 million increase in interest expense in fiscal 2010 is primarily the result of an average higher debt level during fiscal 2010 compared to fiscal 2009 due to the assumption of an additional $ 19.3 million in long-term debt in connection with the acquisition of windfall investors in november 2009. average debt levels in fiscal 2010 were approximately $ 87.9 million compared to approximately $ 73.2 million in fiscal 2009 , which is an increase of approximately $ 14.7 million . the $ 2.0 million increase in interest expense related to derivative instruments in fiscal year 2010 is the result of recording $ 1.4 million of adjustments to the underlying fair value liability for our interest rate swap plus $ 0.6 million of amortization related to fair value adjustments for interest rate swaps previously deferred and recorded in other comprehensive income ( loss ) . income taxes the company recorded an income tax benefit of $ 72,000 for fiscal year 2010 on pre-tax income from continuing operations of $ 0.3 million compared to an income tax benefit of $ 2.3 million for fiscal year 2009 on pre-tax losses from continuing operations of $ 5.2 million . our effective tax rate is 24.5 % for fiscal year 2010 compared to an effective rate of 44.3 % for fiscal year 2009. the primary reasons for this change in our effective tax rate were decreases in the dividend exclusion and allowable domestic production deduction and decreases in the change in unrecognized tax benefits , net of other nondeductible items in fiscal year 2010 over the fiscal year 2009 amounts . fiscal year 2009 compared to fiscal year 2008 revenues total revenue for fiscal year 2009 was $ 34.8 million compared to $ 53.5 million for fiscal year 2008. the 35 % decrease of $ 18.7 million was primarily the result of decreased agricultural revenue , as detailed below : · lemon revenue for fiscal year 2009 was $ 22.3 million compared to $ 40.3 million for fiscal year 2008. the 45 % decrease of $ 18.0 million was primarily the result of less volume sold at lower lemon prices in the marketplace . during fiscal years 2009 and 2008 , 1.3 million and 1.4 million cartons of lemons were sold at an average price per carton of $ 15.72 and $ 27.15 , respectively . the global lemon market experienced an over-supply during fiscal year 2009 compared to a weather-related shortage during fiscal year 2008. prices per carton were $ 15.72 and $ 27.15 for fiscal years 2009 and 2008 , respectively . lemon prices in fiscal year 2008 were high due to the company experiencing minimal impact from adverse global climate conditions in fiscal year 2007 that reduced lemon production in california , argentina , chile and spain . this circumstance enabled the company to achieve over 70 % fresh utilization , compared to a historical average of approximately 65 % , at record sales prices for lemons in fiscal year 2008 . · avocado revenue for fiscal year 2009 was $ 4.0 million compared to $ 3.5 million for fiscal year 2008 , resulting in a 14 % increase of $ 0.5 million . we harvested 2.4 million pounds of avocados during fiscal year 2009 compared to 3.7 million pounds during fiscal year 2008. this 1.3 million pound decrease in production was offset by a $ 1.3 million estimated crop insurance claim settlement recorded in fiscal year 2009 and is attributable to an unseasonable heat event experienced during the bloom and set cycle of spring 2008 and the low fiscal year 2008 harvest is due to unseasonably cold weather in fiscal year 2007 . · navel orange revenue for fiscal year 2009 was $ 1.9 million compared to $ 2.4 million for fiscal year 2008 , resulting in a 21 % decrease of $ 0.5 million . · specialty citrus and other crop revenue for fiscal year 2009 was $ 2.1 million compared to $ 2.9 million for fiscal year 2008 , resulting in a 28 % decrease of $ 0.8 million . 36 costs and expenses total costs and expenses for fiscal year 2009 were $ 42.3 million compared to $ 47.7 million for fiscal year 2008. this 11 % decrease of $ 5.4 million was primarily attributable to decreases in agriculture costs , increases in real estate development expenses and decreases in selling , general and administrative expenses . costs associated with our agriculture business include packing costs , harvest costs , growing costs , costs related to the lemons we process and sell for third-party growers , and depreciation expense . these costs are discussed further below : · costs related to the lemons that we process and sell for third-party growers for fiscal year 2009 were $ 3.7 million compared to $ 7.1 million for fiscal year 2008. this 48 % decrease of $ 3.4 million was attributable to less volume sold at lower lemon prices in fiscal year 2009 compared to fiscal year 2008 .
| volume and price returned to historical average levels in fiscal year 2010 following the oversupply of the global lemon market experienced in fiscal year 2009. during fiscal years 2010 and 2009 , 1.4 million and 1.3 million cartons of lemons were sold at an average price per carton of $ 18.93 and $ 15.72 , respectively . lemon prices were low in fiscal year 2009 as compared to fiscal year 2010 primarily due to a significant oversupply of product in 2009 resulting from simultaneous production recoveries in california , argentina , chile and spain after damaging freezes in 2007 . · avocado revenue for fiscal year 2010 was $ 11.5 million compared to $ 4.0 million in fiscal year 2009. the 188 % increase of $ 7.5 million was primarily due to increased production in fiscal year 2010. the california avocado crop typically experiences alternating years of high and low production due to plant physiology and , as a result , we expect our avocado production to be lower in fiscal year 2011 than in fiscal year 2010. during fiscal years 2010 and 2009 , 17.7 million and 2.4 million pounds of avocados were sold at an average price per pound of $ 0.65 and $ 1.11 , respectively . fiscal year 2009 revenue included a $ 1.3 million estimated crop insurance claim settlement . · a higher quality crop of navel oranges in fiscal year 2010 compared to fiscal year 2009 resulted in increased sales at the retail level , which resulted in an 84 % increase of $ 1.6 million in revenue for this crop . during fiscal year 2010 , the company received an average return of $ 10.40 on 337,000 field boxes versus $ 9.96 on 194,000 field boxes in fiscal year 2009 . · larger volumes and higher sales prices in our specialty crops contributed to a 57 % increase of $ 1.2 million in specialty citrus crop revenues for fiscal year 2010 compared to fiscal year 2009. as the company 's specialty citrus orchards mature , their production has increased . additionally , international embargos drove higher prices in the market place for the company 's pistachio crop . during fiscal
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accounting for warrants we determine the accounting classification of warrants we issue , as either liability or equity classified , by first assessing whether the warrants meet liability classification in accordance with asc 480-10 , accounting for certain financial instruments with characteristics of both liabilities and equity , then in accordance with asc 815-40 , accounting for derivative financial instruments indexed to , and potentially settled in , a company 's own stock . under asc 480 , warrants are considered liability classified if the warrants are mandatorily redeemable , obligate us to settle the warrants or the underlying shares by paying cash or other assets , and warrants that must or may require settlement by issuing variable number of shares . if warrants do not meet the liability classification under asc 480-10 , we assess the requirements under asc 815-40 , which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value , irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature . if the warrants do not require liability classification under asc 815-40 , in order to conclude equity classification , we also assess whether the warrants are indexed to our common stock and whether the warrants are classified as equity under asc 815-40 or other gaap . after all such assessments , we conclude whether the warrants are classified as liability or equity . liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations . equity classified warrants only require fair value at issuance with no changes recognized subsequent to the issuance date . we do not have any liability classified warrants as of any period presented . see note 6 to our financial statements . 50 stock-based compensation we have adopted accounting standards governing share-based payments , which require the measurement and recognition of compensation expense for all share-based payment awards made to directors and employees , including employee stock options , based on estimated fair values . we utilize the black-scholes-merton option pricing model . our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include , but are not limited to , expected stock price volatility over the term of the awards , and actual and projected employee stock option exercise behaviors . because our common stock had no public trading history prior to december 31 , 2015 , for the year ended december 31 , 2015 , we estimated the expected volatility of the awards from the historical volatility of selected public companies within the biotechnology industry with comparable characteristics to us , including similarity in size , lines of business , market capitalization , revenue and financial leverage . for the years ended december 31 , 2017 and 2016 , we estimated the expected volatility using our own stock price volatility to the extent applicable or a combination of our stock price volatility and the stock price volatility of stock of peer companies , for a period equal to the expected term of the options . the expected term of options granted is based upon the `` simplified method '' provided under staff accounting bulletin , topic 14 , or sab topic 14 , including , in part , based on our own experience . the risk-free rate is based on the u.s. treasury rates in effect during the corresponding period of grant . although the fair value of employee stock options is determined in accordance with fasb guidance , the key inputs and assumptions may change as we develop our own company estimates , experience and key inputs including our expected term , and stock price volatility based on the trading history of our stock on the nyse american . changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our financial statements . accounting for biotime shares we account for the biotime shares we hold as available-for-sale equity securities in accordance with asc 320-10-25 , investments – debt and equity securities , as the shares have a readily determinable fair value quoted on the nyse american and are held principally for future working capital purposes , as necessary . these shares are measured at fair value and reported as current assets on the balance sheet based on the closing trading price of the security as of the date being presented . unrealized holding gains and losses are excluded from the statements of operations and reported in equity as part of other comprehensive income or loss , net of income taxes , until realized . as discussed in note 2 to our financial statements included elsewhere in this report , on february 17 , 2017 , biotime deconsolidated our financial statements from its consolidated financial statements . due to this deconsolidation , and based on biotime no longer having `` control '' over oncocyte under gaap , any realized gains and losses we generate from the sale of biotime shares after february 17 , 2017 are included in our statements of operations . prior to february 17 , 2017 , any realized gains and losses for shares sold were reclassified out of accumulated other comprehensive income or loss and included in equity , as an increase or decrease to common stock equity consistent with , and pursuant to , asc 805-50 business combinations ( `` asc 805 '' ) , transactions between entities under common control . see note 2 under the section recent accounting pronouncements for additional disclosures . long-lived intangible assets long-lived intangible assets , primarily consisting of acquired patents , patent applications , and licenses to use certain patents are stated at acquired cost , less accumulated amortization . story_separator_special_tag amortization expense is computed using the straight-line method over the estimated useful lives of the assets over a period of 10 years . impairment of long-lived assets we assess the impairment of long-lived assets , which consist primarily of long-lived intangible assets , equipment and furniture , whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable . if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset , an impairment loss equal to the excess of the asset 's carrying value over its fair value is recorded . to date , there have been no such impairment losses . income taxes we have filed a standalone u.s. federal income tax return since our inception . for california purposes , our activity for 2015 , 2016 and for the period from january 1 , 2017 through february 16 , 2017 , the date immediately before biotime owned less than 50 % of our outstanding common stock , has been or will be included in biotime 's california combined tax return . for periods beginning february 17 , 2017 and thereafter , we will file a standalone california income tax return . the provision for state income taxes has been determined as if we had filed separate tax returns for the periods presented . accordingly , our effective tax rate in future years could vary from our historical effective tax rates depending on our future legal structure and related tax elections . the historical deferred tax assets , including the operating losses and credit carryforwards generated by us , will remain with us . we account for income taxes in accordance with asc 740 , income taxes , which prescribes the use of the asset and liability method , whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect . valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized . our judgments regarding future taxable income may change over time due to changes in market conditions , changes in tax laws , tax planning strategies or other factors . if our assumptions and consequently our estimates change in the future , the valuation allowance may be increased or decreased , which may have a material impact on our statements of operations . 51 the guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more-likely-than-not sustainable upon examination by taxing authorities . we will recognize accrued interest and penalties , if any , related to unrecognized tax benefits as income tax expense . no amounts were accrued for the payment of interest and penalties as of the financial statements periods presented herein . we are not aware of any uncertain tax positions that could result in significant additional payments , accruals , or other material deviation for the periods presented herein . we are currently unaware of any tax issues under review . on december 22 , 2017 , the united states enacted major federal tax reform legislation , public law no . 115-97 , commonly referred to as the 2017 tax cuts and jobs act ( “ 2017 tax act ” ) , which enacted a broad range of changes to the internal revenue code . changes to taxes on corporations impacted by the 2017 tax act include , among others , lowering the u.s. federal tax rates to a 21 percent flat tax rate , eliminating the corporate alternative minimum tax ( “ amt ” ) , imposing additional limitations on the deductibility of interest and net operating losses , allowing any net operating loss ( “ nols ” ) generated in tax years ending after december 31 , 2017 to be carried forward indefinitely and generally repealing carrybacks , reducing the maximum deduction for nol carryforwards arising in tax years beginning after 2017 to a percentage of the taxpayer 's taxable income , and allowing for the expensing of certain capital expenditures . the 2017 tax act also puts into effect a number of changes impacting operations outside of the united states including , but not limited to , the imposition of a one-time tax “ deemed repatriation ” on accumulated offshore earnings not previously subject to u.s. tax , and shifts the u.s taxation of multinational corporations from a worldwide system of taxation to a territorial system . asc 740 requires the effects of changes in tax rates and laws on deferred tax balances ( including the effects of the one-time transition tax ) to be recognized in the period in which the legislation is enacted ( see note 8 to our financial statements included elsewhere in this report ) . research and development expenses research and development expenses include both direct expenses incurred by oncocyte and indirect overhead costs allocated to us by biotime that benefit or support our research and development functions of oncocyte . direct research and development expenses consist primarily of personnel costs and related benefits , including stock-based compensation , outside consultants and suppliers . indirect research and development expenses allocated to us by biotime under the shared facilities agreement ( see note 4 to our financial statements included elsewhere in this report ) , are primarily based on our headcount or space occupied , as applicable , and include laboratory supplies , laboratory expenses , rent and utilities , common area maintenance , telecommunications , property taxes and insurance . research and development costs are expensed as incurred .
| the increase in sales and marketing expenses during 2017 is attributable to increases of $ 0.6 million in salaries and payroll related expenses , $ 0.2 million in sales and marketing expenses amounts charged to us by biotime for facilities and services provided to us , $ 0.2 million in consulting expenses and $ 0.1 million in stock-based compensation expenses . we expect that our sales and marketing expenses will continue to increase significantly as we build a sales force for the commercialization of any cancer diagnostic tests that we successfully develop . our sales and marketing efforts , and the amount of related expenses that we will incur , in the near term will largely depend upon the outcome of our clinical validation study of determavu , and the amount of capital , if any , that we are able to raise to finance development and commercialization of that test . our current cash resources will require us to limit our initial sales and marketing efforts unless and until we are able to raise additional capital . our future expenditures on sales and marketing will also depend on the amount of revenue that those efforts are likely to generate . because physicians are more likely to prescribe a test for their patients if the cost is covered by medicare or health insurance , demand for our diagnostic tests and our expenditures on sales and marketing are likely to increase if our diagnostic tests qualify for reimbursement by medicare and private health insurance companies . comparison of the years ended december 31 , 2016 and 2015 the following tables show our operating expenses for the years ended december 31 , 2016 and 2015 ( in thousands ) . replace_table_token_5_th 53 research and development expenses the following table shows the approximate amounts and percentages of our total research and development expenses of $ 5.7 million and $ 4.5 million allocated to our primary research and development projects during the
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our 1995 and 2001 agreements with hospira provide hospira with conditional exclusive and nonexclusive rights to distribute all existing icu medical products worldwide with terms that extend to 2018. we sell invasive monitoring and angiography to independent distributors and through direct sales . we also sell certain other products to a number of other medical product manufacturers . we believe that as healthcare providers continue to either consolidate or join major buying organizations , the success of our products will depend , in part , on our ability , either independently or through strategic relationships such as our hospira relationship , to secure long-term contracts with large healthcare providers and major buying organizations . as a result of this marketing and distribution strategy we derive most of our revenues from a relatively small number of distributors and manufacturers . the loss of a strategic relationship with a customer or a decline in demand for a manufacturing customer 's products could have a material adverse effect on our operating results . we believe that achievement of our growth objectives worldwide will require increased efforts by us in sales and marketing and product development ; however , there is no assurance that we will be successful in implementing our growth 27 strategy . the custom products market is small , when compared to the larger market of standard products , and we could encounter customer resistance to custom products . further , we could encounter increased competition as other companies see opportunity in this market . product development or acquisition efforts may not succeed , and even if we do develop or acquire additional products , there is no assurance that we will achieve profitable sales of such products . an adverse change in our relationship with hospira , or a deterioration of hospira 's position in the market , could have an adverse effect on us . increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected , or at all . while we have taken steps to control these risks , there are certain risks that may be outside of our control , and there is no assurance that steps we have taken will succeed . the following table sets forth , for the periods indicated , total revenues by market segment and its major product groups as a percentage of total revenues : replace_table_token_9_th we have an ongoing effort to increase systems capabilities , improve manufacturing efficiency , reduce labor costs , reduce time needed to produce an order , and minimize investment in inventory . these include the use of automated assembly equipment for new and existing products and use of larger molds and molding machines . in 2006 , we centralized our proprietary molding in salt lake city and expanded our production facility in mexico , which took over the majority of our manual assembly previously done in salt lake city . in 2010 and early 2011 , we expanded our production facility in mexico . in late 2010 , we completed construction of an assembly plant in slovakia that serves our european product distribution . we may establish additional production facilities outside the u.s. there is no assurance that we will achieve success in establishing manufacturing facilities outside the u.s. we distribute products through three distribution channels . product revenues for each distribution channel as a percentage of total channel product revenue were as follows : replace_table_token_10_th sales to international customers do not include bulk clave products sold to hospira in the u.s. but used in i.v . products manufactured by hospira and exported . those sales are included in sales to medical product manufacturers . other sales to hospira for destinations outside the u.s. are included in sales to international customers . the shift from medical product manufacturers to domestic distributors and direct sales from 2009 to 2010 and 2011 was primarily due to our august 2009 purchase of the commercial rights and the physical assets of hospira 's critical care line pursuant to which we began selling critical care products in september 2009 to domestic and international distributors and through direct domestic and international sales instead of to hospira . 28 seasonality/quarterly results the healthcare business in the united states is subject to quarterly fluctuations due to frequency of illness during the seasons , elective procedures , and over the last few years , the economy . in europe , the healthcare business generally slows down in the summer months due to vacations resulting in fewer elective surgeries . also in europe , hospitals ' budgets tend to finish at the end of the year which may cause fewer purchases in the last three months of the year as hospitals await their new budgets in january . in addition , we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers , which may be driven more by production scheduling and their inventory levels , and less by seasonality . our expenses often do not fluctuate in the same manner as net sales , which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue . year-to-year comparisons we present summarized income statement data in item 6. selected financial data . the following table shows , for the three most recent years , the percentages of each income statement caption in relation to revenues . replace_table_token_11_th story_separator_special_tag compensation increases . the increase in general and administrative compensation and benefits is primarily a result of compensation increases . increased it costs were primarily from increased software maintenance fees . the decrease in legal expenses is due to lower general legal costs . we expect sg & a expenses in 2012 to be approximately 26.5 % to 27.0 % of revenue , although there is no assurance that these expectations will be realized . story_separator_special_tag research and development expenses ( “ r & d ” ) were $ 8.6 million , or 3 % , of revenue in 2011 compared to $ 4.7 million , or 2 % , of revenue in 2010. the increase in r & d expenses was primarily from $ 3.0 million of higher project related r & d expenses supporting all our infusion therapy , critical care and oncology market segments , $ 0.3 million in one-time expense for the ltrp payout and $ 0.5 million in increased compensation and benefits from an expanded workforce . our r & d projects focus on filling in product line gaps for our product line target markets and creating additional market opportunities . we expect r & d expenses in 2012 to be approximately 2.5 % to 3.0 % of revenue , although there is no assurance that these expectations will be realized . legal settlement income of $ 2.5 million was received in 2011 and recorded in operating expenses . the payment was the result of a settlement of litigation against a law firm that formerly represented us in patent litigation . gain on sale of assets of $ 14.2 million in 2011 resulted from the sale of assets of our orbit diabetes infusion set product line . we sold this product line because it was one of our smallest , non-core product lines and the sale allows us to focus our operations on our key markets . other income was $ 1.2 million in 2011 compared to $ 0.1 million in 2010. the increase is primarily due to higher interest income earned because of higher invested balances and higher interest rates in 2011 and a small gain on disposal of assets in 2011 versus a loss on disposal of assets in 2010. income taxes were accrued at an estimated annual effective tax rate of 32.7 % in 2011 compared to 37.4 % in 2010. the rate differed from the statutory corporate rate of 35 % principally because of the effect of foreign and state income taxes , tax credits and deductions for domestic production activities . while we can provide no assurances , we expect our effective tax rate to be approximately 35 % in 2012. comparison of 2010 to 2009 revenues were $ 283.0 million in 2010 , compared to $ 229.0 million in 2009. domestic sales : net domestic sales in 2010 were $ 218.2 million , compared to net domestic sales of $ 179.9 million in 2009 , an increase of 21 % . net domestic sales to hospira accounted for 53 % and 62 % of our domestic sales in 2010 and 2009 , respectively . domestic sales to distributors , through direct sales and through other oem and other revenue account for the balance of domestic sales , making up 47 % and 38 % in 2010 and 2009 , respectively . net domestic sales to hospira in 2010 were $ 114.1 million , an increase of $ 1.7 million from 2009. infusion therapy sales increased $ 20.4 million from 2009 , oncology sales increased $ 2.3 million and critical care sales decreased by $ 21.1 million . the overall modest $ 1.7 million increase was due to the change in product mix . the infusion therapy sales increase in 2010 compared to 2009 , included a $ 9.0 million and 15 % increase in sales of clave products and a $ 9.7 million and 41 % increase in sales of custom infusion sets . the increase in clave and custom infusion set sales was from higher unit sales due to increased market share through hospira and from additional orders as they prepared for potential business due to market conditions and switched their iv tubing from dehp to non-dehp material , which concluded in the fourth quarter of 2010. the increase in oncology sales was from higher unit sales due to increased market share through hospira . the decrease in critical care sales to hospira was primarily related to our acquisition of the critical care assets from hospira . as a result of this acquisition , which closed on august 31 , 2009 , we no longer sell critical care products to hospira . net other domestic sales ( excluding hospira ) in 2010 were $ 103.5 million , an increase of $ 36.5 from 2009. the increase was primarily from $ 24.8 million in higher critical care sales and $ 9.2 million in higher infusion therapy sales . as a result of our purchase of hospira 's critical care line , we ceased selling critical care products to hospira and began selling the critical care products directly to distributors and through direct sales in september 2009. the increase in critical care sales is primarily due to only four months of sales in 2009 compared to twelve months of sales in 2010. the increase in infusion therapy sales was primarily from $ 7.2 million higher custom infusion set sales due to higher unit volume sales . 31 international sales : net sales to international customers were $ 64.7 million in 2010 , an increase of $ 15.6 million from 2009. the increase was primarily from $ 7.9 million in higher critical care sales and $ 5.9 million of higher infusion therapy sales . the increase in critical care sales is primarily due to only four months of sales in 2009 compared to twelve months of sales in 2010. the increase in infusion therapy was primarily from a $ 3.3 million increase in clave product sales and a $ 1.7 million increase in custom infusion set sales . the clave and custom infusion set increases are from increased unit volume due to increased market share and demographic growth . geographically , our international sales were primarily in europe and the pacific rim and accounted for approximately 51 % and 41 % of the $ 15.6 million increase in international sales , respectively .
| 29 net other domestic sales ( excluding hospira ) in 2011 were $ 111.2 million , an increase of $ 7.7 million from 2010. infusion therapy sales increased $ 5.6 million , or 13 % , from 2010 , which was primarily from a $ 3.8 million increase in clave product sales and a $ 3.3 million increase in custom infusion set sales , partially offset by lower other standard infusion therapy product sales . the increased clave and custom infusion set sales were primarily due to increased unit sales . critical care sales decreased $ 1.9 million , or 4 % , from 2010. the critical care decrease was primarily from increased competition in this market that resulted in lower average sales prices and lower unit sales on certain items . we expect modest increases in other domestic sales ( excluding hospira ) in 2012 compared to 2011 , primarily from higher infusion therapy and oncology sales , although there is no assurance that these expectations will be realized . international sales : net sales to international customers were $ 73.7 million in 2011 , an increase of $ 9.0 million from 2010. infusion therapy sales increased $ 4.3 million , or 12 % , from 2010 , which was primarily from a $ 3.5 million increase in custom infusion set sales and a $ 0.9 million increase in clave product sales . oncology sales increased $ 3.6 million from 2010. critical care sales were flat year over year . the increases in infusion therapy and oncology were from increased unit sales from increased market share and demographic growth . geographically , our international sales were primarily in europe , the pacific rim and latin america . approximately 47 % and 29 % of the $ 9.0 million increase was attributable to increased sales in europe and latin america , respectively . as we grow our sales in europe , we increase our exposure to foreign exchange rate fluctuations when the sales are translated
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we are steadily transitioning our video business to be more software-centric , with converged traditional pay-tv and over-the-top services playing an increasingly central role . our vos platform , which is enabling video compression delivered to our customers as software , is gaining market momentum , and was the key to several competitive iptv and over-the-top wins in the fourth quarter of 2015. we anticipate the ongoing video business transition to software will likely compress top-line growth in the video business , but will expand gross margins and operating profit . in addition , our market position , technology differentiation and financial performance will all be enhanced through the thomson video networks ( “ tvn ” ) acquisition . on december 7 , 2015 , we signed a binding offer , in the form of a “ put ” option agreement , to acquire tvn . our cable edge strategy is primarily to become a major player in the approximately $ 2 billion ccap market by delivering innovative new docsis 3.1 cmts technology , that we call cableos . our cable edge segment , after a successful launch , in 2014 saw an unexpected decline stemming from the unexpectedly strong spending pullback associated with a handful of consolidations in the cable industry and from a slackening of demand as some of our customers are still preparing to make new investments in the converged data and video docsis 3.1 ccap market . while these trends present challenges for us , we believe we have made some significant progress on docsis 3.1 cmts technology . during the fourth quarter of 2015 , we met our internal development milestones and successfully demonstrated full docsis 3.1 interoperability at one of our major customer 's site . in addition , we received our first multi-million-dollar financial commitment from a tier 1 international operator . we remain firmly committed to our business strategy and we believe we are on track to make our first cableos shipments in the second half of 2016. meanwhile , we expect 2016 global demand for our legacy edgeqam technology to be similar to the depressed level that we saw in the back half of 2015. as a result of the decreases in our net revenue in 2015 and 2014 , we implemented a series of restructuring plans to bring our operating expenses more in line with net revenues , while simultaneously implementing extensive , company-wide expense control programs ( see note 11 , “ restructuring and asset impairment charges , ” of the notes to our consolidated financial statements for additional information ) . we ended the year with $ 152.8 million in cash , cash equivalents and short-term investments , including the net proceeds of approximately $ 124.7 million from the sale and issuance of convertible notes , which we completed on december 14 , 2015 in a private placement ( “ the notes ” ) . during 2015 , we generated $ 6.4 million cash from operations , used $ 72.9 million to repurchase our common stock and completed the issuance of the notes . ( see note 12 , “ convertible notes and credit facilities , ” of the notes to our consolidated financial statements for additional information on the notes ) . in december 2015 , we issued $ 128.25 million aggregate principal amount of the notes maturing december 2020. the notes bear interest at a fixed rate of 4.00 % per year , payable semiannually in arrears on june 1 and december 1 of each year , beginning on june 1 , 2016. concurrent with the issuance of the notes , we used $ 49.9 million of the net proceeds from the notes to repurchase 11.1 million shares of our common stock . the remaining net proceeds of the notes were used to fund the tvn acquisition , which was completed on february 29 , 2016. we expect that our current sources of liquidity together with our current projections of cash flow from operating activities will provide us adequate liquidity based on our current plans . recent developments on february 11 , 2016 , pursuant to the terms of the put option agreement , one of our subsidiaries entered into a securities purchase agreement ( the “ spa ” ) with tvn 's shareholders ( the “ sellers ” ) to purchase 100 % of the share capital and voting rights of tvn , on a non-diluted basis . on february 29 , 2016 , we completed the acquisition of tvn for total cash consideration of approximately $ 76.5 million . there may be additional post-closing payments in amounts respectively capped to ( i ) the difference between 76 million ( as converted from euros into u.s. dollars ) and $ 75 million , with respect to an adjustment based on tvn 's 2015 revenue , and ( ii ) $ 5 million with respect to an adjustment based on tvn 's 2015 backlog that ships during the first half of 2016 , all of which at such times and under the circumstances set forth in the spa . critical accounting policies , judgments and estimates the preparation of financial statements and related disclosures requires harmonic to make judgments , assumptions and estimates that affect the reported amounts of assets and liabilities , the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements and accompanying notes . material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates were made . see note 2 of the notes to our consolidated financial statements for details of our accounting policies . critical accounting policies , judgments and estimates that we believe have the most significant impact on harmonic 's financial statements are set forth below : 38 revenue recognition ; valuation of inventories ; impairment of goodwill or long-lived assets ; assessment of the probability of the outcome of current litigation ; accounting for income taxes ; and stock-based compensation . story_separator_special_tag revenue recognition harmonic 's principal sources of revenue are from the sale of hardware , software , hardware and software maintenance contracts , and the sale of end-to-end solutions , encompassing design , manufacture , test , integration and installation of products . harmonic recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , the sale price is fixed or determinable , and collectability is reasonably assured . we generally use contracts and customer purchase orders to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer , as determined by credit checks and analysis , as well as the customer 's payment history . significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period . because of the concentrated nature of our customer base , different judgments or estimates made for any one large contract or customer could result in material differences in the amount and timing of revenue recognized in any particular period . we have multiple-element revenue arrangements that include hardware and software essential to the hardware product 's functionality , non-essential software , services and support . we allocate revenue to all deliverables based on their relative selling prices . we determine the relative selling prices by first considering vendor-specific objective evidence of fair value ( “ vsoe ” ) , if it exists ; otherwise third-party evidence ( “ tpe ” ) of the selling price is used . when we are unable to establish selling price using vsoe or tpe , we use our best estimate of selling price ( “ besp ” ) in our allocation of arrangement consideration . the objective of besp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . the company 's process for determining besp involves management 's judgment , and considers multiple factors that may vary over time , depending upon the unique facts and circumstances related to each deliverable . if the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the company to consider additional factors , the company 's besp may also change . once revenue is allocated to all deliverables based on their relative selling prices , revenue related to hardware elements ( hardware , essential software and related services ) are recognized using a relative selling price allocation and non-essential software and related services are recognized under the residual method . sales of stand-alone software that are not considered essential to the functionality of the hardware continue to be subject to the software revenue recognition guidance . in accordance with the software revenue recognition guidance , the company applies the residual method to recognize revenue for the delivered elements in stand-alone software transactions . under the residual method , the amount of revenue allocated to delivered elements equals the total arrangement consideration , less the aggregate fair value of any undelivered elements , typically maintenance , provided that vsoe of fair value exists for all undelivered elements . we establish fair value by reference to the price the customer is required to pay when an item is sold separately , using contractually stated , substantive renewal rates , when applicable , or the price of recently completed stand alone sales transactions . accordingly , the determination as to whether appropriate objective and reliable evidence of fair value exists can impact the timing of revenue recognition for an arrangement . solution sales for the design , manufacture , test , integration and installation of products are accounted for in accordance with applicable guidance on accounting for performance of construction/production contracts , using the percentage-of-completion method of accounting when various requirements for the use of this accounting guidance exist . under the percentage-of-completion method , our revenue recognized reflects the portion of the anticipated contract revenue that has been earned , equal to the ratio of actual labor hours expended to total estimated labor hours to complete the project . costs are recognized proportionally to the labor hours incurred . management believes that , for each such project , labor hours expended in proportion to total estimated hours at completion represents the most reliable and meaningful measure for determining a project 's progress toward completion . this requires us to estimate , at the outset of each project , a detailed project plan and 39 associated labor hour estimates for that project . for contracts that include customized services for which labor costs are not reasonably estimable , the company uses the completed contract method of accounting . under the completed contract method , 100 % of the contract 's revenue and cost is recognized upon the completion of all services under the contract . if the estimated costs to complete a project exceed the total contract amount , indicating a loss , the entire anticipated loss is recognized . our application of the percentage-of-completion method of accounting is subject to our estimates of labor hours to complete each project . in the event that actual results differ from these estimates or we adjust these estimates in future periods , our operating results , financial position or cash flows for a particular period could be adversely affected . revenue on shipments to resellers and systems integrators is generally recognized on delivery . allowances are provided for estimated returns and such allowances are adjusted periodically to reflect actual and anticipated experience .
| starting in 2014 , we experienced the investment pause of several of our customers as they looked ahead towards the industry 's transition to ultra hd and high-efficiency video coding ( “ hevc ” ) compression and new virtualized architectures for video processing and this negative factor extended into 2015 as we see our customer making investment decisions much slower than before . the consolidation of some of our customers in the north america and emea regions also contributed to the spending pause we experienced , particularly in the second half of 2015. in addition , the strengthening of the u.s. dollar contributed to the decline in our international video business , as over half of our video product revenue was derived from international customers . the increases in our service revenue were primarily due to an increase in the installed base of equipment being serviced for our customers , primarily in the americas , in both the service provider and the broadcast and media markets . our cable edge segment net revenue decreased $ 21.6 million , or 20 % , in 2015 compared to 2014. revenue decreased in both our edgeqam products as well as the new nsg pro ccap products in 2015 compared to 2014. the decrease was primarily due to lower spending associated with the consolidations of certain cable operators , both in the united states and europe , particularly in the second half of 2015 , which led to a delay in several of our anticipated large projects as well as some decrease in demand as some of our customers looked ahead to our new next generation ccap technologies . we are currently developing solutions based on docsis 3.1 ccap architectures , with initial product deployment scheduled for second half of 2016 . 44 net revenue in the americas decreased $ 33.3 million , or 14 % , in 2015 compared to 2014 primarily due to the decreased demand for both our video processing products and cable edge products and the unfavorable impacts from industry consolidations and spending delays ahead of new next generation product technologies and architectures . this technology spending pause also contributed to the continued decline in net revenue in emea and apac in 2015. apac
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18 revenue revenue increased by 14 % in 2012 compared with 2011. our revenue growth was driven by our successful subscription model that continues to yield steady additions to the subscriber base coupled with a high rate of renewing existing customers . operating margins for the year ended december 31 , 2012 , our gross profit of $ 35.7 million increased 16 % compared to 2011. this increase was primarily driven by increased revenue . our 2012 operating income of $ 8.9 million decreased $ 1.6 million over the prior year , primarily due to increased r & d and sg & a expenses . net income for 2012 included a tax benefit of $ 2.3 million resulting from a decrease in our deferred tax asset valuation allowance . the overall decrease to our valuation allowance was $ 5.2 million , of which $ 2.9 million was due to 2012 operations and offset current tax expense . the remaining $ 2.3 million was due to a partial reversal of the remaining valuation allowance and recorded as a tax benefit in 2012. net income for 2011 included an $ 11.8 million reduction to the company 's deferred tax asset valuation allowance , also recorded as a tax benefit in 2011. net income for 2012 and 2011 excluding the impact of this tax benefit was $ 8.7 million and $ 10.8 million , respectively . story_separator_special_tag valign= '' top '' > revenue for 2012 was $ 43.4 million compared with $ 38.1 million in 2011 and $ 33.1 million in 2010. gross margin for 2012 was $ 35.7 million or 82 % of revenues compared to $ 30.9 million or 81 % of revenues in 2011 and $ 26.6 million or 80 % of revenues in 2010. income from continuing operations for the year 2012 was $ 11.0 million compared with income from continuing operations of $ 22.6 million in 2011 and $ 40.7 million in 2010. net income for the year 2012 was $ 11.0 million compared with net income of $ 22.6 million in 2011 and net income of $ 41.2 million in 2010. net income for 2012 included a tax benefit of $ 2.3 million resulting from a decrease in our deferred tax valuation allowance . the overall decrease to our valuation allowance was $ 5.2 million , of which $ 2.9 million was due to operations and offset current tax expense . the remaining $ 2.3 million was due to a partial reversal of the remaining valuation allowance and was recorded as a tax benefit . the tax benefit recorded on the reduction of our deferred tax valuation allowance in 2011 and 2010 was $ 11.8 million and $ 35.3 million , respectively . unrestricted cash was $ 23.0 million on december 31 , 2012 . 21 results of operations revenue the following table sets forth a year-over-year comparison of our total revenues : replace_table_token_4_th our growth model seeks to continually add new users to the subscriber base , while at the same time retaining a high percentage of existing subscribers whose subscriptions are up for renewal . across all periods presented , revenue increases were driven primarily by strong performances in our three core vertical sales markets : healthcare , finance and government and other non-core markets . additionally , sales continued from a wide base of distributors new first year orders derived from our value-added resellers , oem and third party distribution channels for 2012 was 63 % of the total nfyos compared to 52 % in 2011 and 53 % in 2010. we measure additions to the subscriber base by nfyo , which is defined as the portion of new orders that are expected to be recognized into revenue in the first twelve months of the contract . nfyos are summarized in the table below : replace_table_token_5_th our go-to-market selling strategy seeks primarily multiple-year subscription contracts with the fees paid annually at the inception of each year of service . as a result , a high percentage of customers subscribe to the email encryption service for a three-year term versus a one-year term . we expect this preference for a longer contract term by a high percentage of our customers to continue in 2013 , as we have priced our services in a manner that encourages longer-term contractual commitments from customers . our list pricing has remained generally consistent during the periods shown above . we have continued to experience some market pricing pressure resulting in additional discount percentages off our list price during this period . there are no assurances that potential increased competition in this market or other factors will not result in future price erosion . price erosion , should it occur , could have a dampening effect on the revenue derived from our new orders . revenue outlook : with our continued focus on sectors such as healthcare , financial services , insurance , government , and expansion into other non-core markets , along with the increased use of indirect oem distribution and value-added reseller channels , we expect to increase our new first year orders in 2013 and fuel a continued increase in our year-over-year revenue . backlog and orders backlog our order backlog was $ 57.7 million at december 31 , 2012 compared to $ 53.7 million at the end of 2011. the backlog is comprised of contractually bound agreements that we expect to amortize into revenue . as of december 31 , 2012 , the backlog was comprised of the following elements : $ 18.4 million of deferred revenue that has been billed and paid , $ 5.7 million billed but unpaid , and approximately $ 33.6 million of unbilled contracts . the backlog is recognized into revenue ratably as the services are performed . approximately 57 % of the total backlog is expected to be recognized as revenue during the next twelve months . story_separator_special_tag orders total orders in 2012 were $ 48.2 million compared with $ 42.3 million in 2011. total orders are comprised of contract renewals , nfyos , and in the case of new multi-year contracts , the years beyond the first year of service . 22 cost of revenues the following table sets forth a year-over-year comparison of the cost of revenues . replace_table_token_6_th cost of revenues is comprised of costs related to operating and maintaining the zixdata center , a field deployment team , customer service and support and the amortization of company-owned , customer-based computer appliances . a significant portion of the total cost of revenues relates to the zixdata center , which currently has excess capacity . accordingly , cost of revenues is relatively fixed and is therefore expected to grow at a slower pace than revenue . the 6 % increase in 2012 compared to 2011 resulted primarily from increases in average headcount . the increase in 2011 of $ 743 thousand resulted primarily from shifting shared and fixed costs previously absorbed by the e-prescribing product line . personnel and other costs remained relatively flat year over year . during 2010 , we wound down the operations of our e-prescribing product line and transitioned a significant amount of shared resource costs from e-prescribing to email encryption . additionally , we shifted fixed costs that were previously absorbed by e-prescribing to our email encryption business . research and development expenses the following table sets forth a year-over-year comparison of our research and development expenses from continuing operations : replace_table_token_7_th research and development expenses consist primarily of salary , benefits and stock-based compensation for our development staff , and other costs associated with improving our existing products and services and developing new products and services . the 42 % increase in expenses in 2012 compared to 2011 resulted from additional headcount added in 2012 primarily related to new product development . the increase in these expenses in 2011 compared to 2010 resulted primarily from approximately $ 300 thousand in costs associated with shifting resources from e-prescribing to email encryption . these costs were partially offset by lower stock-based compensation expense of $ 115 thousand and other small reductions across various research and development expenses . during 2010 we wound down the e-prescribing operation and shifted previously shared resources and the related expenses to the remaining business , email encryption . additionally , we shifted fixed expenses previously absorbed by e-prescribing to email encryption . selling and marketing expenses the following table sets forth a year-over-year comparison of our selling and marketing expenses from continuing operations : replace_table_token_8_th selling and marketing expenses consist primarily of salary , commissions , travel , stock-based compensation and employee benefits for selling and marketing personnel as well as costs associated with promotional activities and advertising . the 19 % increase in 2012 compared to 2011 resulted primarily from higher sales commissions and bonuses resulting primarily from higher nfyos and increase in average headcount ( $ 1.0 million ) . we also acquired new sales and marketing tools and invested in marketing and advertising programs ( $ 0.5 million ) . stock-based compensation expense also increased by $ 0.2 million year-over-year . the remaining variance consisted of relatively minor increase across various selling and marketing activities none of which were significant . 23 the decrease in 2011 compared to 2010 resulted primarily from lower commissions and bonuses on lower nfyos ( $ 1.2 million ) . this reduction was partially offset by the shift of shared and fixed costs in 2011 previously allocated the discontinued e-prescribing product line . general and administrative expenses the following table sets forth a year-over-year comparison of our general and administrative expenses from continuing operations : replace_table_token_9_th general and administrative expenses consist primarily of salary and bonuses , travel , stock-based compensation and benefits for administrative and executive personnel as well as fees for professional services and other general corporate activities . the increase in 2012 compared to 2011 resulted primarily from year-over-year increases in outside legal counsel fees associated with litigation ( $ 1.7 million ) , stock-based compensation expense ( $ 0.2 million ) , and salary and benefits expense resulting from increases in average headcount ( $ 0.4 million ) . the remaining variance resulted primarily from normal increases in other administrative expenses none of which were significant . the decrease of 8 % in 2011 compared to 2010 resulted primarily from lower stock-based compensation , bonuses and severance expenses . income taxes our company or one of our subsidiaries files income tax returns in the u.s. federal jurisdiction and various states and in the canadian federal and provincial jurisdictions . we recognize and measure uncertain tax positions using a two-step approach . the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement . the company 's income tax benefit for 2012 , 2011 and 2010 of $ 1.9 million , $ 11.9 million , and $ 35.2 million , respectively , represents refundable u.s. alternative minimum tax , u.s. research and development credits , non-u.s. taxes payable related to the operations of the company 's canadian subsidiary established in late 2002 , state income taxes , and reversals of a portion of the company 's historical valuation allowance . significant judgment is required in determining any valuation allowance recorded against deferred tax assets . in assessing the need for a valuation allowance , we consider available evidence , including past earnings , estimates of future taxable income , and the feasibility of tax planning strategies .
| we consider accounting policies to be critical when they require us to make assumptions about matters that are highly uncertain at the time the accounting estimate is made and when different estimates that our management reasonably has used have a material effect on the presentation of our financial condition , changes in financial condition or results of operations . management believes the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of the consolidated financial statements . our critical accounting policies included the following : revenue recognition income taxes valuation of goodwill and other intangible assets stock-based compensation costs 19 for additional discussion of the company 's significant accounting policies , refer to note 2 to our consolidated financial statements . revenue recognition we develop , market , and support applications that connect , protect and deliver information in a secure manner . our services can be placed into several key revenue categories where each category has similar revenue recognition traits : email encryption subscription-based services , various transaction fees and related professional services . the majority of our revenues generated are through a combination of direct sales and a network of resellers and other distribution partners . under all product categories and distribution models , we recognize revenue after all of the following occur : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed and determinable , and collectability is reasonably assured . when we are engaged in a complex product deployment , customer acceptance may have to occur before the transaction is considered complete . in this situation , no revenue is recognized until the customer accepts the product . discounts provided to customers are recorded as reductions in revenue . our email encryption service is a subscription service . providing this service includes delivering subscribed-for software and providing secure electronic communications and customer support throughout the subscription
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our revenues are directly impacted by fluctuations in these employment levels . revenues from specialty garments , which accounted for 9 % of our 2011 revenues , increase during outages and refueling by nuclear power plants , as garment usage increases at these times . first aid represented 3 % of our total revenue in fiscal 2011. critical accounting policies and estimates we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements . use of estimates we prepare our financial statements in conformity with us gaap , which requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes . these estimates are based on historical information , current trends , and information available from other sources . the actual results could differ from our estimates . foreign currency translation the functional currency of our foreign operations is the local country 's currency . transaction gains and losses , including gains and losses on our intercompany transactions , are included in other expense ( income ) , in the accompanying consolidated statements of income . assets and liabilities of operations outside the united states are translated into u.s. dollars using period-end exchange rates . revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year . the effects of foreign currency translation adjustments are included in shareholders ' equity as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets . revenue recognition and allowance for doubtful accounts we recognize revenue from rental operations in the period in which the services are provided . direct sale revenue is recognized in the period in which the services are performed or when the product is shipped . our judgment and estimates are used in determining the collectability of accounts receivable and evaluating the adequacy of the allowance for doubtful accounts . we consider specific accounts receivable and historical bad debt experience , customer credit worthiness , current economic trends and the age of outstanding balances as part of our evaluation . changes in our estimates are reflected in the period they become known . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . material changes in our estimates may result in significant differences in the amount and timing of bad debt expense recognition for any given period . our revenues do not include taxes we collect from our customers and remit to governmental authorities . inventories and rental merchandise in service our inventories are stated at the lower of cost or market value , net of any reserve for excess and obsolete inventory . judgments and estimates are used in determining the likelihood that new goods on hand can be sold to our customers or used in our rental operations . historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories . if actual product demand and market conditions are less favorable than the amount we projected , additional inventory write-downs may be required . we use the first-in , first-out ( “ fifo ” ) method to value our inventories , which primarily consist of finished goods . rental merchandise in service is being amortized on a straight-line basis over the estimated service lives of the merchandise , which range from 6 to 36 months . in establishing estimated lives for merchandise in service , our management considers historical experience and the intended use of the merchandise . material differences may result in the amount and timing of operating profit for any period if we make significant changes to our estimates . goodwill , intangibles and other long-lived assets in accordance with us gaap , we do not amortize goodwill . instead , current accounting guidance requires that companies test goodwill for impairment on an annual basis . in addition , us gaap requires that companies test goodwill if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit to which goodwill is assigned below its carrying amount . our evaluation considers changes in the operating environment , competitive information , market trends , operating performance and cash flow modeling . we complete our annual impairment test in the fourth quarter of each fiscal year and there have been no impairments of goodwill or other intangible assets in fiscal 2011 , 2010 or 2009. we can not predict future economic conditions or the future market value of our stock or their impact on the company . a decline in our market capitalization and or deterioration in general economic conditions could negatively and materially impact our assumptions and assessment of the fair value of our business . if general economic conditions or our financial performance deteriorate , we may be required to record a goodwill impairment charge in the future which could have a material impact on our financial condition and results of operations . property , plant and equipment , and definite-lived intangible assets are depreciated or amortized over their useful lives . useful lives are based on our estimates of the period that the assets will generate revenue . long-lived assets are evaluated for impairment whenever events or circumstances indicate an asset may be impaired . there were no impairments of property , plant and equipment , goodwill or definite-lived intangible assets in fiscal 2011 , 2010 or 2009. insurance we self-insure for certain obligations related to health , workers ' compensation , vehicles and general liability programs . we also purchase stop-loss insurance policies to protect ourselves from catastrophic losses . judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred , but have not been reported . our estimates consider historical claim experience and other factors . story_separator_special_tag our liabilities are based on our estimates , and , while we believe that our accruals are adequate , the ultimate liability may be significantly different from the amounts recorded . changes in our claim experience , our ability to settle claims or other estimates and judgments we use could have a material impact on the amount and timing of expense for any given period . environmental and other contingencies we are subject to legal proceedings and claims arising from the conduct of our business operations , including environmental matters , personal injury , customer contract matters and employment claims . accounting principles generally accepted in the united states require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated . significant judgment is required to determine the existence of a liability , as well as the amount to be recorded . we regularly consult with our attorneys and outside consultants , in our consideration of the relevant facts and circumstances , before recording a contingent liability . we record accruals for environmental and other contingencies based on enacted laws , regulatory orders or decrees , our estimates of costs , insurance proceeds , participation by other parties , the timing of payments , and the input of our attorneys and outside consultants . the estimated liability for environmental contingencies has been discounted using risk-free interest rates ranging from 2.2 % to 3.5 % over periods ranging from ten to thirty years . the estimated current costs , net of legal settlements with insurance carriers , have been adjusted for the estimated impact of inflation at 3 % per year . changes in enacted laws , regulatory orders or decrees , our estimates of costs , risk-free interest rates , insurance proceeds , participation by other parties , the timing of payments and the input of our attorneys and outside consultants based on changing legal or factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities . refer to note 11 , “ commitments and contingencies ” , of our consolidated financial statements for additional discussion and analysis . asset retirement obligations under us gaap , asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition , construction , development and or the normal operation of a long-lived asset . current accounting guidance requires that we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made . the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset . we have recognized as a liability the present value of the estimated future costs to decommission our nuclear laundry facilities in accordance with us gaap . we depreciate , on a straight-line basis , the amount added to property , plant and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to thirty-three years . our estimated liability has been based on historical experience in decommissioning nuclear laundry facilities , estimated useful lives of the underlying assets , external vendor estimates as to the cost to decommission these assets in the future , and federal and state regulatory requirements . the estimated current costs have been adjusted for the estimated impact of inflation at 3 % per year . the liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0 % to 7.5 % . revisions to the liability could occur due to changes in the estimated useful lives of the underlying assets , estimated dates of decommissioning , changes in decommissioning costs , changes in federal or state regulatory guidance on the decommissioning of such facilities , or other changes in estimates . changes due to revisions in our estimates will be recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service , or charged to expense in the period if the assets are no longer in service . derivative financial instruments us gaap requires that all our derivative instruments be recorded as other assets or other liabilities at fair value . all subsequent changes in a derivative 's fair value are recognized in income , unless specific hedge accounting criteria are met . cash flows associated with derivatives are classified in the same category as the cash flows hedged in our consolidated statements of cash flows . derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be paid related to a recognized liability or a forecasted transaction . changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive income ( loss ) until expense from the cash flows of the hedged items are recognized . we perform an assessment at the inception of the hedge and on a quarterly basis thereafter , to determine whether our derivatives are highly effective in offsetting changes in the value of the hedged items . any changes in the fair value resulting from hedge ineffectiveness , is immediately recognized as income or expense . our hedging activities are transacted only with highly rated institutions , which reduces our exposure to credit risk in the event of nonperformance . as of august 27 , 2011 , we had no outstanding derivative instruments . supplemental executive retirement plan and other pension plans we recognize pension expense on an accrual basis over our employees ' estimated service periods . pension expense is generally independent of funding decisions or requirements . the calculation of pension expense and the corresponding liability requires us to use a number of critical assumptions , including the expected long-term rate of return on plan assets and the assumed discount rate .
| we have five reporting segments , us and canadian rental and cleaning , manufacturing ( “ mfg ” ) , corporate , specialty garments rental and cleaning ( “ specialty garments ” ) , and first aid . we refer to the us and canadian rental and cleaning , mfg , and corporate reporting segments combined as our “ core laundry operations. ” cost of revenues include merchandise costs related to the amortization of rental merchandise in service and direct sales as well as labor and other production , service and delivery costs , and distribution costs associated with operating our core laundry operations , specialty garments facilities , and first aid locations . selling and administrative costs include costs related to our sales and marketing functions as well as general and administrative costs associated with our corporate offices and operating locations including information systems , engineering , materials management , manufacturing planning , finance , budgeting , and human resources . as part of our recent revenue growth , we have been experiencing increased merchandise costs . this increase has been primarily due to our increased investment in merchandise to the levels needed to support our growing wearer base . during fiscal 2009 and early fiscal 2010 , our results of operations benefitted from our utilization of used garments that our customers returned to us as a result of reductions in their workforces . over the last year , we have put significantly more new garments into service to meet the day-to-day needs of our existing wearer base . in addition , increased new account sales , including some larger national accounts , have also required us to make a large initial investment in merchandise . the increased merchandise cost is also the result of strong growth in our flame resistant and high visibility product lines . this growth is the result of increased oil and natural gas exploration as well as tighter regulations that have caused uniform wearers in a number of industries to convert to these more protective garments . in addition to a higher number of new garments being placed in service to support our customer base , we have also begun to feel the impact of higher fabric prices in
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the loans under the credit agreement mature on march 31 , 2021. amounts borrowed under the credit agreement may be used by the company to repay existing indebtedness , to partially fund capital expenditures , to fund a portion of the purchase price for the acquisition of all of the issued and outstanding stock of sni holdco inc. pursuant to that certain agreement and plan of merger dated march 31 , 2017 ( the “ merger agreement ” ) , to provide for on-going working capital needs and general corporate needs , and to fund future acquisitions subject to certain customary conditions of the lenders . on the closing date of the credit agreement , the company borrowed $ 48,750,000 from term-loans and borrowed approximately $ 7,476,316 from the revolving credit facility for a total of $ 56,226,316 which was used by the company to repay existing indebtedness , to pay fees and expenses relating to the credit agreement , and to pay a portion of the purchase price for the acquisition of all of the outstanding stock of sni holdco inc. pursuant to the merger agreement . the loans under the credit agreement will bear interest at rates at the company 's option of libor rate plus 10 % or pnc 's floating base rate plus 9 % . the term loans may consist of domestic rate loans or libor rate loans , or a combination thereof . at september 30 , 2017 the interest rate was approximately 13 % . the credit agreement is secured by all of the company 's property and assets , whether real or personal , tangible or intangible , and whether now owned or hereafter acquired , or in which it now has or at any time in the future may acquire any right , title or interests . the term loans were advanced on april 3 , 2017 and are , with respect to principal , payable as follows , subject to acceleration upon the occurrence of an event of default under the credit agreement or termination of the credit agreement and provided that all unpaid principal , accrued and unpaid interest and all unpaid fees and expenses shall be due and payable in full on march 31 , 2021. principal payments are required pursuant to the credit agreement , as amended , as follows : fiscal year 2018 – $ 3,636,000 , fiscal year 2019 – $ 7,728,000 , fiscal year 2020 – $ 8,337,000 and fiscal year 2021 - $ 28,440,000 . 17 the credit agreement contains certain covenants including the following : fixed charge coverage ratio . the company shall cause to be maintained as of the last day of each fiscal quarter , a fixed charge coverage ratio for itself and its subsidiaries on a consolidated basis of not less the amount set forth in the credit agreement , which is 1.25 to 1.0. minimum ebitda . the company shall cause to be maintained as of the last day of each fiscal quarter , ebitda for itself and its subsidiaries on a consolidated basis of not less than the amount set forth in the credit agreement for each fiscal quarter specified therein , in each case , measured on a trailing four ( 4 ) quarter basis as set in the credit agreement , which ranges from $ 11,000,000 to $ 14,000,000 over the term of the credit agreement . senior leverage ratio . the company shall cause to be maintained as of the last day of each fiscal quarter , a senior leverage ratio for itself and its subsidiaries on a consolidated basis of not greater than the amount set forth in the credit agreement for each fiscal quarter , in each case , measured on a trailing four ( 4 ) quarter basis as set in the agreement , which ranges from 5.25 to 1.0 to 2.0 to 1.0 over the term of the credit agreement . in addition to these financial covenants , the credit agreement includes other restrictive covenants . the credit agreement permits capital expenditures up to a certain level , and contains customary default and acceleration provisions . the credit agreement also restricts , above certain levels , acquisitions , incurrence of additional indebtedness , and payment of dividends . on august 31 , 2017 , the company entered into a consent to extension of waiver to revolving credit , term loan and security agreement ( the “ waiver ” ) . under the terms of the waiver , the lenders and the agents agreed to extend to october 3 , 2017 the deadline by which the borrowers must deliver to the agents and the lenders , ( i ) updated financial information and projections of the loan parties in form and substance satisfactory to the agents and the lenders to amend the financial covenant levels set forth in section 6.5 to the loan agreement in a manner acceptable to the agents and the lenders in their sole discretion , and ( ii ) a fully executed amendment to the loan agreement that amends the financial covenant levels set forth in section 6.5 of the loan agreement in a manner acceptable to the agents and the lenders and any other terms and conditions required by the agents and the lenders in their sole discretion . additionally , the borrowers paid a $ 73,500 consent fee to the agents for the pro rata benefit of the lenders , in connection with the waiver . story_separator_special_tag in addition , on august 31 , 2017 , the company received a waiver ( “ additional waiver ” ) made to the revolving credit , term loan and security agreement , dated as of march 31 , 2017 ( the “ credit agreement ” ) , by and among the company , the loan parties , administrative agent and the term loan agent , pursuant to which the administrative agent agreed , and the administrative agent has been advised that the term loan agent has agreed , that notwithstanding the terms of section 6.17 ( d ) of the credit agreement , the due date for the borrowers to deliver to the agents the subordination agreement ( dampier ) ( as defined in the credit agreement ) and an amended subordinated note ( dampier ) ( as defined in the credit agreement ) , in each case duly executed by the persons party thereto and in form and substance satisfactory to the agents , shall be extended from august 31 , 2017 to october 3 , 2017. on october 2 , 2017 , the company , the other borrower entities and guarantor entities named therein ( collectively , the “ loan parties ” ) , pnc bank , national association ( “ pnc ” ) , and certain investment funds managed by mgg investment group lp ( “ mgg ” ) ( collectively the ( “ lenders ” ) entered into a first amendment and waiver ( the “ amendment ” ) to the revolving credit , term loan and security agreement dated as of march 31 , 2017 ( the “ credit agreement ” ) by and among the loan parties , and the lenders . the amendment , which was effective as of october 2 , 2017 , modified the required principal repayment schedule with respect to the term loans . the amendment also modified the ability of the loan parties to repay or make other payments with respect to certain other loans that are subordinated in right of payment to the indebtedness under the credit agreement . 18 pursuant to the amendment the lenders also waived any event of default arising out of the loan parties ' failure to deliver , on or before october 3 , 2017 , the materials satisfying the requirements of clauses ( i ) and ( ii ) of section 5 of the waiver to revolving credit , term loan and security agreement , dated as of august 14 , 2017 , as amended . on november 14 , 2017 , the company and its subsidiaries , as borrowers , each subsidiary of the company listed as a “ guarantor ” on the signature pages thereto ( together with each other person joined thereto as a guarantor from time to time , collectively , the “ guarantors ” , and each a “ guarantor ” , and together with the borrowers , collectively , the “ loan parties ” and each a “ loan party ” ) , certain lenders which now are or which thereafter become a party thereto that make revolving advances thereunder ( together with their respective successors and assigns , collectively , the “ revolving lenders ” and each a “ revolving lender ” ) , the lenders which now are or which thereafter become a party thereto that made or acquire an interest in the term loans ( together with their respective successors and assigns , collectively , the “ term loan lenders ” and each a “ term loan lender ” , and together with the revolving lenders , collectively , the “ lenders ” and each a “ lender ” ) , mgg investment group lp ( “ mgg ” ) , as administrative agent for the lenders ( together with its successors and assigns , in such capacity , the “ administrative agent ” ) , as collateral agent for the lenders ( together with its successors and assigns , in such capacity , the “ collateral agent ” ) , and as term loan agent ( together with its successors and assigns , in such capacity , the “ term loan agent ” and together with the administrative agent and the collateral agent , each an “ agent ” and , collectively , the “ agents ” ) , entered into a second amendment ( the “ second amendment ” ) to the revolving credit , term loan and security agreement , dated as of march 31 , 2017 ( the “ credit agreement ” ) . pursuant to the second amendment the borrowers agreed , among other things , to use commercially reasonable efforts to prepay , or cause to be prepaid , $ 10,000,000 in principal amount of advances ( as defined in the credit agreement ) outstanding , which amount shall be applied to prepay the term loans in accordance with the applicable terms of the credit agreement . any prepayment to the term loan is contingent upon a future financing , non-operational cash flow or excess cash flow as defined in the agreement . the borrowers also agreed to amend ( i ) the applicable minimum fixed charge coverage ratios required to be maintained by the company as set forth in the second amendment , ( ii ) the minimum ebitda required to be maintained by the company , as set forth in the second amendment and ( iii ) the maximum senior leverage ratios required to be maintained by the company , as set forth in the second amendment . the borrowers agreed to pay to the administrative agent for the account of the revolving lenders , an amendment fee of $ 364,140 , in connection with their execution and delivery of the second amendment . such fee is payable on the earlier of ( a ) june 30 , 2018 and ( b ) the first date on which all of the obligations ( as defined in the credit agreement ) are paid in full in cash and the total commitment ( as defined in the credit agreement ) of the lenders is terminated .
| selling , general and administrative expenses selling , general and administrative expenses include the following categories : · compensation and benefits in the operating divisions , which includes salaries , wages and commissions earned by the company 's employment consultants and branch managers on permanent and temporary placements . · administrative compensation , which includes salaries , wages , payroll taxes and employee benefits associated with general management and the operation of the finance , legal , human resources and information technology functions . · occupancy costs , which includes office rent , depreciation and amortization , and other office operating expenses . · recruitment advertising , which includes the cost of identifying job applicants . · other selling , general and administrative expenses , which includes travel , bad debt expense , fees for outside professional services and other corporate-level expenses such as business insurance and taxes . the company 's largest selling , general and administrative expense is for compensation in the operating divisions . most of the company 's sales agents and recruiters are paid on a commission basis and receive advances against future commissions . when commissions are earned , prior advances are applied against them and the sales agent or recruiter is paid the net amount . the company recognizes the full amount as commission expense , and advance expense is reduced by the amount recovered . thus , the company 's advance expense represents the net amount of advances paid , less amounts applied against commissions , plus commission accruals for billed but uncollected revenue . selling , general and administrative expenses for the year ended september 30 , 2017 , increased by approximately $ 19.6 million to approximately $ 39.5 million as compared to the prior year of approximately $ 19.9 million . the increase was primarily related to the inclusion of approximately $ 21.4 million of selling , general and administrative expenses of sni following the acquisition by the company . management continues efforts to reduce general and administrative expenses as the company consolidates the back office and can capitalize
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in our gbs segment , our customers are primarily manufacturers of it hardware and ce devices , developers of software , cloud service providers , and broadcast and social media . 27 revenue and cost of revenue we derive our revenue primarily through the distribution of peripherals , it systems , system components , software , networking equipment and ce products . we also provide design and integration and bpo services . for products , we recognize revenue generally as products are shipped , if a purchase order exists , the sales price is fixed or determinable , collection of the resulting accounts receivable is reasonably assured , risk of loss and title have transferred and product returns are reasonably estimable . shipping terms are typically f.o.b . shipping point . provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue . we review and adjust these provisions periodically . revenue is reduced for early payment discounts and volume incentive rebates offered to customers . we provide our bpo services in our gbs segment to customers under contracts that typically consist of a master services agreement or statement of work , which contains the terms and conditions of each program and service we offer . our agreements are usually short-term in nature , subject to early termination by our customers or us for any reason , typically with 30 to 90 days notice . revenue is recognized as services are performed and if collection is reasonably assured . we recognize revenue on a net basis on certain contracts , including service contracts , post-contract software support services and extended warranty contracts , where we are not the primary obligor , by recognizing the margin earned in revenue without any associated cost of revenue . in fiscal years 2013 , 2012 and 2011 , no customer accounted for 10 % or more of our total revenue . approximately 31 % , 36 % , and 35 % of our total revenue in fiscal years 2013 , 2012 , and 2011 , respectively , were derived from the sale of hp products and services . the market for it products and services is generally characterized by declining unit prices and short product life cycles . our overall business is also highly competitive on the basis of price . we set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide . from time to time , we also participate in the incentive and rebate programs of our oem suppliers . these programs are important determinants of the final sales price we charge to our reseller customers . to mitigate the risk of declining prices and obsolescence of our distribution inventory , our oem suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them . we carefully manage our inventory to maximize the benefit to us of these supplier provided protections . a significant portion of our cost of revenue is the purchase price we pay our oem suppliers for the products we sell , net of any incentives , rebates and purchase discounts received from our oem suppliers . cost of product distribution revenue also consists of provisions for inventory losses and write-downs , freight expenses associated with the receipt in and shipment out of our inventory , and royalties due to oem vendors . in addition , cost of revenue includes the cost of materials , labor and overhead for our design and integration and bpo services . margins the distribution and design and integration services industries in which we operate are characterized by low gross profit as a percentage of revenue , or gross margin , and low income from operations as a percentage of revenue , or operating margin . our gross margin has fluctuated annually due to changes in the mix of products and services we offer , customers we sell to , incentives and rebates received from our oem suppliers , competition , seasonality and replacement of less profitable business with investments in higher margin , more profitable lines , lower costs associated with increased efficiencies and inventory obsolescence . increased competition arising from industry consolidation and low demand for it products may hinder our ability to maintain or improve our gross margin . generally , when our revenue becomes more concentrated on limited products or customers , our gross margin tends to decrease due to increased pricing pressure from oem suppliers or reseller customers . our operating margin has also fluctuated annually , based primarily on our ability to achieve economies of scale , the management of our operating expenses , changes in the relative mix of our distribution , design and integration and bpo revenue , and the timing of our acquisitions and investments . economic and industry trends our revenue is highly dependent on the end-market demand for it and ce products . this end-market demand is influenced by many factors including the introduction of new it and ce products and software by oems , replacement cycles for existing it and ce products and overall economic growth and general business activity . a difficult and challenging economic environment may also lead to consolidation or decline in the it and ce distribution industry and increased price-based competition . the gbs industry is also extremely competitive . the customers ' performance measures are based on competitive pricing terms and quality of services . accordingly , we could be subject to pricing pressure and may experience a decline in our average selling prices for our services . while we are susceptible to economic trends in the global economy , our distribution business is largely concentrated in the united states , canada and japan , so we will be most directly impacted by economic strength or weakness in these geographies . during the fiscal years 2013 , 2012 and 2011 , the economic environment was stable and grew modestly . story_separator_special_tag 28 seasonality our operating results are affected by the seasonality of the it and ce products industries . we have historically experienced higher sales in our fourth fiscal quarter due to patterns in the capital budgeting , federal government spending and purchasing cycles of our customers and end-users . these patterns may not be repeated in subsequent periods . deferred compensation plan we have a deferred compensation plan for a limited number of our directors and retired employees . we maintain a liability on our balance sheet for salary and bonus amounts deferred by participants and we accrue interest expense on uninvested amounts . interest expense on the deferred amounts is classified in selling , general and administrative expenses on our consolidated statements of operations . the participant may designate one or more investments as the measure of investment return on the participant 's account . the equity securities are either classified as trading securities or cost-method securities . generally , the gains ( losses ) on the deferred compensation securities are recorded in other income ( expense ) , net and an equal amount is charged ( or credited if losses ) to selling , general and administrative expenses relating to compensation amounts which are payable to the plan participants . for the deferred compensation investments , we recorded a gain of $ 1.9 million , a gain of $ 2.6 million and a loss of $ 1.1 million , in fiscal years 2013 , 2012 and 2011 , respectively . critical accounting policies and estimates the discussions and analyses of our consolidated financial condition and results of operations are based on our consolidated financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the financial statement date , and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review and evaluate our estimates and assumptions , including those that relate to accounts receivable , vendor programs , inventories , goodwill and intangible assets , and income taxes . our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources . actual results could differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies are affected by our judgment , estimates and or assumptions used in the preparation of our consolidated financial statements . revenue recognition . we generally recognize revenue on the sale of hardware and software products when they are shipped and on services when they are performed , if a purchase order exists , the sales price is fixed or determinable , collection of resulting accounts receivable is reasonably assured , risk of loss and title have transferred and product returns are reasonably estimable . provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue . these provisions are reviewed and adjusted periodically by us . revenue is reduced for early payment discounts and volume incentive rebates offered to customers . we recognize revenue on a net basis on certain contracts , including service contracts , post-contract software support services and extended warranty contracts , where we are not the primary obligor , by recognizing the margin earned in revenue without any associated cost of revenue . we provide services such as call center , renewals , maintenance and contract management services to our customers under contracts that typically consist of a master services agreement or statement of work , which contains the terms and conditions of each program and service offerings . typically the contracts are time-based or transactions or volume based . revenue is generally recognized over the term of the contract or when service has been rendered , the sales price is fixed or determinable and collection of the resulting accounts receivable is reasonably assured . revenue derived from our mexico operation includes projects with the mexican government and other public agencies that are long-term in nature . under the agreements , we sell computers and equipment to contractors that provide services to the mexican government . we also sell computers , equipment and services directly to the mexican government . the payments are due on a monthly basis and contingent upon the satisfactory performance of certain services , fulfillment of certain obligations and meeting certain conditions . we recognize revenue and cost of revenue on a straight-line basis over the term of the contract as the contingencies are satisfied and payments become due . allowance for doubtful accounts . we provide allowances for doubtful accounts on our accounts receivable for estimated losses resulting from the inability of our customers to make payments for outstanding balances . in estimating the required allowance , we take into consideration the overall quality and aging of the accounts receivable , credit evaluations of customers ' financial condition and existence of credit insurance . we also evaluate the collectability of accounts receivable based on 29 specific customer circumstances , current economic trends , historical experience with collections and value and adequacy of collateral received from customers . oem supplier programs . we receive funds from oem suppliers for inventory price protection , product rebates , marketing and infrastructure reimbursement , and various other promotion programs . product incentives and rebates are recorded as a reduction of cost of revenue . marketing , infrastructure and promotion programs are recorded , net of direct costs , in selling , general and administrative expenses . any excess funds associated with these programs are recorded as a reduction to cost of revenue .
| by product category , our sales of peripherals , networking , system components and it systems were higher by 15 % , 9 % , 2 % and 2 % , respectively , in comparison to the prior fiscal year . the increase in the sale of peripheral and networking categories was due to higher sales of audio products and networking hardware devices , including the expansion of our line card . revenue growth was partially offset by 15 % lower software sales which was due to the strategic decision to consolidate less profitable 32 products and lower gaming software sales . all product categories were negatively impacted by the translation impact of foreign exchange rates , primarily due to the weakening japanese yen . our revenue from the distribution services segment in fiscal year 2012 decreased from fiscal year 2011 primarily due to the effects of transitioning a certain customer contract from a traditional full service distribution relationship to a fee-for-service basis starting in the fourth quarter of fiscal year 2011. the impact of this change resulted in approximately 4 % lower revenue recorded during fiscal year 2012. in comparison to fiscal year 2011 , our sales of systems components increased by 7 % , our sales of it systems remained relatively consistent and our sales of software , networking equipment and peripherals decreased by 14 % , 4 % and 3 % , respectively . the decrease in our software sales compared to the prior year is primarily due to lower sales from gaming software . overall , the demand for it products continued to be stable in the u.s. and japanese markets and improving in canada . our revenue in our gbs segment in fiscal year 2013 increased 13.3 % from fiscal year 2012 , benefiting from new customer contracts and expanded business volumes from certain continuing customers . approximately 70 % of the increase in revenue in our gbs segment in fiscal year 2012 as compared to fiscal year 2011 , was due to revenue generated from acquisitions that occurred in the fourth quarter of fiscal year 2011. in addition , we generated revenue from new customer accounts and increased revenue from our existing customer base . gross profit
| 12,736 |
a quarterly cash dividend of $ 0.13 per share on the company 's outstanding shares of common stock was paid on each of march 29 , 2018 , june 29 , 2018 and september 28 , 2018. a quarterly cash dividend of $ 0.14 per share on the company 's outstanding 24 shares of common stock was paid on december 31 , 2018. the aggregate cash dividends paid for the quarter ended december 31 , 2018 was $ 12,169 . the aggregate cash dividends paid for the twelve months ended december 31 , 2018 was $ 47,316 . key performance indicators and statistics the following measurements are among the key business indicators reviewed by various members of management to measure consolidated and segment results of the company : net sales gross profit margin operating expenses income from operations adjusted ebitda adjusted ebit inventory turnover accounts receivable average collection days cash flow and liquidity determined by the company 's working capital and free cash flow store metrics , such as same store sales , sales per square foot , average unit retail , conversion , average units per transaction , and contribution margin . while not all of these metrics are disclosed due to the proprietary nature of the information , many of these metrics are disclosed and discussed in this management 's discussion and analysis of financial condition and results of operations . non-gaap financial measures the company 's reported results are presented in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) . the company uses adjusted earnings before interest and taxes ( `` adjusted ebit '' ) and adjusted earnings before interest , taxes , depreciation and amortization ( `` adjusted ebitda '' ) , as calculated in the table below , as non-gaap measures , in internal management reporting and planning processes as well as in evaluating the performance of the company . management believes these measures are useful to investors in evaluating the company 's ongoing operating and financial results . by providing these non-gaap measures , as a supplement to gaap information , we believe we are enhancing investors ' understanding of our business and our results of operations . the non-gaap financial measures are limited in their usefulness and should be considered in addition to , and not in lieu of , u.s. gaap financial measures . further , these non-gaap measures may be unique to the company , as they may be different from non-gaap measures used by other companies . 25 the table below reconciles these metrics to net income as presented in the consolidated statements of income . years ended december 31 ( $ in thousands ) 2018 2017 2016 net income $ 130,499 $ 119,138 $ 121,274 add back : provision for income taxes 46,841 53,189 49,726 provision for legal charges 2,837 6,713 — provision for early lease termination charges 1,693 5,123 — schwartz & benjamin amendment to the equity purchase agreement — ( 10,215 ) — provisions for bad debt expense and write-off of an unamortized buying agency agreement support payment associated with the payless shoesource bankruptcies 12,123 5,470 — schwartz & benjamin acquisition integration charges and related restructuring 2,065 3,639 — charges related to preferred interest investment — 2,700 — impairment of wild pair trademark — 1,000 — schwartz & benjamin acquisition inventory fair value adjustment — 591 — deduct : other ( expense ) /income - net * ( 66 ) ( 5 ) ( 664 ) interest , net 4,024 2,548 2,488 adjusted ebit $ 192,100 $ 184,805 $ 169,176 add back : depreciation and amortization $ 21,754 $ 20,406 $ 19,868 loss on disposal of fixed assets 1,220 1,455 652 adjusted ebitda $ 215,074 $ 206,666 $ 189,696 * consists of realized ( losses ) /gains on marketable securities and foreign exchange ( losses ) /gains . executive summary net sales for 2018 increased by 7.0 % to $ 1,653,609 from $ 1,546,098 in 2017 . net sales growth was driven by our wholesale accessories , footwear and retail segments . net sales in the wholesale accessories increased by $ 43,796 , or 17.1 % , when compared to the prior year . net sales in the wholesale footwear segment increased by $ 40,809 , or 4.0 % , when compared to the prior year . net sales in the retail segment increased by $ 22,906 , or 8.4 % , when compared to the prior year . net income attributable to steven madden , ltd. increased 9.5 % to $ 129,136 in 2018 compared to $ 117,948 in 2017 . the company 's effective tax rate for 2018 decreased to 26.4 % compared to 30.9 % recorded in 2017 . diluted earnings per share in 2018 increased to $ 1.50 per share on 86,097,000 diluted weighted average shares outstanding compared to $ 1.36 per share on 86,745,000 diluted weighted average shares outstanding in the prior year . in our retail segment , same store sales ( sales attributable to those stores , including the e-commerce websites , that were in operation throughout 2018 ) increased 2.8 % , and sales per square foot decreased to $ 612 in 2018 compared to sales per square foot of $ 656 in 2017 . as of december 31 , 2018 , we had 229 stores in operation , compared to 206 stores as of december 31 , 2017 which increase resulted from the addition of 23 full price stores , 5 outlet stores and 3 e-commerce websites partially offset by the closing of 6 full price stores and 2 outlet stores . our inventory turnover ( calculated on a trailing twelve-month average ) for the years ended december 31 , 2018 and 2017 was 8.1 times and 8.6 times , respectively . our total company accounts receivable average collection days were 69 days in 2018 compared to 75 days in 2017 primarily due to better collection efforts by the company and the transition , in 2018 , of one of the company 's wholesale customers from the wholesale model to the buying agency model . story_separator_special_tag as of december 31 , 2018 , we had $ 266,999 26 in cash , cash equivalents and marketable securities , no short or long-term debt and total stockholders ' equity of $ 814,682 . working capital increased to $ 478,436 as of december 31 , 2018 , compared to $ 438,906 on december 31 , 2017 . the following table sets forth information on operations for the periods indicated : replace_table_token_6_th 27 story_separator_special_tag 7 e-commerce websites . in addition , during 2018 , we opened 16 concessions in china , taiwan and south africa , and ended the year with 42 company-operated concessions in international markets . comparable store sales ( sales of those stores , including the e-commerce websites , that were open for all of 2018 ) for the year ended december 31 , 2018 increased 2.8 % when compared to the prior year . the company excludes new locations from the comparable store base for the first year of operations . stores that are closed for renovations are removed from the comparable store base . during the year ended december 31 , 2018 , the gross margin slightly decreased to 60.4 % from 60.5 % in 2017 primarily due to slightly higher promotional activity during 2018 in our full price retail stores . in 2018 , operating expenses increased to $ 177,655 , or 60.2 % of revenue , from $ 165,771 , or 60.9 % of revenue , in 2017 . in 2018 and 2017 operating expenses included $ 452 and $ 5,123 , respectively , of provisions for early lease termination charges . excluding these charges , operating expenses increased primarily due to the incremental costs associated with new store openings , such as higher selling costs , payroll and related expenses , warehouse expenses , and occupancy related expenses . for the year ended december 31 , 2018 , income from operations for the retail segment was $ 735 compared to losses from operations of $ 1,126 in the prior year . first cost segment : the first cost segment , which includes net commission income and fees decreased to a loss of $ 4,549 for the year ended december 31 , 2018 compared to an income of $ 5,159 in 2017 . the decrease is primarily due to a charge of $ 8,507 for provisions for bad debt expense and a write-off of an unamortized buying agency agreement support payment related to the payless shoesource bankruptcy . licensing segment : during the year ended december 31 , 2018 , income for the licensing segment increased to $ 9,966 as compared to the prior year income of $ 9,100 primarily due to an increase in income from the licensing of the freebird by steven brand for operation of retail stores . year ended december 31 , 2017 vs. year ended december 31 , 2016 consolidated : net sales for the year ended december 31 , 2017 increased by 10.5 % to $ 1,546,098 from $ 1,399,551 for fiscal year 2016. for the year ended december 31 , 2017 , gross margin as a percentage of net sales increased slightly to 37.4 % in the current year compared to 37.3 % in the prior year . excluding the impact from the schwartz & benjamin acquisition , gross profit margin as a percentage of net sales increased to 38.3 % driven by improvement in the wholesale footwear and retail segments . operating expenses increased in 2017 to $ 421,216 , or 27.2 % of total revenue , from $ 364,595 , or 26.1 % of total revenue , in 2016. the increase is primarily related to ( i ) the impact of the schwartz & benjamin acquisition , ( ii ) legal charges consisting of costs and estimated settlement amounts , ( iii ) bad debt related to the payless shoesource bankruptcy , and ( iv ) charges to preferred interest investments related to the brian atwood acquisition . these increases were partially offset by the benefit received for the reversal of contingent liabilities related to the amended purchase agreement for the schwartz & benjamin acquisition . commission and licensing fee income increased to $ 14,259 in 2017 compared to $ 11,788 in 2016. the effective tax rate for the year ended december 31 , 2017 increased to 30.9 % compared to 29.3 % in the same period in the prior year primarily due to the impact of the year-over-year benefit resulting from the exercising and vesting of share based awards coupled with a shift in profitability to jurisdictions with higher tax rates . these were partially offset by the net benefit related to the recently enacted tax cuts and jobs act in the united states . net income attributable to steven madden , ltd. for the year ended december 31 , 2017 decreased to $ 117,948 compared to $ 120,911 for the year ended december 31 , 2016 . 29 wholesale footwear segment : net sales generated by the wholesale footwear segment was $ 1,017,557 , or 65.8 % , and $ 881,864 , or 63.0 % , of our total net sales for the years ended december 31 , 2017 and 2016 , respectively . excluding net sales related to the schwartz & benjamin acquisition , net sales increased 6.3 % . the increase in net sales is primarily driven by strong growth in our core steve madden women 's brand coupled with growth in our steve madden men 's , madden girl , steve madden kid 's and blondo brands , as well as growth in the sm europe joint venture . gross profit margin increased to 32.7 % in 2017 from 31.7 % in the prior year period . excluding the impact from the schwartz & benjamin acquisition , gross profit margin was 33.8 % . the increase in gross profit margin primarily resulted from reduced mark-downs and closeouts , as well as a sales mix shift between our branded and private label businesses .
| net income attributable to steven madden , ltd. for the year ended december 31 , 2018 increased to $ 129,136 compared to $ 117,948 for the year ended december 31 , 2017 . wholesale footwear segment : net sales generated by the wholesale footwear segment were $ 1,058,366 , or 64.0 % , and $ 1,017,557 , or 65.8 % , of our total net sales for the years ended december 31 , 2018 and 2017 , respectively . the increase in net sales is primarily driven by strong growth in our steve madden and blondo brands in both domestic and international markets . gross profit margin in 2018 was 32.7 % , flat from the prior year . operating expenses increased to $ 205,771 , or 19.4 % of revenue , in 2018 compared to $ 197,722 , or 19.4 % of revenue , in the same period of 2017 . operating expenses in 2018 included $ 8,518 of certain charges , which consisted of $ 3,616 of bad debt expense related to the payless shoesource bankruptcy , $ 2,837 related to provisions for legal charges , and $ 2,065 related to schwartz & benjamin acquisition integration charges and related restructuring . operating expenses in 2017 included $ 8,307 of certain net charges , which consisted of $ 6,713 related to provisions for legal charges , $ 5,470 related to bad debt expenses for the payless shoesource bankruptcy , $ 3,639 related to schwartz & benjamin acquisition integration charges and related restructuring , $ 2,700 related to charges due to preferred interest investment , partially offset by a benefit of $ 10,215 related to an amendment of the purchase agreement for the acquisition of schwartz & benjamin . excluding these charges , the increase in operating expenses was primarily comprised of higher payroll and related expenses , and warehouse and distribution expenses . income from operations before impairment charges increased to $ 140,138 for the year ended december 31 , 2018 compared to $ 134,645 for the year ended december 31 , 2017 . wholesale accessories
| 12,737 |
substantially all of our products are considered by various governmental authorities to be essential for purposes of continuing our operations during the covid-19 pandemic and our manufacturing and distribution facilities and those of our suppliers and contract manufacturers are open and continue to operate under applicable governmental requirements and guidance , including the department of homeland security 's march 19 , 2020 guidance on the essential critical infrastructure workforce . we intend to continue to work with government authorities , implement our employee safety measures and supplement our in-house manufacturing with increased use of contract manufacturers to ensure that we are able to continue to manufacture and distribute our products during the covid-19 pandemic . however , uncertainty resulting from the covid-19 pandemic could result in an unforeseen disruption to our supply chain ( for example a closure of a key manufacturing or distribution facility or the inability of a key supplier , contract manufacturer or transportation supplier to source and transport materials ) that could impact our operations and ability to supply products to our customers . we are monitoring the impact that the covid-19 pandemic and corresponding government action is having on our customers and consumer demand and how potentially it will impact future cash flows for the short and long term and its impact to intangible asset carrying values . while we expect that many of these effects will not be permanent , it is impossible to predict their duration . 2020 financial highlights key 2020 financial results include : 2020 net sales grew 12.3 % over 2019 , with gains in all three of our segments . the gains are primarily due to favorable volumes in all three segments , as well as favorable pricing/product mix in the consumer domestic and consumer international segments , partially offset by unfavorable pricing/product mix in spd . gross margin decreased 30 basis points to 45.2 % in 2020 from 45.5 % in 2019 , primarily due to higher manufacturing costs , in part due to costs associated with the covid-19 pandemic , higher tariffs , and the impact on margins from acquired businesses , partially offset by favorable volume price/product mix and the impact of productivity programs . operating margin increased 170 basis points to 21.0 % in 2020 from 19.3 % in 2019 , reflecting lower selling , general and administrative expenses ( including the impact of the flawless business acquisition liability adjustment ) , partially offset by lower gross margin and higher marketing costs as a percentage of sales . we reported diluted net earnings per share in 2020 of $ 3.12 , an increase of approximately 27.9 % from 2019 diluted net earnings per share of $ 2.44. cash provided by operations was $ 990.3 in 2020 , an $ 125.8 increase from the prior year , due to higher cash earnings ( net income adjusted for non-cash items such as depreciation , amortization , non-cash compensation and changes in business acquisition liabilities and deferred taxes ) and an improvement in working capital . we returned $ 537.3 in 2020 to our stockholders through dividends and share repurchases . strategic goals , challenges and initiatives our ability to generate sales depends on consumer demand for our products and retail customers ' decisions to carry our products , which are , in part , affected by general economic conditions in our markets . while a vast majority of our products are consumer staples and less vulnerable to decreases in discretionary spending than other products , an increasing number of our products , particularly those from our recent acquisitions , are more durable in nature and are more likely to be affected by consumer decisions to control spending . some customers have responded to economic conditions by increasing their private label offerings ( primarily in the dietary supplements , diagnostic kits and oral analgesics categories ) , launching their own brands , and consolidating the product selections they offer to the top few leading brands in each category . in addition , an increasing portion of our product categories is being sold by club stores , dollar stores , mass merchandisers and internet-based retailers . these factors have placed downward pressure on our sales and gross margins . we expect a competitive marketplace in 2021 due to new product introductions by competitors . in this environment , we intend to continue to aggressively pursue several key strategic initiatives : maintain competitive marketing and trade spending , tightly control our cost structure , continue to develop and launch new and differentiated products , and pursue strategic acquisitions . we also intend to continue to grow our product sales globally and maintain an offering of premium and value brand products to appeal to a wide range of consumers . 32 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) we derive a substantial percentage of our revenues from sales of liquid laundry detergent . the continued customer demand for these products are critical to our future success . as a result , any commercialization , delays or reduction of sales of these products , in the event that our diversification efforts discussed below are not successful , could have a material adverse effect on our business , financial condition and operating results and cash flows . in addition , condom usage has declined , as a result of a lower 18 to 24 year - old population , alternate birth control options , less fear of hiv , social distancing , decreased sexual activity , and increased competition , all of which have contributed to lower demand for our product s in the condom category . we continue to evaluate and vigorously address these pressures through , among other things , new product introductions and increased marketing and trade spending . h owever , there is no assurance that the categor y will not decline in the future and that we will be able to offset any such decline . story_separator_special_tag we are continuously focused on strengthening our key brands through the launch of innovative new products , which span various product categories , including premium and value household products supported by increased marketing and trade spending . there can be no assurance that these measures will be successful . in the domestic business , seven out of 13 “ power brands ” met or exceeded category growth for the full year 2020. our global product portfolio consists of both premium ( 58 % of total worldwide consumer revenue in 2020 ) and value ( 42 % of total worldwide consumer revenue in 2020 ) brands , which we believe enables us to succeed in a range of economic environments . we intend to continue to develop a portfolio of appealing new products to build loyalty among cost-conscious consumers . over the past two decades , we have diversified from an almost exclusively u.s. business to a global company with approximately 17 % of sales derived from international countries in 2020. we have subsidiary operations in six countries ( canada , mexico , u.k. , france , germany , and australia ) and sell to over 130 other countries . in 2020 , we benefited from our expanded global footprint and expect to continue to focus on selectively expanding our global business . if we are unable to expand our business internationally at the rate that we expect , we may not realize the operational benefits that we anticipate . although we believe ongoing international expansion represents a significant opportunity to grow our business , our increasing activity in global markets exposes us to additional complexity and uncertainty . net sales generated outside of the u.s. are exposed to foreign currency exchange rate fluctuations as well as political uncertainty which could impact future operating results . moreover , the current domestic and international political environment , including existing and potential changes to u.s. policies related to global trade and tariffs , have resulted in uncertainty regarding the global economy . the impact of u.s. tariffs on certain products was a component of increased cost of sale during the year ended december 31 , 2020. the implementation of more restrictive trade policies , such as higher tariffs or new barriers to entry , in countries in which we manufacture or sell large quantities of products and services could negatively impact our business , results of operations and financial condition . we also continue to focus on controlling our costs . historically , we have been able to mitigate the effects of cost increases primarily by implementing cost reduction programs and , to a lesser extent , by passing along some of these cost increases to customers . we have also entered into set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel and other commodities . should we be required to address cost increases by increasing the prices that our customers pay for our products , we can not be certain they will be accepted . additionally , maintaining tight controls on overhead costs has been a hallmark of ours and has enabled us to effectively navigate recent challenging economic conditions . the identification and integration of strategic acquisitions are an important component of our overall strategy and product category diversification . acquisitions have added significantly to our sales and profits and product category diversification over the last decade . this is evidenced by our 2015 acquisition of certain assets of varied industries corporation ( the “ vi-cor acquisition ” ) , 2016 acquisitions of spencer forrest , inc. , the maker of toppik ( the “ toppik acquisition ” ) , and the anusol and rectinol businesses from johnson & johnson ( the “ anusol acquisition ” ) , 2017 acquisitions of viviscal from lifes2good holdings limited ( the “ viviscal acquisition ” ) , agro biosciences , inc. ( the “ agro acquisition ” ) , and waterpik from pik holdings , inc. ( the “ waterpik acquisition ” ) , 2018 acquisition of passport food safety solutions , inc. ( the “ passport acquisition ” ) , the 2019 acquisition of flawless ; and the 2020 acquisition of zicam from consumer health holdco llc . however , the failure to effectively identify or integrate any acquisition or achieve expected synergies may cause us to incur material asset write-downs . we actively seek acquisitions that fit our guidelines , and our strong financial position provides us with flexibility to take advantage of acquisition opportunities . in addition , our ability to quickly integrate acquisitions and leverage existing infrastructure has enabled us to establish a strong track record in making accretive acquisitions . since 2001 , we have acquired 12 of our 13 “ power brands ” . we believe we are positioned to meet the ongoing challenges described above due to our strong financial condition , experience operating in challenging environments and continued focus on key strategic initiatives : maintaining competitive marketing and trade spending , managing our cost structure , continuing to develop and launch new and differentiated products , and pursuing strategic acquisitions . this focus , together with the strength of our portfolio of premium and value brands , has enabled us to succeed in a range of economic environments , and is expected to position us to continue to increase stockholder value over the long-term . moreover , the generation of a significant amount of cash from operations , as a result of net income and effective working capital management , combined with an investment grade credit rating provides us with the financial flexibility to pursue acquisitions , drive new product development , make capital 33 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) expenditures to support organic growth and gross margin improvements , return cash to stockholders through dividends and share buy backs , and reduce outstanding debt , positioning us to continue to create stockholder value .
| operating costs marketing expenses for 2020 were $ 591.2 , an increase of $ 76.2 compared to 2019. the higher marketing expenses is due to investments behind new product launches , consumer research and digital advertising . marketing expenses as a percentage of net sales increased 30 bps to 12.1 % in 2020 as compared to 2019 due to 160 bps on higher expenses partially offset by 130 bps of leverage on higher net sales . sg & a expenses for 2020 were $ 593.3 , a decrease of $ 35.5 or 5.6 % compared to 2019. the decrease is primarily due to the reduction of the flawless business acquisition liability by $ 94.0 , the reduction of expenses related to the 2019 charge associated with selling our consumer 37 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) business in brazil of $ 7.6 , and the 2020 gain of $ 3.0 associated with the sale of perl weiss , partially offset by higher amortization expense related to the flawless and zicam acquisition s , and higher incentive compensation , information system , r & d and selling costs . sg & a as a percentage of net sales de creased 230 bps to 12.1 % in 20 20 compared to 14.4 % in 201 9 . the de crease is due to 160 bps of leverage associated with higher sales and 70 bps on lower expenses , including the impact of the flawless business acquisition liability adjustment . other income and expenses other expense increased by $ 1.0 in 2020 as compared to 2019 , primarily due to the effect of changes in foreign exchange rates . interest expense in 2020 was $ 61.0 , a decrease of $ 12.6. the decrease is primarily due to the repayment of the $ 300.0 2.45 % senior notes that matured in the fourth quarter of 2019 and lower interest rates . taxation the 2020
| 12,738 |
no estate , inheritance tax succession or gift tax rate , duty , levy or other charge is payable by persons who are not resident in the british virgin islands with respect to any of our shares , debt obligations , or other securities . no stamp duty is payable in the british virgin islands in relation to a transfer of shares in a british virgin islands business company . prc enterprise income taxes prc enterprise income tax is calculated based on taxable income determined under prc accounting principles . in accordance with the enterprise income tax law ( the eit law ) , a unified enterprise income tax rate of 25 % and unified tax deduction standards will be applied equally to both domestic-invested enterprises and foreign-invested enterprises . enterprises established prior to march 16 , 2007 eligible for preferential tax treatment in accordance with the currently prevailing tax laws and administrative regulations shall , under the regulations of the state council , gradually become subject to the eit law rate over a five-year transition period starting from the date of effectiveness of the eit law . the details of the transitional arrangement for the five-year period from january 1 , 2008 to december 31 , 2012 applicable to enterprises approved for establishment prior to march 16 , 2007 , such as our company , were adopted in january 2008. furthermore , under the eit law , an enterprise established outside of the prc with de facto management bodies within the prc is considered a resident enterprise and will normally be subject to the enterprise income tax at the rate of 25 % on its global income . if the prc tax authorities subsequently determine that we or any of our non-prc subsidiaries should be classified as a prc resident enterprise , then such entity 's global income will be subject to prc income tax at a tax rate of 25 % . in addition , under the eit law , payments from bdl to us may be subject to a withholding tax . the eit law currently provides for a withholding tax rate of 20 % . if dehaier is deemed to be a non-resident enterprise , then it will be subject to a withholding tax at the rate of 10 % on any dividends paid by its chinese subsidiaries to dehaier . in practice , the tax authorities typically impose the withholding tax rate of 10 % rate , as prescribed in the implementation regulations ; however , there can be no guarantee that this practice will continue as more guidance is provided by relevant government authorities . we are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact . the state council issued the notice on implementation of the transition period for preferential enterprise income tax , or the transition implementation notice , on december 26 , 2007 , which provides detailed rules on how preferential tax rates under previous income tax laws or regulations would transition to the uniform 25 % eit rate . in addition , entities that qualify as high and new technology enterprises will enjoy a 15 % preferential tax rate under the eit law . the ministry of science and technology , the ministry of finance and the state administration of taxation issued the measures on qualification of high and new technology enterprises , or circular 172 , on april 14 , 2008 , which provides detailed standards for high and new technology enterprises. in addition , according 10 to the notice on prepayment of enterprise income tax issued by the state administration of taxation , enterprises that have been certified as high and new technology enterprises shall pre-pay eit at the rate of 25 % temporarily until re-certified as high and new technology enterprises under circular 172. under the current prc laws , prc government grants a preferential income tax rate of 15 % to government-certified high technology companies , and under the new standard the period of validity for the certification of high technology companies is three years . in 2009 , bdl updated its certification for high technology company . therefore , bdl used a 15 % income tax rate to calculate the income tax expense for periods ended december 31 , 2010 and 2009. the tax rate for btl is 25 % in 2009 and 2010. prc value added tax pursuant to the provisional regulation of china on value added tax and its implementing rules , issued in december 1993 , all entities and individuals that are engaged in the businesses of sales of goods , provision of repair and placement services and importation of goods into china are generally subject to a vat at a rate of 17 % ( with the exception of certain goods which are subject to a rate of 13 % ) of the gross sales proceeds received , less any vat already paid or borne by the taxpayer on the goods or services purchased by it and utilized in the production of goods or provisions of services that have generated the gross sales proceeds . prc business tax companies in china are generally subject to business tax and related surcharges by various local tax authorities at rates ranging from 3 % to 20 % on revenue generated from providing services and revenue generated from the transfer of intangibles . critical accounting policies basis of consolidation the consolidated financial statements include the accounts of dehaier , bdl , its majority-owned subsidiary , and its wholly-owned subsidiary , dhk as well as btl . all significant inter-company transactions and balances are eliminated in consolidation . a group of shareholders , including the chief executive officer , originally held more than 50 % of the voting ownership interest of dehaier , bdl and btl . btl is a variable interest entity , and bdl is the primary beneficiary . btl owns story_separator_special_tag no estate , inheritance tax succession or gift tax rate , duty , levy or other charge is payable by persons who are not resident in the british virgin islands with respect to any of our shares , debt obligations , or other securities . no stamp duty is payable in the british virgin islands in relation to a transfer of shares in a british virgin islands business company . prc enterprise income taxes prc enterprise income tax is calculated based on taxable income determined under prc accounting principles . in accordance with the enterprise income tax law ( the eit law ) , a unified enterprise income tax rate of 25 % and unified tax deduction standards will be applied equally to both domestic-invested enterprises and foreign-invested enterprises . enterprises established prior to march 16 , 2007 eligible for preferential tax treatment in accordance with the currently prevailing tax laws and administrative regulations shall , under the regulations of the state council , gradually become subject to the eit law rate over a five-year transition period starting from the date of effectiveness of the eit law . the details of the transitional arrangement for the five-year period from january 1 , 2008 to december 31 , 2012 applicable to enterprises approved for establishment prior to march 16 , 2007 , such as our company , were adopted in january 2008. furthermore , under the eit law , an enterprise established outside of the prc with de facto management bodies within the prc is considered a resident enterprise and will normally be subject to the enterprise income tax at the rate of 25 % on its global income . if the prc tax authorities subsequently determine that we or any of our non-prc subsidiaries should be classified as a prc resident enterprise , then such entity 's global income will be subject to prc income tax at a tax rate of 25 % . in addition , under the eit law , payments from bdl to us may be subject to a withholding tax . the eit law currently provides for a withholding tax rate of 20 % . if dehaier is deemed to be a non-resident enterprise , then it will be subject to a withholding tax at the rate of 10 % on any dividends paid by its chinese subsidiaries to dehaier . in practice , the tax authorities typically impose the withholding tax rate of 10 % rate , as prescribed in the implementation regulations ; however , there can be no guarantee that this practice will continue as more guidance is provided by relevant government authorities . we are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact . the state council issued the notice on implementation of the transition period for preferential enterprise income tax , or the transition implementation notice , on december 26 , 2007 , which provides detailed rules on how preferential tax rates under previous income tax laws or regulations would transition to the uniform 25 % eit rate . in addition , entities that qualify as high and new technology enterprises will enjoy a 15 % preferential tax rate under the eit law . the ministry of science and technology , the ministry of finance and the state administration of taxation issued the measures on qualification of high and new technology enterprises , or circular 172 , on april 14 , 2008 , which provides detailed standards for high and new technology enterprises. in addition , according 10 to the notice on prepayment of enterprise income tax issued by the state administration of taxation , enterprises that have been certified as high and new technology enterprises shall pre-pay eit at the rate of 25 % temporarily until re-certified as high and new technology enterprises under circular 172. under the current prc laws , prc government grants a preferential income tax rate of 15 % to government-certified high technology companies , and under the new standard the period of validity for the certification of high technology companies is three years . in 2009 , bdl updated its certification for high technology company . therefore , bdl used a 15 % income tax rate to calculate the income tax expense for periods ended december 31 , 2010 and 2009. the tax rate for btl is 25 % in 2009 and 2010. prc value added tax pursuant to the provisional regulation of china on value added tax and its implementing rules , issued in december 1993 , all entities and individuals that are engaged in the businesses of sales of goods , provision of repair and placement services and importation of goods into china are generally subject to a vat at a rate of 17 % ( with the exception of certain goods which are subject to a rate of 13 % ) of the gross sales proceeds received , less any vat already paid or borne by the taxpayer on the goods or services purchased by it and utilized in the production of goods or provisions of services that have generated the gross sales proceeds . prc business tax companies in china are generally subject to business tax and related surcharges by various local tax authorities at rates ranging from 3 % to 20 % on revenue generated from providing services and revenue generated from the transfer of intangibles . critical accounting policies basis of consolidation the consolidated financial statements include the accounts of dehaier , bdl , its majority-owned subsidiary , and its wholly-owned subsidiary , dhk as well as btl . all significant inter-company transactions and balances are eliminated in consolidation . a group of shareholders , including the chief executive officer , originally held more than 50 % of the voting ownership interest of dehaier , bdl and btl . btl is a variable interest entity , and bdl is the primary beneficiary . btl owns
| operating expensesgeneral and administrative expenses general and administrative expenses consist primarily of salaries and benefits and related costs for our administrative personnel and management and expenses associated with our research and development and the registration of foreign exchange certificate . our general and administration expenses increased by 15.60 % from $ 1.09 million for the fiscal year ended december 31 , 2009 to $ 1.26 million for the fiscal year ended december 31 , 2010. this increase was small and mainly because of three reasons . first , in accordance with our market expansion strategy , we opened new cecs ( customer experience centers ) in china during 2010 , which require an initial investment before we expect them to generate any revenues . second , we incurred implementation expenses for sarbanes-oxley section 404 compliance , as we hired an employee to carry out these functions , which did not apply to us before our initial public offering . third , our labor costs increased as a result of our employee reward policy , which is designed to improve company culture and morale . we expect that our general and administration expenses will increase in the near future as a result of expansion of business . we anticipate using a portion of the net proceeds from our initial public offering to expand our marketing efforts to continue to grow our revenues in china and internationally . among other strategies to expand our business , we plan to open more cecs , in order to strengthen our market presence in china . these cecs give our potential customers an opportunity to experience our products first-hand in an environment that is similar to the environment in which they will use the products , whether that is a home or healthcare facility . operating expensesselling expense our selling expense increased by 102.86 % from $ 0.70 million for the fiscal year ended december 31 , 2009 to $ 1.42 million for the fiscal year ended december 31 , 2010 . 7 our selling expenses primarily consist of salaries and related expenses for personnel engaged in sales , marketing and customer support functions and costs associated
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( 2 ) consists of one property containing 162 apartment units that is wholly owned by the company where the entire project is master leased to a third party corporate housing provider . effective february 1 , 2018 , the company took over management of one of its master-leased properties containing 94 apartment units located in the boston market . also , effective april 2 , 2018 , the company took over management of one of its other master-leased properties containing 597 apartment units located in the los angeles market . ( 3 ) consists of properties in various stages of lease-up and properties where lease-up has been completed but the properties were not stabilized for the comparable periods presented . also includes the two master-leased properties noted above . 35 the following table provides comparative same store results and statistics for the 2018 same store properties : 2018 vs. 2017 same store results/statistics for 71,721 same store apartment units $ in thousands ( except for average rental rate ) replace_table_token_9_th note : same store revenues for all leases are reflected on a straight line basis in accordance with gaap for the current and comparable periods . ( 1 ) average rental rate – total residential rental revenues reflected on a straight-line basis in accordance with gaap divided by the weighted average occupied apartment units for the reporting period presented . ( 2 ) physical occupancy – the weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period . ( 3 ) turnover – total residential move-outs ( including inter-property and intra-property transfers ) divided by total residential apartment units . the following tables present reconciliations of operating income per the consolidated statements of operations to noi , along with rental income , operating expenses and noi per the consolidated statements of operations allocated between same store and non-same store results for the 2018 same store properties ( amounts in thousands ) : replace_table_token_10_th 36 the company anticipates the following same store results for the full year ending december 31 , 2019 , which assumptions are based on current expectations and are forward-looking : 2019 same store assumptions physical occupancy 96.2 % revenue change 2.2 % to 3.2 % expense change 3.5 % to 4.5 % noi change 1.5 % to 3.0 % same store revenues increased 2.3 % during the year ended december 31 , 2018 as compared to the same period in 2017 , which was ahead of our original expectations and consistent with our most recent guidance that was provided in october 2018 , due to gains in occupancy of 0.2 % , continued low turnover and strong renewals . the company 's primary goal in 2018 was to focus on providing exceptional customer service in order to retain existing residents to drive strong occupancy and renewal rate growth which it achieved at 4.9 % for the year ended december 31 , 2018 as compared to the same period in 2017. same store turnover declined by 2.3 % for the year ended december 31 , 2018 as compared to the same period in 2017. the company 's primary focus for 2019 will continue to be retaining existing residents and maintaining strong occupancy . additionally , in many markets we expect to achieve improved new lease growth , albeit only modestly better relative to 2018. we currently estimate same store revenues to increase in a range from 2.2 % to 3.2 % for 2019 as compared to 2018. our outlook for 2019 is based on an expectation that continued economic growth will create the demand to absorb the elevated levels of new supply in many of our markets . all of our markets , with the exception of seattle and orange county , are projected to deliver better same store revenue growth in 2019 as compared to 2018. washington d.c. showed above average job growth at the end of 2018 , which aided the absorption of elevated new supply , and occupancy rates remained high throughout the year . however , same store revenues increased 1.0 % during the year ended december 31 , 2018 compared to the same period in 2017 , which was consistent with our original expectations but slightly below our most recent guidance that was provided in october 2018. in 2019 , we expect to see a slight decline in occupancy rates and consistent new lease and renewal rates . we expect to produce same store revenue growth of approximately 1.4 % in this market in 2019. this expected 0.40 % improvement over 2018 is almost entirely driven by growth already in place from existing residents given less ability to raise rents due to elevated levels of supply . in the new york market , we anticipated that elevated deliveries of new luxury supply would have an impact on our ability to raise rents and would require us to issue meaningful rent concessions . while we were impacted by new supply , stronger demand for our properties led to increased same store occupancy levels and significantly fewer rent concessions for the year ended december 31 , 2018 than we expected . as a result , same store revenues increased 0.8 % for the year ended december 31 , 2018 as compared to the same period in 2017 , which was higher than both our original expectations and our most recent guidance that was provided in october 2018. with new competitive supply expected to be lower in 2019 , similar occupancy rates , strong renewal and new lease rates and continued strong demand anticipated in the market , we expect to produce same store revenue growth of approximately 1.8 % in this market in 2019. boston continues to steadily absorb new supply as a result of strong job growth in the biotechnology and business sectors . story_separator_special_tag same store revenues increased 2.5 % for the year ended december 31 , 2018 as compared to the same period in 2017 , which was higher than our original guidance and slightly higher than our most recent guidance provided in october 2018 , due to stronger occupancy rates and renewal increases . with supply pressures easing in the near-term , we expect to produce same store revenue growth of approximately 2.8 % in this market in 2019. we have a continued cautious outlook for seattle as the market has decelerated as anticipated due to significant supply in the urban core . same store revenues increased 2.8 % for the year ended december 31 , 2018 as compared to the same period in 2017 , which was below both our original expectations and our most recent guidance provided in october 2018. job growth is expected to be strong in 2019 and w e expect a slight improvement in occupancy and new lease rates , offset by lower renewal rate growth . we also expect new supply to remain elevated in this market in 2019. we therefore expect to produce same store revenue growth of approximately 2.0 % in this market in 2019. san francisco continues to perform better than expected as a result of solid job growth and strong demand driving occupancy , new lease growth and renewal rates . the market showed positive trends and is producing wage growth driven by technology company expansions and investments . as a result , same store revenues increased 2.9 % for the year ended december 31 , 2018 as compared to the same period in 2017 , which was above our original expectations and consistent with our most recent guidance provided in october 2018. in 2019 , we expect the elevated supply levels to continue to be absorbed due to economic and job expansion in this market . we expect to produce same store revenue growth of approximately 3.4 % in this market in 2019 . 37 los angeles continues to experience new supply , but the impact of this supply has been somewhat delayed due to labor shortages pushing deliveries of new units into 2019. strong demand and , to some extent , these delays in deliveries have led to occupancy , renewals and new lease rates that exceeded our original expectations . same store revenues increased 3.6 % for the year ended december 31 , 2018 as compared to the same period in 2017 , which was above our original expectations and consistent with our most recent guidance provided in october 2018. we believe job growth will continue to be strong and absorb the incoming new supply in 2019. we therefore expect to produce same store revenue growth of approximately 3.8 % in this market in 2019. during the first half of the year , orange county experienced pressure on average rental rates and occupancy due to elevated supply within the irvine area which was offset by strong renewal rates . same store revenues increased 3.5 % f or the year ended december 31 , 2018 as compared to the same period in 2017 , which was below our original expectations and slightly below our most recent guidance provided in october 2018. job growth has been slowing in this market , but the overall outlook for 2019 remains positive . we believe renewal increases will be slightly lower and therefore expect to produce same store revenue growth of approximately 3.1 % in this market in 2019. in the san diego market , we experienced supply pressure in the downtown area , but military spending remains strong . same store revenues increased 3.9 % f or the year ended december 31 , 2018 as compared to the same period in 2017 , which was slightly below both our original expectations and our most recent guidance provided in october 2018. we believe occupancy and new lease rates will remain similar in 2019. we therefore expect to produce same store revenue growth of approximately 3.9 % in this market in 2019. during the second half of 2018 , the company acquired two apartment properties in denver . while these properties are not currently within our same store portfolio , these properties are performing consistent with our expectations . the following table provides comparative same store operating expenses for the 2018 same store properties : 2018 vs. 2017 same store operating expenses for 71,721 same store apartment units $ in thousands replace_table_token_11_th ( 1 ) on-site payroll – includes payroll and related expenses for on-site personnel including property managers , leasing consultants and maintenance staff . ( 2 ) utilities – represents gross expenses prior to any recoveries under the resident utility billing system ( “ rubs ” ) . recoveries are reflected in rental income . ( 3 ) repairs and maintenance – includes general maintenance costs , apartment unit turnover costs including interior painting , routine landscaping , security , exterminating , fire protection , snow removal , elevator , roof and parking lot repairs and other miscellaneous building repair and maintenance costs . ( 4 ) other on-site operating expenses – includes ground lease costs and administrative costs such as office supplies , telephone and data charges and association and business licensing fees . 38 same store expenses increased 3.6 % during the year ended december 31 , 2018 as compared to the same period in 2017 , which was near the low end of our original expectations and slightly lower than our most recent guidance provided in october 2018. the full year 2018 results were primarily due to the following items : real estate taxes increased 3.4 % for the full year 2018 as compared to the same period in 2017 , which was significantly lower than our original expectations and lower than our most recent expectations provided in october 2018 , due primarily to better than anticipated appeal results ; payroll costs increased 3.9 % for the full year 2018 as compared to the same period in 2017 , which was significantly lower than our original expectations but slightly higher
| . year ended december 31 , 2017 : acquired four consolidated apartment properties , located in the seattle ( two properties ) , boston and los angeles markets , consisting of 947 apartment units for approximately $ 468.0 million at a weighted average acquisition cap rate of 4.8 % ; sold five consolidated apartment properties , located in the boston ( three properties ) , new york and san diego markets , consisting of 1,194 apartment units for approximately $ 355.0 million at a weighted average disposition yield of 5.1 % and generating an unlevered irr of 12.4 % ; started construction on two projects , located in the boston and seattle markets , consisting of 221 apartment units totaling approximately $ 113.8 million of expected development costs ; and substantially completed construction on four projects , located in the orange county , washington d.c. and seattle ( two properties ) markets , consisting of 1,393 apartment units totaling approximately $ 579.9 million of development costs and stabilized five development projects , located in the san francisco ( three properties ) , los angeles and orange county markets , consisting of 1,931 apartment units totaling approximately $ 983.1 million of development costs . see also note 4 in the notes to consolidated financial statements for additional discussion regarding the company 's real estate transactions . same store results properties that the company owned and were stabilized ( see definition below ) for all of both 2018 and 2017 ( the “ 2018 same store properties ” ) , which represented 71,721 apartment units , impacted the company 's results of operations . the 2018 same store properties are discussed in the following paragraphs . the company 's primary financial measure for evaluating each of its apartment communities is net operating income ( “ noi ” ) . noi represents rental income less direct property operating expenses ( including real estate taxes and insurance ) . the company believes that noi is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the
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income/ ( loss ) before income taxes income before income tax increased 650 % or $ 1,353,000 to $ 1,145,000 for the year ended december 31 , 2019 as compared to loss before income tax of ( $ 208,000 ) for the year ended december 31 , 2018. the increase in income before income tax is primarily due to an increase in revenue of $ 2,528,000 and an increase in other income of $ 12,000 , offset by an increase in total operating expenses of $ 1,187,000. income tax provision we had an income tax provision of $ 6,000 for the year ended december 31 , 2019 compared to an income tax provision of $ 15,000 for the year ended december 31 , 2018. we had pre-tax income for the year ended december 31 , 2019 of $ 1,145,000 and a pre-tax loss of ( $ 208,000 ) for the year ended december 31 , 2018 , and a full valuation allowance on all of our deferred tax assets for the years ended december 31 , 2019 and 2018. the income tax provisions relate to state income taxes , as the company has deferred tax assets to offset federal taxable income . use of non-gaap financial measures to evaluate our business , we consider and use non-generally accepted accounting principles ( non-gaap ) net income/ ( loss ) and adjusted ebitda as a supplemental measure of operating performance . these measures include the same adjustments that management takes into account when it reviews and assesses operating performance on a period-to-period basis . we consider non-gaap net income/ ( loss ) to be an important indicator of overall business performance because it allows us to evaluate results without the effects of share-based compensation and amortization of intangibles . we define ebitda as u.s. gaap net income/ ( loss ) before interest income , interest expense , other income and expense , provision for income taxes , and depreciation and amortization . we believe ebitda provides a useful metric to investors to compare us with other companies within our industry and across industries . we define adjusted ebitda as ebitda adjusted for share-based compensation . we use adjusted ebitda as a supplemental measure to review and assess operating performance . we also believe use of adjusted ebitda facilitates investors ' use of operating performance comparisons from period to period , as well as across companies . 21 in our march 3 , 2020 earnings press release , as furnished on form 8-k , we included non-gaap net income/ ( loss ) , ebitda and adjusted ebitda . the terms non-gaap net income/ ( loss ) , ebitda , and adjusted ebitda are not defined under u.s. gaap , and are not measures of operating income , operating performance or liquidity presented in analytical tools , and when assessing our operating performance , non-gaap net income/ ( loss ) , ebitda , and adjusted ebitda should not be considered in isolation , or as a substitute for net income/ ( loss ) or other consolidated income statement data prepared in accordance with u.s. gaap . some of these limitations include , but are not limited to : ● ebitda and adjusted ebitda do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments ; ● they do not reflect changes in , or cash requirements for , our working capital needs ; ● they do not reflect the interest expense , or the cash requirements necessary to service interest or principal payments , on our debt that we may incur ; ● they do not reflect income taxes or the cash requirements for any tax payments ; ● although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will be replaced sometime in the future , and ebitda and adjusted ebitda do not reflect any cash requirements for such replacements ; ● while share-based compensation is a component of operating expense , the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock ; and ● other companies may calculate ebitda and adjusted ebitda differently than we do , limiting their usefulness as comparative measures . we compensate for these limitations by relying primarily on our u.s. gaap results and using non-gaap net income/ ( loss ) , ebitda , and adjusted ebitda only as supplemental support for management 's analysis of business performance . non-gaap net income/ ( loss ) , ebitda and adjusted ebitda are calculated as follows for the periods presented . reconciliation of non-gaap financial measures in accordance with the requirements of regulation g issued by the sec , we are presenting the most directly comparable u.s. gaap financial measures and reconciling the unaudited non-gaap financial metrics to the comparable u.s. gaap measures . reconciliation of u.s. gaap net income/ ( loss ) to non-gaap net income ( unaudited ) replace_table_token_9_th 22 reconciliation of u.s. gaap net income/ ( loss ) to ebitda to adjusted ebitda ( unaudited ) replace_table_token_10_th critical accounting policies and estimates the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states . the following accounting policies are the most critical in understanding our consolidated financial position , results of operations or cash flows , and that may require management to make subjective or complex judgments about matters that are inherently uncertain . revenue recognition revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services and excludes any amounts collected on behalf of third parties . we enter into contracts that can include various combinations of products and services , which are generally capable of being distinct and accounted for as separate performance obligations . we recognize revenue for delivered elements only when we determine there are no uncertainties regarding customer acceptance . story_separator_special_tag changes in the allocation of the sales price between delivered and undelivered elements can impact the timing of revenue recognized but does not change the total revenue recognized on any agreement . the consideration ( including any discounts ) is allocated between separate products and services in a bundle based on their relative stand-alone selling prices . the stand-alone selling prices are determined based on the prices at which the company separately sells the products and services . for items that are not sold separately ( e.g . additional features ) the company estimates stand-alone selling prices using the adjusted market assessment approach . professional services revenue includes activation fees and any professional installation services . installation services are recognized as revenue when the services are completed . the company generally allocates a portion of the activation fees to the desktop devices , which is recognized at the time of the installation or customer acceptance , and a portion to the service , which is recognized over the contract term using the straight-line method . our telecommunications services contracts typically have a term of thirty-six to sixty months . when we provide a free trial period , we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services . 23 goodwill we have recorded goodwill as a result of past business acquisitions . goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired . in each of our acquisitions , the objective of the acquisition was to expand our product offerings and customer base and to achieve synergies related to cross selling opportunities , all of which contributed to the recognition of goodwill . we test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill might be impaired . the estimated fair value of the reporting unit is determined using our market capitalization as of our annual impairment assessment date or more frequently if circumstances indicate the goodwill might be impaired . items that could reasonably be expected to negatively affect key assumptions used in estimating fair value include but are not limited to : sustained decline in our stock price due to a decline in our financial performance due to the loss of key customers , loss of key personnel , emergence of new technologies or new competitors ; and decline in overall market or economic conditions leading to a decline in our stock price . intangible assets our intangible assets consist of customer relationships . the intangible assets are amortized following the patterns in which the economic benefits are consumed . we periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable . the determination of impairment is based on estimates of future undiscounted cash flows . if an intangible asset is considered to be impaired , the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset . deferred taxes our provision for income taxes is comprised 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 carryforwards using expected tax rates in effect during the years in which the differences are expected to reverse or the carryforwards are expected to be realized . we currently have net deferred tax assets consisting of net operating loss carryforwards , tax credit carryforwards and deductible temporary differences . management periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized . forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years . as a result of our recent cumulative losses , we have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized . in the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount , we would make an adjustment to the valuation allowance which would reduce the provision for income taxes in the period of such realization . product warranty we provide for the estimated cost of product warranties at the time we recognize revenue . we evaluate our warranty obligations on a product group basis . our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time . we base our estimated warranty obligation upon warranty terms , ongoing product failure rates , and current period product shipments . if actual product failure rates , repair rates or any other post-sales support costs were to differ from our estimates , we would be required to make revisions to the estimated warranty liability . warranty terms generally last for the duration that the customer has service . contingent liabilities contingent liabilities require significant judgment in estimating potential payouts . contingent considerations arising from business combinations and asset acquisitions require management to estimate future payouts based on forecasted results , which are highly sensitive to the estimates of discount rates and future revenues . these estimates can change significantly from period to period and are reviewed each reporting period to establish the fair value of the contingent liability . share-based compensation we account for our share-based compensation awards using the fair-value method . the grant date fair value was determined using the black-scholes-merton pricing model .
| product revenue is recognized when products have been installed and services commence . backlog backlog represents the total contract value of all contracts signed , less revenue recognized from those contracts as of december 31 , 2019 and 2018. backlog increased 13 % or $ 3,081,000 to $ 26,110,000 as of december 31 , 2019 as compared to $ 23,029,000 as of december 31 , 2018. below is a table which displays the cloud telecommunications segment revenue backlog as of december 31 , 2019 and 2018 , which we expect to recognize as revenue within the next thirty-six to sixty months ( in thousands ) : cloud telecommunications services backlog as of december 31 , 2019 $ 26,110 cloud telecommunications services backlog as of december 31 , 2018 $ 23,029 cost of service revenue cost of service revenue consists primarily of fees we pay to third-party telecommunications carriers , broadband internet providers , software providers , costs related to installations , customer support salaries and benefits , and share-based compensation . cost of service revenue increased 13 % or $ 381,000 , to $ 3,354,000 for the year ended december 31 , 2019 as compared to $ 2,973,000 for the year ended december 31 , 2018. the increase in cost of service revenue was due to an increase in bandwidth costs of $ 114,000 , an increase in salaries and benefits of $ 109,000 as a result of an increase in customer support headcount and temporary labor , an increase in costs related to installations of $ 71,000 , an increase in credit card processing fees of $ 65,000 , an increase in project management software costs of $ 11,000 , and an increase in freight of $ 11,000. these increases are directly related to the growth in monthly recurring revenue . cost of product revenue cost of product revenue consists of the costs associated with desktop phone devices and third-party equipment . cost of product revenue increased 23 % or $ 168,000 , to $ 895,000 for the year
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significant accounting policies and estimates our analysis and discussion of our financial condition and results of operations is based upon the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . gaap provides the framework from which to make these estimates , assumptions and disclosures . we have chosen accounting policies within gaap that management believes are appropriate to fairly present , in all material respects , our operating results and financial position . our accounting policies are stated in note b to the consolidated financial statements included elsewhere in this annual report on form 10-k. we believe the following accounting policies are critical to 25 understanding our results of operations and the more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition : revenues in the company 's patient care segment are derived from the sale of o & p devices and the maintenance and repair of existing devices . revenues from maintenance and repairs are recognized when the service is provided . revenues from the sale of devices are recorded when the patient has accepted and received the device and are recorded net of all known and estimated future contractual adjustments and discounts . contractual adjustments and discounts are recorded as contra-revenue within net sales on the consolidated statement of income and comprehensive income . medicare and medicaid regulations and the various agreements we have with other third-party payors under which these contractual adjustments and discounts are calculated are complex and are subject to interpretation . therefore , the particular devices and related services authorized and provided , and the related reimbursement , are subject to interpretation and adjustment that could result in payments that differ from our estimates . additionally , updated regulations and pay schedules , and contract renegotiations , occur frequently , necessitating regular review and assessment of the estimation process by management . reserves for future contractual adjustments and discounts are estimated utilizing historical trends for such adjustments and are monitored monthly . as of december 31 , 2013 and 2012 , the company estimated future contractual adjustments and discounts of $ 20.6 million and $ 13.9 million , respectively . the increase in the estimate is primarily related to both revenue growth resulting from both same clinic sales growth and clinic acquisitions , and from changes in collection trends . individual patients are generally responsible for deductibles and or co-payments . the reserve for future contractual adjustments and discounts is reflected as a reduction of net accounts receivable on the company 's consolidated balance sheet . revenues in the company 's products & services segment are derived from the distribution of o & p devices and leasing rehabilitation technology combined with clinical therapy programs , education , and training . distribution revenues are recorded upon the shipment of products , in accordance with the terms of the invoice , net of estimated returns . discounted sales are recorded at net realizable value . leasing revenues are recognized based upon the contractual terms of the agreements , which contain negotiated pricing and service levels with terms ranging from one to five years , and are generally billed to the company 's customers monthly . net accounts receivable : the company reports accounts receivable at estimated net realizable amounts generated for products delivered and services rendered from federal , state , managed care health plans , commercial insurance companies and patients . collections of these accounts receivable are the company 's primary source of cash and are critical to the company 's operating performance . the company estimates uncollectible patient accounts primarily based upon its experience in historical collections from individual patients . bad debt expense is reported within other operating expenses within the consolidated statement of income and comprehensive income . at december 31 , 2013 and 2012 , net accounts receivable reflected an allowance for doubtful accounts of $ 10.0 million and $ 7.5 million , respectively . 26 the following represents the composition of our gross accounts receivable balance by payor : replace_table_token_9_th replace_table_token_10_th in 2012 , cms began using recovery audit contractors ( `` racs '' ) to detect medicare overpayments related to prosthetic devices not identified through existing claims review mechanisms . the rac program relies on private companies to examine medicare claims filed by healthcare providers . racs perform post-delivery audits of medical records to identify medicare overpayments resulting from incorrect payment amounts , non-covered services , incorrectly coded services , and duplicate services . cms has given racs the authority to look back at claims up to three years old . claims review strategies used by racs generally include a review of high dollar claims , including the fitting , assembling , and delivery of prosthetic devices . racs are paid a contingency fee based on the overpayments they identify and collect . claims identified as overpayments by racs are subject to the medicare appeals process . we expect that the racs will continue to look closely at claims submitted in an attempt to identify possible overpayments . although we believe the claims for reimbursement submitted to the medicare program are accurate , we can not predict the results of any future rac audits . inventories : patient careinventories at hanger clinics , dosteon and cares , which consists of raw materials , work-in-process and finished goods , amounted to $ 109.2 million and $ 98.3 million as of december 31 , 2013 and 2012 , respectively . story_separator_special_tag inventories in hanger 's clinics , which amounted to $ 99.0 million and $ 86.9 million at december 31 , 2013 and 2012 , respectively , consist principally of raw materials and work-in-process inventory valued based on the gross profit method , which approximates lower of cost or market using the first-in first-out method . inventories in the dosteon business amounted to $ 8.9 million and $ 9.7 million at december 31 , 2013 and 2012 , respectively , consists principally of raw materials . as of december 31 , 2013 , the dosteon inventories were valued at the lower of cost or market using the first-in first-out method based on a physical count as of december 31 , 2013. as of december , 31 , 2012 , the dosteon inventories were valued based on the gross profit method , which approximated lower of cost or market using the first-in first-out method . 27 inventories in the cares business amounted to $ 1.3 million and $ 1.7 million as of december 31 , 2013 and 2012 respectively , consists principally of finished goods and are valued at the lower of cost or market using the first-in first-out method based on perpetual records . hanger clinic and dosteon do not maintain a perpetual inventory system . on october 31 st of each year the company performs an annual physical inventory of all inventories in hanger clinics . dosteon counted its inventories on december 31 , 2013 and october 31 , 2012. the company values the raw materials and work-in-process inventory counted at october 31 at lower of cost or market using the first-in first-out method . hanger clinic work-in-process inventory consists of materials , labor and overhead which is valued based on established standards for the stage of completion of each custom order . material , labor and overhead costs are determined at the individual clinic or groups of clinics level . adjustments to reconcile the hanger clinic and dosteon physical inventory are treated as changes in accounting estimates and are recorded in the fourth quarter . the company recorded fourth quarter adjustments of a decrease to inventory of $ 2.3 million , a decrease to inventory of $ 0.5 million and an increase to inventory of $ 2.3 million in 2013 , 2012 , and 2011 , respectively . for hanger clinics , the october 31 st inventory is subsequently adjusted at each quarterly and annual reporting period end by applying the gross profit method . as it relates to materials , the company generally applies the gross profit method to individual clinics or groups of clinics for material costs . labor and overhead and other aspects of the gross profit method are completed on a hanger clinic-wide basis . a similar approach is applied to dosteon inventory , as applicable . products & servicesinventories consist principally of finished goods which are stated at the lower of cost or market using the first-in , first-out method for all reporting periods and are valued based on perpetual records . fair value : the company follows the authoritative guidance for financial assets and liabilities , which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements . the authoritative guidance requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be categorized , based on significant levels of inputs as follows : level 1 unadjusted quoted prices for identical assets or liabilities in active markets accessible by the company level 2 inputs that are observable in the marketplace other than those inputs classified as level 1 level 3 inputs that are unobservable in the marketplace and significant to the valuation the determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement . goodwill and other intangible assets : goodwill represents the excess of purchase price over the fair value of net identifiable assets of purchased businesses . we assess goodwill for impairment annually during the fourth quarter , or when events or circumstances indicate that the carrying value of the reporting units may not be recoverable . the company has 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 . if the company determines that a two-step goodwill impairment test is necessary or more efficient than a qualitative approach , it will measure the fair value of the company 's reporting units using a combination of income , market and cost approaches . any impairment would be recognized by a charge to operating results and a reduction in the carrying value of the intangible asset . there were no impairment indicators since our last annual impairment 28 test as of october 1 , 2013. definite-lived trade name intangible assets are amortized over their estimated period of benefit of approximately 1 to 3 years . approximately $ 9.1 million of the value of trade names is identified as an indefinite-lived intangible asset within the products & services segment and its fair value is annually assessed for impairment in the company 's fiscal fourth quarter . the company estimates fair value utilizing a relief-from-royalty method valuation model and the 2013 assessment estimated the fair value is greater than carrying value . however , due to a one-time sale during the third quarter , which was partially offset by the commencement of a long-term service agreement , the estimated fair value is not substantially in excess of the carrying value . a key assumption in the relief-from-royalty method is projected future revenue . if actual future revenues fall below projection , the estimated fair value could be significantly impacted .
| personnel costs for the year ended december 31 , 2013 increased by $ 34.4 million to $ 369.7 million from $ 335.3 million for the year ended december 31 , 2012. the increase from prior year was primarily due to $ 21.5 million of personnel costs associated with acquired patient care clinics , $ 6.1 million in increased employee benefits and related taxes , $ 5.2 million impact from merit increases and the balance was due to additions to our infrastructure to support growth . other operating expenses . other operating expenses , which are comprised primarily of professional , office , bad debt , incentive compensation and reimbursable employee expenses , increased $ 7.4 million in 2013 to $ 186.3 million from $ 178.9 million for the year ended december 31 , 2012. bonus expense decreased by $ 6.3 million due to the impact of the fourth quarter results on the management and general bonus pool and the company realized savings of $ 4.7 million in general liability insurance , personal property and franchise tax and other expense . the remaining $ 18.4 million increase was comprised principally of $ 6.5 million in expenses related to acquisitions , $ 3.3 million in increased rent , 31 $ 4.7 million increase in bad debts , $ 1.7 million in professional fees and a $ 1.9 million reduction of overhead capitalized into work in process . the remaining $ 0.3 million change was attributable to changes in other operating expenses . other operating expenses as a percentage of net sales decreased to 17.8 % . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2013 was $ 37.5 million versus $ 34.7 million for the year ended december 31 , 2012. the increase was principally due to a combination of the impact of acquisitions and a slightly higher rate of capital additions . income from operations . income from operations increased $ 4.6 million to $ 133.9 million for the
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the company also recorded a $ 2,500 debt discount due to issuance fees . the note had accrued interest of $ 0 and $ 2,750 as of august 31 , 2017 and 2016. the debt discounts had a balance at august 31 , 2017 and august 31 , 2016 of $ 0 and $ 17,103 , respectively . the company recorded debt discount amortization expense of $ 17,103 and $ 10,397 during the year ended august 31 , 2017 and the year ended august 31 , 2016 , respectively . this note was fully converted into shares during the year ended august 31 , 2017 , see note 3 for more information . the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 29 on may 6 , 2016 , the company issued a convertible note to tangiers capital group for $ 35,750 of cash consideration . the note bears interest at 10 % , matures on may 6 , 2017 , and is convertible into common stock at 50 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 32,500 due to this conversion feature . the company also recorded a $ 3,250 debt discount due to issuance fees . the note had accrued interest of $ 0 and $ 3,575 as of august 31 , 2017 and 2016. the debt discounts had a balance at august 31 , 2017 and august 31 , 2016 of $ 0 and $ 24,290 , respectively . the company recorded debt discount amortization expense of $ 24,290 and $ 11,460 during the year ended august 31 , 2017 and the year ended august 31 , 2016 , respectively . this note was fully converted into shares during the year ended august 31 , 2017 , see note 3 for more information . the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on june 13 , 2016 , the company issued a convertible note to tangiers capital group for $ 38,500 of cash consideration . the note bears interest at 10 % , matures on june 13 , 2017 , and is convertible into common stock at 50 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,500 debt discount due to issuance fees . the note had accrued interest of $ 7,272 and $ 10,890 and $ 3,850 as of november 30 , 2017 and august 31 , 2017. the debt discounts had a balance at november 30 , 2017 and august 31 , 2017 of $ 0 and $ 0 , respectively . the company recorded debt discount amortization expense of $ 0 and $ 30,167 during the three months ended november 30 , 2017 and the year ended august 31 , 2017 , respectively . during the three months ended november 30 , 2017 and the year ended august 31 , 2017 , $ 4,982 of principal and $ 3,743 of interest and $ 33,518 of principal and $ 4,220 of accrued interest was converted into shares , respectively ; see note 3 for more information . the note has now been fully converted as of november 30 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on july 18 , 2016 , the company issued a convertible note to tangiers capital group for $ 27,500 of cash consideration . the note bears interest at 10 % , matures on july 18 , 2017 , and is convertible into common stock at 50 % of the lowest 3 story_separator_special_tag overview service team inc. ( the `` company '' ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the outstanding stock of trade leasing , inc. for 4,000,000 shares of its common stock . trade leasing , inc. , a california corporation , was incorporated on november 1 , 2011 , and commenced business january 1 , story_separator_special_tag the company also recorded a $ 2,500 debt discount due to issuance fees . the note had accrued interest of $ 0 and $ 2,750 as of august 31 , 2017 and 2016. the debt discounts had a balance at august 31 , 2017 and august 31 , 2016 of $ 0 and $ 17,103 , respectively . the company recorded debt discount amortization expense of $ 17,103 and $ 10,397 during the year ended august 31 , 2017 and the year ended august 31 , 2016 , respectively . this note was fully converted into shares during the year ended august 31 , 2017 , see note 3 for more information . the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 29 on may 6 , 2016 , the company issued a convertible note to tangiers capital group for $ 35,750 of cash consideration . the note bears interest at 10 % , matures on may 6 , 2017 , and is convertible into common stock at 50 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 32,500 due to this conversion feature . the company also recorded a $ 3,250 debt discount due to issuance fees . the note had accrued interest of $ 0 and $ 3,575 as of august 31 , 2017 and 2016. the debt discounts had a balance at august 31 , 2017 and august 31 , 2016 of $ 0 and $ 24,290 , respectively . the company recorded debt discount amortization expense of $ 24,290 and $ 11,460 during the year ended august 31 , 2017 and the year ended august 31 , 2016 , respectively . this note was fully converted into shares during the year ended august 31 , 2017 , see note 3 for more information . the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on june 13 , 2016 , the company issued a convertible note to tangiers capital group for $ 38,500 of cash consideration . the note bears interest at 10 % , matures on june 13 , 2017 , and is convertible into common stock at 50 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,500 debt discount due to issuance fees . the note had accrued interest of $ 7,272 and $ 10,890 and $ 3,850 as of november 30 , 2017 and august 31 , 2017. the debt discounts had a balance at november 30 , 2017 and august 31 , 2017 of $ 0 and $ 0 , respectively . the company recorded debt discount amortization expense of $ 0 and $ 30,167 during the three months ended november 30 , 2017 and the year ended august 31 , 2017 , respectively . during the three months ended november 30 , 2017 and the year ended august 31 , 2017 , $ 4,982 of principal and $ 3,743 of interest and $ 33,518 of principal and $ 4,220 of accrued interest was converted into shares , respectively ; see note 3 for more information . the note has now been fully converted as of november 30 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on july 18 , 2016 , the company issued a convertible note to tangiers capital group for $ 27,500 of cash consideration . the note bears interest at 10 % , matures on july 18 , 2017 , and is convertible into common stock at 50 % of the lowest 3 story_separator_special_tag overview service team inc. ( the `` company '' ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the outstanding stock of trade leasing , inc. for 4,000,000 shares of its common stock . trade leasing , inc. , a california corporation , was incorporated on november 1 , 2011 , and commenced business january 1 ,
| the losses in 2018 were primarily due to stock-based compensation expense resulting from the issuance of preferred stock and interest expense from convertible debt . the losses in 2017 were primarily driven by improvements and installation of new equipment in the manufacturing operations . liquidity and capital resources as of august 31 , 2018 , we had total assets of $ 565,212 including current assets of $ 379,486. we also have current liabilities of $ 380,053 which consist of convertible notes of $ 124,416 , promissory notes payable of $ 67,092 , accrued interest of $ 20,940 , other accrued expenses of $ 66,575 and accounts payable of $ 101,030. we believe our ability to achieve commercial success and continued growth will be dependent upon our continued access to capital either through additional sale of our equity or cash generated from operations . we will seek to obtain additional working capital through the sale of our securities . we will attempt to obtain additional capital through bank lines of credit ; however , we have no agreements or understandings with third parties at this
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in december 2015 , we announced that our board of directors approved a plan to explore strategic alternatives to further realize value from our pipeline assets while preserving our cash balance to the extent practicable . we intend to retain an advisor to assist us in the process of evaluating our strategic alternatives . we were incorporated in december 2003 and commenced active operations in january 2004. to date , we have generated no revenues and have incurred significant losses . we expect to continue to incur operating losses as we continue our efforts to develop and commercialize our product candidates . we have financed our operations and internal growth through various financing transactions , including our initial public offering in may 2007 and several subsequent transactions , including , most recently , our april 2015 underwritten public offering . in addition , we raised funds pursuant to our at-the-market issuance sales agreement , or the sales agreement , with mlv & co. llc , or mlv , and our stock purchase agreement with lincoln park capital fund , llc , or lpc . we have devoted substantially all of our efforts to research and development activities , including clinical trials . our net loss was $ 18.7 million for the year ended september 30 , 2015. as of september 30 , 2015 we had an accumulated deficit of $ 248.3 million . as of september 30 , 2015 we had approximately $ 40.8 million in cash and cash equivalents compared to $ 24.6 million in cash and cash equivalents as of september 30 , 2014. we believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures at least until the first calendar quarter of 2017. we believe that future cash expenditures will be partially offset by raising additional capital from capital markets , revenues from research grants and proceeds derived from potential collaborations , including , but not limited to , upfront fees , research and development funding , milestone payments and royalties . we can give no assurances that such funding will , in fact , be realized in the time frames we expect , or at all . we may be required to secure alternative financing arrangements or defer or limit some or all of our research , development or clinical projects . financial operations overview revenues to date , we have generated no revenues . we do not expect to begin generating any revenues unless any of our product candidates receive marketing approval , or if we receive payments in connection with strategic collaborations that we may enter into for the commercialization of our product candidates . research and development expenses research and development expenses consist of the costs associated with our basic research activities , as well as the costs associated with our drug development efforts , conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings . our research and development expenses consist of : external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites , third-party manufacturing organizations and consultants ; employee-related expenses , which include salaries and benefits for the personnel involved in our preclinical and clinical drug development and manufacturing activities ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment and laboratory and other supplies . 46 we intend to focus our research and development efforts on conducting preclinical studies and phase 1 and phase 2 clinical trials to determine our preferred development , clinical and regulatory program for our ultra-rapid-acting insulin formulations and our glucagon formulations and presentations . we also intend to conduct a pivotal clinical trial in support of an nda for our gem product candidate . if we are able to successfully resolve our dispute with unilife regarding its contractual obligations to supply the registration batches of our gem product candidate and , subsequently , the commercial supplies of the injection device intended for use with our gem product candidate , we anticipate that our research and development expenses for the fiscal year ending september 30 , 2016 will increase as compared to the fiscal year ended september 30 , 2015 , as we may : conduct clinical trials with our gem product candidate , including at least one pivotal clinical trial required for fda approval of an nda ; conduct clinical trials with our biod-531 product candidate , including a planned phase 2 , parallel group study in patients with type 2 diabetes over a six-month treatment period ; conduct the required stability , preclinical and human factors and user acceptability studies to support the approval of our gem device and one or more insulin injection devices intended for use with biod-531 ; and purchase active pharmaceutical ingredients and other materials in support of our product candidates . over the longer term , we anticipate that these expenses will increase further as we : prepare and file an nda for our gem product candidate ; and conduct later stage clinical trials of biod-531 , including , potentially , pivotal clinical trials required for fda approval of an nda . we have used our employee and infrastructure resources across multiple research projects and our drug development programs . a substantial majority of our research and development expenses incurred to date are attributable to our rescue and ultra-rapid-acting insulin programs . in july and september 2012 , we were awarded two national institutes of health grants for the development of a concentrated ultra-rapid-acting insulin formulation and a stable glucagon formulation , respectively , for use in an artificial pancreas . the july 2012 award was intended to fund research to develop a proprietary ultra-rapid-insulin product candidate at high concentrations suited to provide sufficient quantities of insulin in an external artificial pancreas pump device that has limited volume capacity . the july 2012 award was for two years and totaled $ 582 thousand . story_separator_special_tag the september 2012 award was intended to fund research to develop a proprietary glucagon product candidate optimized to algorithmically deliver glucagon as part of a bi-hormonal closed loop system to mitigate hypoglycemic events . the september 2012 award was for two years and totaled $ 583 thousand . as of september 30 , 2014 , all grant income was earned and recorded . the following table illustrates , for each period presented , our research and development costs by nature of the cost . replace_table_token_2_th the following table illustrates , for each period presented , our research and development costs by project . 47 replace_table_token_3_th the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of , or the period , if any , in which material net cash inflows may commence from our product candidates . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the progress , timing or success of our research and development and clinical programs for our product candidates , particularly our gem and biod-531 product candidates ; our ability to conduct the development work necessary to finalize the formulation and presentation of our gem product candidate , as well as the preclinical studies , clinical trials , human factor studies and manufacturing activities necessary to support the submission of an nda to the fda for that product candidate ; the ability and willingness of our existing strategic partners , service providers and suppliers , upon which we rely in the advancement of our product candidates , to meet the obligations set forth in our agreements with them , including unilife , which is responsible for designing and manufacturing the device intended for use with our gem product candidate , as well as delivering three registration lots of the filled and finished gem device required for submitting an nda to the fda ; the results of our real-time stability programs for our glucagon- , rhi- , and insulin analog-based product candidates , including the reproducibility of earlier , smaller scale , stability studies and our ability to accurately project long term stability on the basis of accelerated testing ; our ability to accurately anticipate technical challenges that we may face in the development of our product candidates ; our ability to secure approval by the fda for our product candidates under section 505 ( b ) ( 2 ) of the ffdca ; the degree of clinical utility of our product candidates , particularly with regard to our ultra-rapid-acting insulin formulations , which have not yet been shown to be clinically superior to existing rapid-acting insulin analogs ; our ability to enter into collaboration arrangements for the commercialization of our product candidates and the success or failure of any such collaborations into which we enter , or our ability to commercialize our product candidates ourselves ; our ability to enforce our patents for our product candidates and our ability to secure additional patents for our product candidates ; our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others ; the emergence of competing technologies and products and other adverse market developments , such as advancements in glucagon stabilization technologies or delivery devices , that could enable a room-temperature rescue product in a portable , easy to use presentation ; 48 the ability of our contract manufacturing organizations or collaborators to timely and properly produce our products in our final dosage form and in the quantities we may require ; our ability to secure adequate supplies of active pharmaceutical ingredients to support our product development programs and , if successful , the commercialization one or more product candidates ; our capabilities and strategies for manufacturing , marketing and commercializing a product candidate ; and our ability to accurately estimate anticipated operating losses , future revenues , capital requirements and our needs for additional financing . a change in the outcome of any of these variables with respect to the development of ultra-rapid-acting insulin formulations or our gem product candidate , could mean a significant change in the costs and timing associated with product development . general and administrative expenses general and administrative expenses consist primarily of salaries and related expenses for personnel , including stock-based compensation expenses , relating to our internal executive , legal , accounting , finance and information technology departments . other general and administrative expenses include facility-related costs not otherwise allocated to research and development expense , patent expenses , travel expenses , costs associated with industry conventions and professional fees , such as legal and accounting fees and consulting costs . we anticipate that our general and administrative core expenses in the fiscal year ending september 30 , 2016 will remain flat , however , overall general and administrative expenses are subject to ongoing costs of litigation with unilife . over the longer term , however , these expenses could increase as we prepare to file an nda in support of our gem product candidate and , possibly , commence pre-commercialization activities . warrant liability in june 2012 , we issued warrants to purchase 2,749,469 shares of our common stock at an exercise price of $ 2.66 per share in connection with our june 2012 private placement . these warrants will expire on june 26 , 2017 , five years from the original issuance date of june 27 , 2012. in may 2011 , we issued warrants to purchase 2,256,929 shares of our common stock at an exercise price of $ 9.92 per share in connection with our may 2011 registered direct offering .
| for the year ended september 30 , 2014 , we reported $ 167 thousand in government grants for the high concentration ultra-rapid-insulin product candidate and $ 364 thousand for the glucagon formulation work . general and administrative expenses . replace_table_token_5_th general and administrative expenses were $ 6.4 million for the year ended september 30 , 2015 , an increase of $ 0.8 million , or 14.4 % , from $ 5.6 million for the year ended september 30 , 2014. this increase is primarily attributable to an increase in professional fees of $ 0.9 million . general and administrative expenses for the years ended september 30 , 2015 and 2014 included $ 0.6 million and $ 0.5 million , respectively , in stock-based compensation expense related to options granted to employees and non-employee directors . interest and other income . replace_table_token_6_th interest and other income increased to $ 52 thousand for the year ended september 30 , 2015 , from $ 49 thousand for the year ended september 30 , 2014. the increase is primarily due to higher cash balances during the year . adjustments to fair value of common stock warrant liability . replace_table_token_7_th the change in fair value of derivative instruments-warrants of $ ( 5,107 ) during the year ended september 30 , 2014 was primarily a result of the decrease in the price of the common stock from $ 3.15 per share on september 30 , 2013 to $ 1.67 per share on september 30 , 2014. the change in fair value of common stock warrant liability of $ ( 1,009 ) during the year ended september 30 , 2015 was primarily a result of the decrease in the price of the common stock from $ 1.67 per share at september 30 , 2014 to $ 0.44 per share on september 30 , 2015 . 53 net loss and net loss per share . replace_table_token_8_th net loss was $ 18.7 million , or $ ( 0.46 ) per basic and diluted share , for
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these positive impacts will be partially offset by higher maintenance expense and more shares outstanding . we also expect lower earnings from the shutdown of our pui business . the cost reduction actions implemented in 2012 and 2013 should provide benefits in 2014 and beyond . outlook by segment in merchant gases , volume growth will continue to be influenced by the economy . we have available capacity in each region and expect that an improving economy will increase loading on these assets and drive growth . we expect each region of the business to benefit from the 2013 cost reduction actions . tonnage gases is expected to benefit from new plant onstreams supported by long-term take-or-pay contracts . however , we also expect higher planned plant maintenance costs from scheduled customer outages and the unfavorable impact of our exit from the pui business . 20 we expect that electronics growth will begin to rebound in 2014 following a weak 2012 and 2013. overall , we expect silicon growth of 3 % 5 % in 2014. additionally , we expect the business to benefit from the 2013 cost reduction actions and product line restructuring . for performance materials , we anticipate typical seasonality in the first quarter of 2014 , with volume growth improving due to a better economy . equipment and energy results are expected to improve due to continued higher activity in our lng equipment business . the above guidance should be read in conjunction with the section entitled forward-looking statements. results of operations story_separator_special_tag restructuring and cost reduction plans in our pui , electronics , and european merchant businesses . during the second quarter of 2012 , we recorded an expense of $ 86.8 ( $ 60.6 after-tax , or $ .28 per share ) for actions to remove stranded costs resulting from our decision to exit the homecare business , the reorganization of the 22 merchant business , and actions taken to right size our european cost structure in light of the challenging economic outlook . the planned actions are complete and provided approximately $ 60 in annual savings in 2013. during the fourth quarter of 2012 , we took actions in the pui business to improve costs , resulting in a net expense of $ 54.6 ( $ 34.8 after-tax , or $ .16 per share ) , and ultimately exit the business . our pui facility in pasadena , texas , is currently being dismantled , with completion expected in fiscal year 2014. the costs to dismantle are expensed as incurred and are reflected in continuing operations in the tonnage gases business segment . during the fourth quarter of 2012 , we completed an assessment of our position in the pv market , resulting in $ 186.0 of expense ( $ 127.0 after-tax , or $ .59 per share ) primarily related to the electronics and performance materials business segment . included in the charge was an accrual of $ 93.5 for an offer that we made to terminate a long-term take-or-pay supply contract to purchase silane . as noted above , a final settlement was reached with the supplier in the fourth quarter of 2013. refer to note 4 , business restructuring and cost reduction plans , to the consolidated financial statements for additional details on these actions . business combinations 2013 business combinations we completed three acquisitions in 2013. the acquisitions were accounted for as business combinations , and their results of operations were consolidated within their respective segments after the acquisition dates . the aggregate purchase price , net of cash acquired , for these acquisitions was $ 233 and resulted in recognition of $ 68 of goodwill , none of which is deductible for tax purposes . on 30 august 2013 , we acquired an air separation unit and integrated gases liquefier in guiyang , china . this acquisition included a long-term sale of gas contract within our tonnage gases segment and provided our merchant gases segment with additional liquid capacity in the region . on 31 may 2013 , we acquired epco carbondioxide products , inc. ( epco ) , the largest independent u.s. producer of liquid carbon dioxide ( co 2 ) . this acquisition expanded our north american offerings of bulk industrial process gases in the merchant gases business segment . on 1 april 2013 , we acquired wuxi chem-gas company , ltd. ( wcg ) . this acquisition provided our merchant gases segment with additional gases presence in the jiangsu province of china . 2012 business combinations indura s.a. in july 2012 , we acquired a 64.8 % controlling equity interest in the outstanding shares of indura s.a. following the acquisition date , 100 % of the indura s.a. results are consolidated in our financial statements within the merchant gases business segment . the portion of the business that is not owned by the company is recorded as noncontrolling interests . we paid cash consideration in chilean pesos ( clp ) of 345.5 billion ( $ 690 ) and assumed debt of clp113.8 billion ( $ 227 ) for these interests . as of 30 september 2013 , we hold a 67.2 % interest . refer to note 5 , business combinations , to the consolidated financial statements for additional details on this transaction . da nanomaterials llc on 2 april 2012 , we closed on the acquisition agreement with e.i . dupont de nemours and co. , inc. to acquire their 50 % interest in our joint venture , da nanomaterials . beginning in the third quarter of 2012 , the results of da nanomaterials were consolidated within our electronics and performance materials business segment . prior to the acquisition date , we accounted for our 50 % interest in da nanomaterials as an equity-method investment . the year ended 30 september 2012 included a gain of $ 85.9 ( $ 54.6 after-tax , or $ .25 per share ) as a result of revaluing our previously held equity interest to fair market value as of the acquisition date . story_separator_special_tag refer to note 5 , business combinations , to the consolidated financial statements for additional details on this transaction . net loss on airgas transaction for the year ended 30 september 2011 , $ 48.5 ( $ 31.6 after-tax , or $ .14 per share ) in net loss was recognized related to the airgas transaction . refer to note 6 , airgas transaction , to the consolidated financial statements for additional details . customer bankruptcy as a result of events which occurred during the fourth quarter of 2012 , we recognized a charge of $ 9.8 ( $ 6.1 after-tax , or $ .03 per share ) primarily related to the write-off of on-site assets due to a customer bankruptcy and mill 23 shutdown . the customer , which primarily received products from the tonnage gases segment , filed for bankruptcy in may 2012 and announced the mill shutdown in august 2012. pension settlement loss our u.s. supplemental pension plan provides for a lump sum benefit payment option at the time of retirement , or for corporate officers , six months after the retirement date . pension settlements are recognized when cash payments exceed the sum of the service and interest cost components of net periodic pension cost of the plan for the fiscal year . the participant 's vested benefit is considered fully settled upon cash payment of the lump sum . we recognized $ 12.4 of settlement charges in 2013. advisory costs during the fourth quarter of 2013 , we incurred legal and other advisory fees of $ 10.1 ( $ 6.4 after-tax , or $ .03 per share ) in connection with our response to the rapid acquisition of a large position in shares of our common stock by pershing square capital management llc and its affiliates ( pershing square ) . these fees , which are reflected on the consolidated income statements as advisory costs , include costs incurred before and after pershing square 's disclosure of its holdings and cover advisory services related to the adoption of the shareholders rights plan , preparation for a potential proxy solicitation campaign , and entering into an agreement with pershing square . other income ( expense ) , net items recorded to other income ( expense ) , net arise from transactions and events not directly related to our principal income earning activities . the detail of other income ( expense ) , net is presented in note 23 , supplemental information , to the consolidated financial statements . 2013 vs. 2012 other income ( expense ) , net of $ 70.2 increased $ 23.1 , primarily due to higher gains from the sale of a number of small assets and investments and a favorable commercial contract settlement , partially offset by lower government grants . otherwise , no individual items were significant in comparison to the prior year . 2012 vs. 2011 other income ( expense ) , net of $ 47.1 increased $ 5.4 , primarily due to favorable foreign exchange and reimbursements from government grants for expense , partially offset by lower gains from the sale of assets . otherwise , no individual items were significant in comparison to the prior year . interest expense replace_table_token_6_th 2013 vs. 2012 interest incurred increased $ 13.7. the increase was driven primarily by a higher average debt balance for $ 41 , partially offset by a lower average interest rate on the debt portfolio of $ 24. the change in capitalized interest was driven by a decrease in project spending and a lower average interest rate . 2012 vs. 2011 interest incurred increased $ 15.7. the increase was driven primarily by a higher average debt balance and debt issuance costs related to the indura s.a. acquisition , partially offset by the impact of a stronger dollar on the translation of foreign currency interest . the change in capitalized interest was driven by an increase in project spending which qualified for capitalization . effective tax rate the effective tax rate equals the income tax provision divided by income from continuing operations before taxes . refer to note 22 , income taxes , to the consolidated financial statements for details on factors affecting the effective tax rate . 2013 vs. 2012 on a gaap basis , the effective tax rate was 22.8 % and 21.9 % in 2013 and 2012 , respectively . the current year rate includes income tax benefits of $ 73.7 related to the business restructuring and cost reduction plans and $ 3.7 for the advisory costs . the prior year rate includes income tax benefits of $ 105.0 related to the business restructuring and cost reduction plans , $ 58.3 related to the second quarter spanish tax ruling , and $ 3.7 related to the customer 24 bankruptcy charge , offset by income tax expense of $ 43.8 related to the first quarter spanish tax settlement and $ 31.3 related to the gain on the previously held equity interest in da nanomaterials . refer to note 4 , business restructuring and cost reduction plans ; note 5 , business combinations ; note 22 , income taxes ; and note 23 , supplemental information , to the consolidated financial statements for details on these transactions . on a non-gaap basis , the effective tax rate was 24.2 % in both 2013 and 2012 . 2012 vs. 2011 on a gaap basis , the effective tax rate was 21.9 % and 24.3 % in 2012 and 2011 , respectively . the tax rate in 2012 includes income tax benefits of $ 105.0 related to the business restructuring and cost reduction plans , $ 58.3 related to the second quarter spanish tax ruling , and $ 3.7 related to the customer bankruptcy charge , offset by income tax expense of $ 43.8 related to the first quarter spanish tax settlement and $ 31.3 related to the gain on the previously held equity interest in da nanomaterials .
| operating income increased by $ 12 from higher gains on the sale of assets and investments . 21 2012 vs. 2011 operating income of $ 1,282.4 decreased 15 % , or $ 225.7. operating income in 2012 includes a charge of $ 327.4 for business restructuring and cost reduction plans , a $ 9.8 charge for a customer bankruptcy , and the gain on the previously held equity interest in da nanomaterials of $ 85.9. operating income in 2011 includes a $ 48.5 net loss related to the airgas transaction . on a non-gaap basis , operating income of $ 1,533.7 decreased 1 % , or $ 22.9. the decrease was primarily due to unfavorable volumes , including acquisitions , of $ 39 and unfavorable currency translation and foreign exchange impacts of $ 30 , partially offset by lower costs of $ 31 and higher recovery of raw material costs in pricing of $ 15. the decrease in volumes was primarily from lower merchant gases volumes and unfavorable volume mix due to lower lng plant sales . equity affiliates ' income 2013 vs. 2012 income from equity affiliates of $ 167.8 increased $ 14.0 , primarily due to better performance in our mexican equity affiliate . 2012 vs. 2011 income from equity affiliates of $ 153.8 decreased $ .5. selling and administrative expense 2013 vs. 2012 selling and administrative expense of $ 1,066.3 increased $ 119.5 , or 13 % , primarily due to the acquisition of indura s.a. selling and administrative expense as a percent of sales increased to 10.5 % from 9.9 % , also due to indura s.a. 2012 vs. 2011 selling and administrative expense of $ 946.8 increased $ 5.1 , or 1 % , primarily due to acquisitions and inflation , partially offset by lower incentive compensation costs and favorable currency . selling and administrative expense as a percent of sales increased to 9.9 % from 9.7 % . research and development 2013 vs. 2012 research and development expense of $ 133.7 increased 6 % , or $
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12655 jefferson acquisition on october 17 , 2014 , the company acquired a 93,952 square-foot office property located in the playa vista submarket of los angeles , california in an off-market transaction for $ 38.0 million ( before certain credits , closing costs , and prorations ) . the purchase price was paid from borrowings under the company 's unsecured revolving credit facility . built in 1985 , the property also includes a garage with 279 parking stalls . the building is currently vacant and conceptual designs and plans have been completed for a creative office conversion . playa vista is a leading submarket for creative office tenants , including facebook , google/youtube , microsoft and sony . 53 dispositions tierrasanta disposition on july 16 , 2014 the company sold its tierrasanta property for $ 19.5 million ( before certain credits , prorations , and closing costs ) and therefore , reclassified its assets and liabilities to held for sale as of december 31 , 2013 . held for sale first financial on december 29 , 2014 , the company entered into a purchase and sale agreement to sell its first financial office property for $ 89.0 million ( before certain credits , prorations , and closing costs ) . as a result , we have reclassified its assets and liabilities to held for sale as of december 31 , 2014 and 2013 . the transaction is subject to assumption of an existing loan with a balance of $ 42.4 million as of december 31 , 2014 , and is expected to close in the first quarter of 2015. repositionings we generally select a property for repositioning at the time we purchase it . we often strategically purchase properties with large vacancies or expected near-term lease roll-over and use our knowledge of the property and submarket to determine the optimal use and tenant mix . a repositioning can consist of a range of improvements to a property , and may involve a complete structural renovation of a building to significantly upgrade the character of the property , or it may involve targeted remodeling of common areas and tenant spaces to make the property more attractive to certain identified tenants . because each repositioning effort is unique and determined based on the property , tenants and overall trends in the general market and specific submarket , the results are varying degrees of depressed rental revenue and occupancy levels for the affected property , which impacts our results and , accordingly , comparisons of our performance from period to period . the repositioning process generally occurs over the course of months or even years . although usually associated with newly-acquired properties , repositioning efforts can also occur at properties we already own ; repositioning properties discussed in the context of this paragraph exclude acquisition properties where the plan for improvement is implemented as part of the acquisition . during 2013 , we acquired 3401 exposition blvd . and 1861 bundy drive for purposes of repositioning . financings senior unsecured credit facility effective september 23 , 2014 , the company amended and restated its $ 250.0 million unsecured revolving credit facility to , among other things , increase the unsecured revolving credit facility to $ 300.0 million , extend the term of that facility , and add a five-year , $ 150.0 million unsecured term loan facility . the $ 150.0 million unsecured term loan facility was fully drawn by the company on the closing date to repay a $ 95.0 million loan secured by the company 's 505 first street and 83 king properties , with the remaining $ 55.0 million used to repay amounts outstanding under the company 's prior unsecured revolving facility . 6922 hollywood mortgage loan payoff on october 2 , 2014 , the company fully repaid the $ 39.7 million loan secured by its 6922 hollywood boulevard property in hollywood , california . the loan was scheduled to mature on january 1 , 2015. element la on november 24 , 2014 , the company amended its construction loan for the element la property to , among other things , increase availability from $ 65.5 million to $ 102.4 million to fund budgeted site-work , tenant improvement , and leasing commission costs associated with the property 's riot games lease . 54 factors that may influence our operating results business and strategy we focus our investment strategy on office properties located in submarkets with growth potential as well as on underperforming properties or portfolios that provide opportunities to implement a value-add strategy to increase occupancy rates and cash flow . additionally , we intend to acquire properties or portfolios that are distressed due to near-term debt maturities or underperforming properties where we believe better management , focused leasing efforts and or capital improvements would improve the property 's operating performance and value . our strategy also includes active management , aggressive leasing efforts , focused capital improvement programs , the reduction and containment of operating costs and an emphasis on tenant satisfaction , which we believe will minimize turnover costs and improve occupancy . from the acquisition of our first property in february 2007 through december 2014 , we have acquired or developed properties totaling an aggregate of approximately 8.2 million square feet . we intend to pursue acquisitions of additional properties as a key part of our growth strategy , often including properties that may have substantial vacancy , which enables us to increase cash flow through lease-up . we expect to continue to acquire properties subject to existing mortgage financing and other indebtedness or to incur indebtedness in connection with acquiring or refinancing these properties . debt service on such indebtedness will have a priority over any dividends with respect to our common or series b preferred stock and our common and series a preferred units . story_separator_special_tag rental revenue the amount of net rental revenue generated by the properties in our portfolio depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations . as of december 31 , 2014 , the percent leased for our stabilized office properties was approximately 94.6 % ( or 92.6 % , excluding leases signed but not commenced as of that date ) , and the percent leased for the media and entertainment properties ( based on 12-month trailing average ) was approximately 71.6 % . the amount of rental revenue generated by us also depends on our ability to maintain or increase rental rates at our properties . we believe that the average rental rates for our office properties are generally below the current average quoted market rate . we believe the average rental rates for our media and entertainment properties are generally equal to current average quoted market rates . negative trends in one or more of these factors could adversely affect our rental revenue in future periods . future economic downturns or regional downturns affecting our submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . conditions in our markets the properties in our portfolio are all located in california and pacific northwest submarkets . positive or negative changes in economic or other conditions in california or pacific northwest , including state budgetary shortfalls , employment rates , natural hazards and other factors , may impact our overall performance . operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years are generally passed on to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net lease properties . certain of our properties have been reassessed for property tax purposes as a result of our initial public offering or their subsequent acquisition and other reassessments remain pending . in the case of completed reassessments , the amount of property taxes we pay reflects the valuations established with the county assessors for the relevant locations of each property as of the initial public offering or their subsequent acquisition . with respect to pending reassessments , we similarly expect the amount of property taxes we pay to reflect the valuations established with such county assessors . taxable reit subsidiary as part of the formation transactions , we formed hudson pacific services , inc. , or our services company , a maryland corporation that is wholly owned by our operating partnership . we have elected , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes , and we may form additional taxable reit subsidiaries in the future . our services company generally may provide both customary and non-customary services to our 55 tenants and engage in other activities that we may not engage in directly without adversely affecting our qualification as a reit . our services company and its wholly owned subsidiaries provide a number of services to certain tenants at our media and entertainment properties and , from time to time , one or more taxable reit subsidiaries may provide services to our tenants at these and other properties . in addition , our operating partnership has contributed some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . we currently lease space to wholly owned subsidiaries of our services company at our media and entertainment properties and may , from time to time , enter into additional leases with one or more taxable reit subsidiaries . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) , as a regular c corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . critical accounting policies investment in real estate properties the properties in our portfolio are carried at cost , less accumulated depreciation and amortization . we account for the cost of an acquisition , including the assumption of liabilities , to the acquired tangible assets and identifiable intangibles based on their estimated fair values in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . we assess fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates and available market information . estimates of future cash flows are based on a number of factors , including historical operating results , known and anticipated trends , and market and economic conditions . the fair value of tangible assets of an acquired property considers the value of the property as if it was vacant . acquisition-related expenses are expensed in the period incurred . we record acquired “ above and below ” market leases at fair value using discount rates that reflect the risks associated with the leases acquired .
| we define noi as operating revenues ( including rental revenues , other property-related revenue , tenant recoveries and other operating revenues ) , less property-level operating expenses ( which includes external management fees , if any , and property-level general and administrative expenses ) . noi excludes corporate general and administrative expenses , depreciation and amortization , impairments , gain/loss on sale of real estate , interest expense , acquisition-related expenses and other non-operating items . noi on a cash basis is noi on a gaap basis , adjusted to exclude the effect of straight-line rent and other non-cash adjustments required by gaap . we believe that noi on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent and other non-cash adjustments to revenue and expenses . management further evaluates noi by evaluating the performance from the following property groups : same-store properties - which includes all of the properties owned and included in our stabilized portfolio as of january 1 , 2013 and still owned and included in the stabilized portfolio as of december 31 , 2014 ; non-same store properties which includes one operating office property we acquired during the year ended december 31 , 2014 ; one development project ( icon ) ; three redevelopment properties ( element la , 3402 pico and 12655 jefferson ) ; one lease-up property ( 901 market street ) , one property held-for-sale ( first financial ) as of december 31 , 2014 and other properties not owned or in operation from january 1 , 2013 through december 31 , 2014 . the following tables summarize the net operating income from continuing operations , as defined , for our total portfolio for the years ended december 31 , 2014 and 2013 : replace_table_token_18_th 60 replace_table_token_19_th replace_table_token_20_th net operating income increased $ 31.2 million , or 26.4 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 primarily resulting from : 61 a $ 27.0 million or 112.2 % increase in net operating income from our non-same store properties primarily as a result of
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for further description refer to part ii , item 8 , notes to the consolidated financial statements , note 3 : acquisitions and dispositions . in the fourth quarter of fiscal 2017 , our board of directors approved a multi-year restructuring program ( the “ financial fitness program ” ) , which is expected to contribute to the company 's overall strategy of financial fitness through increased operational effectiveness and overhead reduction . through a combination of synergies from the integration of business acquisitions and additional elimination of non-valued added costs , the program is focused on supply chain , procurement and overhead improvements , and net savings are expected to be realized in the prepared foods and chicken segments . no liability exists under this program at september 28 , 2019. for further description refer to part ii , item 8 , notes to the consolidated financial statements , note 6 : restructuring and related charges . 24 replace_table_token_7_th 2019 – included the following items : $ 37 million pretax , or ( $ 0.08 ) per diluted share , of keystone foods purchase accounting and acquisition related costs , which included an $ 11 million purchase accounting adjustment for the amortization of the fair value step-up of inventory and $ 26 million of acquisition related costs . $ 41 million pretax , or ( $ 0.08 ) per diluted share , of restructuring and related charges . $ 55 million pretax , or $ 0.11 per diluted share , from gain on sale of an investment . $ 105 million post tax , or $ 0.29 per diluted share , from recognition of previously unrecognized tax benefit . $ 31 million pretax , or ( $ 0.06 ) per diluted share , of beef production facility fire costs . $ 41 million pretax , or ( $ 0.09 ) per diluted share , from an impairment associated with the planned divestiture of a business . $ 15 million pretax , or ( $ 0.03 ) per diluted share , due to a pension plan termination charge . 2018 – included the following items : $ 1,003 million post tax , or $ 2.71 per diluted share , tax benefit from remeasurement of net deferred tax liabilities at lower enacted tax rates . $ 109 million pretax , or ( $ 0.22 ) per diluted share , related to one-time cash bonus to frontline employees . $ 68 million pretax , or ( $ 0.34 ) per diluted share , impairments net of realized gains associated with the divestitures of non-protein businesses . $ 59 million pretax , or ( $ 0.12 ) per diluted share , of restructuring and related charges . story_separator_special_tag associated with the divestiture of a non-protein business in fiscal 2018 , partially offset by $ 33 million of realized gains related to the sale of non-protein businesses in fiscal 2018 and impairment charges of $ 44 million related to our san diego prepared foods operation in fiscal 2017. increase of approximately $ 52 million in our chicken segment related to net increases in feed ingredient costs , growout expenses and outside meat purchases . decrease in live cattle costs of approximately $ 25 million in our beef segment . decrease in live hog costs of approximately $ 90 million in our pork segment . decrease due to net realized derivative losses of $ 30 million for fiscal 2018 , compared to net realized derivative loss of $ 79 million for fiscal 2017 due to our risk management activities . these amounts exclude offsetting impacts from related physical purchase transactions , which are included in the change in live cattle and hog costs and raw material and feed costs described above . additionally , cost of sales decreased due to net unrealized losses of $ 3 million for fiscal 2018 , compared to net unrealized losses of $ 40 million for fiscal 2017 , primarily due to our beef segment commodity risk management activities . remaining net change across all of our segments was primarily driven by increased operating costs and impacts on average input cost per pound from mix changes . 26 replace_table_token_10_th 2019 vs. 2018 – increase of $ 131 million in selling , general and administrative was primarily driven by : increase of $ 87 million related to the keystone foods acquisition . increase of $ 26 million in employee costs primarily from incentive-based compensation . increase of $ 18 million from technology related costs . increase of $ 16 million in marketing , advertising , and promotion expenses . decrease of $ 18 million from restructuring and related charges . 2018 vs. 2017 – decrease of $ 77 million in selling , general and administrative was primarily driven by : decrease of $ 92 million in employee costs primarily from stock-based and incentive-based compensation , which also included a reduction of $ 24 million compensation and benefit integration expense incurred in fiscal 2017 that did not recur in fiscal 2018. decrease of $ 56 million from restructuring and related charges . decrease of $ 49 million in advancepierre acquisition related fees incurred as part of the acquisition in fiscal 2017 that did not recur in fiscal 2018. decrease of $ 18 million in commission and brokerage fees . decrease of $ 14 million in non-restructuring severance related expenses . decrease of $ 10 million in marketing , advertising , and promotion expense . increase of $ 153 million related to the advancepierre acquisition through the first anniversary of the acquisition on june 7 , 2018 , which included $ 91 million in incremental amortization and $ 62 million from the inclusion of advancepierre results post-acquisition . increase of $ 15 million from technology related costs . remainder of net change was primarily related to reduction in professional fees . replace_table_token_11_th 2019 / 2018 – interest income increased slightly primarily due to higher interest rates . story_separator_special_tag replace_table_token_12_th 2019 / 2018 – cash interest expense primarily included interest expense related to our senior notes , term loans and commercial paper , in addition to commitment/letter of credit fees incurred on our revolving credit facility . the increase in cash interest expense in fiscal 2019 was primarily due to debt issued in connection with business acquisitions and higher interest rates . non-cash interest expense primarily included interest capitalized , partially offset by the amortization of debt issuance costs and discounts/premiums on note issuances . replace_table_token_13_th 27 2019 – included $ 55 million of pretax gain on the sale of an investment , $ 23 million of insurance proceeds and other income and $ 20 million of equity earnings in joint ventures , partially offset by $ 48 million of net periodic pension and postretirement benefit costs and pension plan settlements . 2018 – included $ 21 million of equity earnings in joint ventures and $ 11 million in insurance proceeds . also includes $ 23 million of net periodic pension and postretirement benefit credit , excluding the service cost component , retrospectively recognized in accordance with recently adopted accounting guidance . replace_table_token_14_th our effective income tax rate was 16.3 % for fiscal 2019 compared to ( 10.3 ) % for fiscal 2018. the effective tax rates reflect impacts of the tax cuts and jobs act ( the `` tax act '' ) signed into law on december 22 , 2017. these impacts include a statutory federal tax rate of 21 % for fiscal 2019 and 24.5 % for fiscal 2018. these impacts also include a 37.9 % benefit in fiscal 2018 related to the remeasurement of deferred taxes existing at the date of enactment and favorable timing differences deductible in fiscal 2018 at the 24.5 % blended tax rate , but reversing in future years at 21 % . the effective tax rate for fiscal 2019 includes a 6.6 % benefit due to changes in tax reserves , primarily expirations of federal , state and foreign statutes of limitations . the non-deductible impairment and sale of certain assets in our non-protein businesses increased the fiscal 2018 rate 3.1 % . the fiscal 2018 effective tax rate also includes a 1.7 % benefit related to domestic production activity deduction which was repealed with the tax act beginning with our fiscal 2019. segment results we operate in four reportable segments : beef , pork , chicken , and prepared foods . international/other primarily includes our foreign operations in australia , china , south korea , malaysia , mexico , the netherlands , thailand and the united kingdom , third-party merger and integration costs and corporate overhead related to tyson new ventures , llc . additional information regarding the geographic areas of our foreign operations is set forth in part ii , item 8 , notes to consolidated financial statements , note 17 : segment reporting . the following table is a summary of segment sales and operating income ( loss ) , which is how we measure segment income ( loss ) . replace_table_token_15_th replace_table_token_16_th 2019 vs. 2018 – sales volume – sales volume decreased due to a reduction in live cattle processing capacity from the temporary closure of a production facility as a result of a fire . average sales price – average sales price increased as demand for our beef products remained strong . operating income – operating income increased as we continued to maximize our revenues relative to live fed cattle costs , partially offset by increased operating costs and $ 31 million of net incremental costs from the production facility fire . 28 2018 vs. 2017 – sales volume – sales volume increased due to improved availability of cattle supply , stronger demand for our beef products and increased exports . average sales price – average sales price increased as demand for our beef products and strong exports outpaced the increase in live cattle supplies . operating income – operating income increased as we continued to maximize our revenues relative to live fed cattle costs , partially offset by increased labor and freight costs and one-time cash bonus to frontline employees of $ 27 million . replace_table_token_17_th 2019 vs. 2018 – sales volume – sales volume increased due to increased domestic availability of live hogs and strong demand for our pork products . average sales price – average sales price increased associated with higher livestock costs . operating income – operating income decreased due to periods of compressed pork margins caused primarily by the combination of increased livestock supplies , excess domestic availability of pork and export constraints , which drove livestock costs up faster than sales prices . 2018 vs. 2017 – sales volume – sales volume decreased as a result of balancing our supply with customer demand during a period of margin compression . average sales price – the average sales price decrease was associated with lower livestock costs . operating income – operating income decreased from prior year record results due to periods of compressed pork margins caused by excess domestic availability of pork , higher labor and freight costs , and one-time cash bonus to frontline employees of $ 12 million . replace_table_token_18_th 2019 vs. 2018 – sales volume – sales volume increased primarily due to incremental volume from business acquisitions . average sales price – average sales price decreased due to market conditions and sales mix primarily associated with the acquisition of a poultry rendering and blending business in the fourth quarter of fiscal 2018. operating income – operating income decreased due to increased operating costs and challenging pricing conditions . additionally , operating income was impacted in fiscal 2019 by approximately $ 40 million of net feed ingredient costs and realized and mark-to-market derivative losses . 2018 vs. 2017 – sales volume – sales volume increased primarily due to incremental volume from business acquisitions . average sales price – average sales price increased due to sales mix changes and price increases associated with cost inflation .
| the beef segment experienced strong demand , while the chicken and prepared foods segments were positively impacted by improved mix and business acquisitions net of business divestitures in the prepared foods segment . the above amounts included an incremental impact of $ 1,060 million in fiscal 2018 related to the inclusion of the advancepierre results post acquisition through the first anniversary of the acquisition on june 7 , 2018 . 25 replace_table_token_9_th 2019 vs. 2018 – cost of sales increased $ 2,427 million . this included a net increase of $ 2,120 million primarily related to the impact of results from acquisitions and divestitures . for the remaining $ 307 million increase , higher input cost per pound increased cost of sales $ 445 million , offset by lower sales volume , which decreased cost of sales $ 138 million . the $ 445 million impact of higher input cost per pound was impacted by : increase in live cattle costs of approximately $ 110 million in our beef segment . increase in live hog costs of approximately $ 100 million in our pork segment . increase in raw material and other input costs of approximately $ 60 million in our prepared foods segment . increase in freight costs of approximately $ 20 million . increase due to $ 31 million of incremental costs associated with a fire at one of our beef production facilities . decrease due to one-time cash bonus to front line employees of $ 108 million in fiscal 2018. decrease due to impairment charges of $ 101 million associated with the divestiture of a non-protein business in fiscal 2018 , partially offset by a $ 41 million impairment related to the planned divestiture of a business in fiscal 2019 and a $ 33 million gain related to a sale of a non-protein business in fiscal 2018. decrease due to net derivative gains of $ 26 million for fiscal 2019 , compared to net derivative losses of $ 33 million for fiscal 2018 due to our risk management activities . these amounts exclude
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the company paid consent fees of $ 2.50 per $ 1,000 principal amount , or approximately $ 1.7 million , related to the 7.0 % senior notes and 8.75 % senior notes . on december 15 , 2017 , we completed the 2017 debt exchange , pursuant to which we issued 10,863,000 shares of our common stock in exchange for $ 50.0 million principal amount of 7.0 % senior notes . immediately after consummation of the 2017 debt exchange , $ 350.0 million aggregate principal amount of the 7.0 % senior notes remained outstanding . on december 29 , 2017 , the company completed the sale of its remaining non-core assets in the uinta basin . the company received $ 102.3 million in cash proceeds , before final closing adjustments . in addition to the cash proceeds , the company recognized non-cash proceeds of $ 4.8 million related to relief from the company 's asset retirement obligation . we recognized a proved property impairment of $ 37.9 million related to the sale of these assets . results of operations year ended december 31 , 2017 compared with year ended december 31 , 2016 the following table sets forth selected operating data for the periods indicated : 38 replace_table_token_15_th * not meaningful . ( 1 ) included in general and administrative expense is long-term cash and equity incentive compensation of $ 8.3 million ( or $ 1.18 per boe ) and $ 11.9 million ( or $ 1.96 per boe ) for the years ended december 31 , 2017 and 2016 , respectively . production revenues and volumes . production revenues increased to $ 251.2 million for the year ended december 31 , 2017 from $ 178.3 million for the year ended december 31 , 2016 . the increase in production revenues was due to a 23 % 39 increase in the average realized prices per boe before hedging and a 15 % increase in production volumes . the increase in average prices increased production revenues by approximately $ 40.2 million , while the increase in production volumes increased production revenues by approximately $ 32.7 million . total production volumes of 7.0 mmboe for the year ended december 31 , 2017 increased from 6.1 mmboe for the year ended december 31 , 2016 primarily due to a 23 % increase in the dj basin as a result of new wells placed into production , offset by a 26 % decrease in production from the uinta oil program primarily due to the sale of certain non-core uinta oil program assets during july 2016. additional information concerning production is in the following table : replace_table_token_16_th * not meaningful . lease operating expense ( `` loe '' ) . loe decreased to $ 3.46 per boe for the year ended december 31 , 2017 from $ 4.58 per boe for the year ended december 31 , 2016 . the decrease per boe for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 is primarily related to operational efficiencies and sales of certain non-core assets in the uinta oil program during july 2016 , which had relatively high loe costs on a per boe basis . production tax expense . total production taxes increased to $ 14.5 million for the year ended december 31 , 2017 from $ 10.6 million for the year ended december 31 , 2016 . the increase is attributable to the 23 % increase in average realized prices before hedging and the 15 % increase in production . production taxes are primarily based on the wellhead values of production , which exclude gains and losses associated with hedging activities . we expect production taxes as a percentage of oil , natural gas and ngl sales to be approximately 7.5 % in 2018. impairment , dry hole costs and abandonment expense . our impairment , dry hole costs and abandonment expense for the years ended december 31 , 2017 and 2016 is summarized below : replace_table_token_17_th ( 1 ) the company recognized a non-cash impairment charge associated with the company 's uinta oil program proved properties during the year ended december 31 , 2017. the properties were sold on december 29 , 2017 . ( 2 ) as a result of no future plans to develop certain acreage and or estimated market values below carrying value , the company recognized non-cash impairment charges of $ 9.1 million associated with certain unproved properties in the cottonwood gulch area of the piceance basin and $ 2.1 million associated with certain non-core unproved properties in the dj basin . we review our oil and natural gas properties for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred . whenever we conclude the carrying value may not be recoverable , we estimate the expected undiscounted future net cash flows of our oil and gas properties using proved and risked probable and possible reserves based on our development plans and best estimate of future production , 40 commodity pricing , reserve risking , gathering and transportation deductions , production tax rates , lease operating expenses and future development costs . we compare such undiscounted future net cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable . if the undiscounted future net cash flows exceed the carrying amount of the oil and gas properties , no impairment is taken . if the carrying amount of a property exceeds the undiscounted future net cash flows , we will impair the carrying value to fair value based on an analysis of quantitative and qualitative factors existing as of the balance sheet date . we do not believe that the undiscounted future net cash flows of our oil and gas properties represent the applicable market value . story_separator_special_tag the factors used to determine fair value may include , but are not limited to , recent sales prices of comparable properties , indications from marketing activities , the present value of future revenues , net of estimated operating and development costs using estimates of reserves , future commodity pricing , future production estimates , anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows . oil and gas properties are assessed for impairment once they meet the criteria to be classified as held for sale . assets held for sale are carried at the lower of carrying cost or fair value less costs to sell . the fair value of the assets is determined using a market approach , based on an estimated selling price , as evidenced by current marketing activities , if possible . if an estimated selling price is not available , we utilize the income valuation technique , which involves calculating the present value of future net cash flows , as discussed above . if the carrying amount of the assets exceeds the fair value less costs to sell , an impairment will result to reduce the value of the properties down to fair value less costs to sell . the estimated fair value of assets held for sale may be materially different from sales proceeds that we eventually realize due to a number of factors including but not limited to the differences in expected future commodity pricing , location and quality differentials , our relative desire to dispose of such properties based on facts and circumstances impacting our business at the time we agree to sell , such as our position in the field subsequent to the sale and plans for future acquisitions or development in core areas . unproved oil and gas properties are assessed periodically for impairment based on remaining lease terms , drilling results , reservoir performance , commodity price outlooks , future plans to develop acreage , recent sales prices of comparable properties and other relevant matters . we generally expect impairments of unproved properties to be more likely to occur in periods of low commodity prices because we will be less likely to devote capital to exploration activities . given current and projected future commodity prices , we will continue to review our acreage position and future drilling plans . in addition , we will assess the carrying value of our properties relative to their estimated future net cash flows . estimated future net cash flows from our properties are based on our aggregate best estimates of future production , commodity pricing , gathering and transportation deducts , production tax rates , lease operating expenses and future development costs as of the balance sheet date . depreciation , depletion and amortization ( `` dd & a '' ) . dd & a decreased to $ 160.0 million for the year ended december 31 , 2017 compared with $ 171.6 million for the year ended december 31 , 2016 . the decrease of $ 11.7 million was the result of a 19 % decrease in the dd & a rate , offset by a 15 % increase in production for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 . the decrease in the dd & a rate accounted for a decrease of $ 36.9 million in dd & a expense , while the increase in production accounted for a $ 25.3 million increase in dd & a expense . under successful efforts accounting , depletion expense is calculated on a field-by-field basis with a common geological structure using the unit-of-production method . the capital expenditures for proved properties for each field compared to the proved reserves corresponding to each producing field determine a depletion rate for current production . for the year ended december 31 , 2017 , the relationship of capital expenditures , proved reserves and production from certain producing fields yielded a depletion rate of $ 22.85 per boe compared with $ 28.18 per boe for the year ended december 31 , 2016 . unused commitments . unused commitments were $ 18.2 million for the year ended december 31 , 2017 compared to $ 18.3 million for the year ended december 31 , 2016 . during march 2010 , we entered into two firm natural gas pipeline transportation contracts to provide a guaranteed outlet for production from the west tavaputs area of the uinta basin and the gibson gulch area of the piceance basin . these transportation contracts were not included in the sales of these assets in december 2013 and september 2014 , respectively . both firm transportation contracts require the pipeline to provide transportation capacity and require us to pay monthly transportation charges regardless of the amount of pipeline capacity utilized . these transportation contracts expire july 31 , 2021. general and administrative expense . general and administrative expense increased to $ 42.5 million for the year ended december 31 , 2017 from $ 42.2 million for the year ended december 31 , 2016 primarily due to an increase in variable employee compensation related to performance , legal and professional services fees , offset by a decrease in long-term cash and equity compensation discussed below . 41 included in general and administrative expense is long-term cash and equity incentive compensation of $ 8.3 million and $ 11.9 million for the years ended december 31 , 2017 and 2016 , respectively . the components of long-term cash and equity incentive compensation for each of the years ended december 31 , 2017 and 2016 are shown in the following table : replace_table_token_18_th ( 1 ) the performance-based cash units will be settled in cash for the performance metrics that are met . ( 2 ) the performance cash units are accounted for as liability awards and fair valued at each reporting date .
| million for the year ended december 31 , 2015. other operating revenues for 2016 consisted of $ 1.2 million related to gathering and compression fees received from third parties , offset by revised third party gas processing statements , which reduced production revenues associated with sold properties in the piceance basin by $ 0.7 million . the piceance basin properties were sold in september 2014. other operating revenues for 2015 consisted of a $ 1.3 million true up related to the sold properties in the west tavaputs area of the uinta basin . the west tavaputs properties were sold in december 2013. in addition , other operating revenues for 2015 included income of $ 1.6 million related to gathering and compression fees received from third parties and $ 0.5 million related to the sale of seismic data . lease operating expense . loe decreased to $ 4.58 per boe for the year ended december 31 , 2016 from $ 6.48 per boe for the year ended december 31 , 2015. the decrease per boe for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 is primarily related to operational efficiencies , a decrease in service industry costs , reduced workover activity in the uinta basin and sales of certain non-core assets in the dj and uinta basins , which had higher loe costs on a per boe basis . production tax expense . total production taxes decreased to $ 10.6 million for the year ended december 31 , 2016 from $ 12.2 million for the year ended december 31 , 2015. production taxes are primarily based on the wellhead values of production , which exclude gains and losses associated with hedging activities . production taxes as a percentage of oil , natural gas and ngl sales before hedging adjustments were 6.0 % for the years ended december 31 , 2016 and 2015. production tax rates vary across the different
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overview and recent developments we are engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs . utilizing our tumorgraft technology platform , we provide select services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development . by performing studies to predict the efficacy of 14 oncology drugs , our platform facilitates drug discovery with lower costs and increased speed of drug development as well as increased adoption of existing drugs . our platform provides a novel approach to simulating the results of human clinical trials used in developing oncology drugs . we believe it costs more than $ 100,000 per patient in oncology clinical trials and the typical cost for each phase of development per year increases from approximately $ 3 million in the pre-clinical setting to approximately $ 150 million in phase iii . simulating trials before executing them provides benefits to both pharmaceutical companies and patients . pharmaceutical companies can lower the risk of spending resources on drugs that do not show significant anti-cancer activities and increase the chance that the clinical development path they pursue will be focused on an appropriate patient population and a successful combination with other drugs . we plan to continue our efforts to expand our tumorgraft technology platform in order to expand our tos program . our pos program will not be the focus of our growth moving forward . on june 15 , 2016 , the company closed a public offering of 2,000,000 registered shares of its common stock at an offering price of $ 2.25 per share . in addition , the underwriter exercised a partial exercise of the over-allotment option granted to the underwriter to purchase an additional 258,749 shares at the public offering price . the net proceeds from the offering , including the partial exercise of the over-allotment option , were approximately $ 4.3 million , after deducting the underwriting discount and offering-related expenses of approximately $ 750,000 . the company intends to use the net proceeds of this offering for research and development to grow our tumorgraft platform , and the balance of the net proceeds for working capital and general corporate purposes . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:48px ; font-size:10pt ; '' > the company derives revenue from its pos and tos businesses . personalized oncology solutions assist physicians by providing information to help guide the development of personalized treatment plans for their patients using our core offerings , including testing oncology drugs and drug combinations on personalized tumorgrafts , and through other products . translational oncology solutions offer a preclinical tumorgraft platform to pharmaceutical and biotechnology companies using proprietary tumorgraft studies , which the company believes may be predictive of how drugs may perform in clinical settings . the company recognizes revenue when the following four basic criteria are met : ( i ) a contract has been entered into with its customers ; ( ii ) delivery has occurred or services rendered to its customers ; ( iii ) the fee is fixed and determinable as noted in the contract ; and ( iv ) collectability is reasonably assured . the company utilizes a proportional performance revenue recognition model for its tos business , under which it recognizes revenue as performance occurs , based on the relative outputs of the performance that have occurred up to that 17 point in time under the respective agreement , typically the delivery of reports to its customers documenting the results of testing protocols . when a pos or tos arrangement involves multiple elements , the items included in the arrangement ( deliverables ) are evaluated to determine whether they represent separate units of accounting . we perform this evaluation at the inception of an arrangement and as each item in the arrangement is delivered . generally , we account for a deliverable ( or a group of deliverables ) separately if : ( i ) the delivered item ( s ) has standalone value to the customer , and ( ii ) we have given the customer a general right of return relative to the delivered item ( s ) and the delivery or performance of the undelivered item ( s ) or service ( s ) is probable and substantially in our control . revenue on multiple element arrangements is recognized using a proportional method for each separately identified element . all revenue from contracts determined not to have separate units of accounting is recognized based on consideration of the most substantive delivery factor of all the elements in the contract or if there is no predominant deliverable upon delivery of the final element of the arrangement . during the third quarter of fiscal year 2014 we entered into a contract that may require the replacement of licensed tumors in the event that certain contractual terms have not been satisfied . due to such requirements we have estimated an amount of licensed tumors that may need to be replaced , and we have deferred this revenue until all provisions of the agreement have been met . there was $ 67,000 and $ 258,000 of deferred revenue as of april 30 , 2016 and 2015 , respectively , relating to our estimate of replacement of licensed tumors . stock-based payments we typically recognize expense for stock-based payments based on the fair value of awards on the date of grant . we use the black-scholes option pricing model to estimate fair value . story_separator_special_tag the option pricing model requires us to estimate certain key assumptions such as expected life , volatility , risk free interest rates , and dividend yield to determine the fair value of stock-based awards . these assumptions are based on historical information and management judgment . we expense stock-based payments over the period that the awards are expected to vest , net of estimated forfeitures . if actual forfeitures differ from management 's estimates , compensation expense is adjusted . we report cash flows resulting from tax deductions in excess of the compensation cost recognized from those options ( excess tax benefits ) as financing cash flows when the cash tax benefit is received . goodwill goodwill represents the excess of the cost over the fair market value of the net assets acquired including identifiable assets . goodwill is tested annually , or more frequently , if circumstances indicate potential impairment , by comparing its fair value to its carrying amount . the determination of whether or not goodwill is impaired involves significant judgment . although we believe our goodwill is not impaired , changes in strategy or market conditions could significantly impact the judgments and may require future adjustments to the carrying value of goodwill . we use a two-step process to test for goodwill impairment . the first step is to screen for potential impairment , while the second step measures the amount of the impairment , if any . the first step of the goodwill impairment test compares the fair value of each reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying value , goodwill is not impaired . if the carrying value of the reporting unit 's net assets , including goodwill , exceeds the fair value of the reporting unit , then we determine the implied fair value of goodwill . if the carrying value of goodwill exceeds its implied fair value , then an impairment of goodwill has occurred and an impairment loss would be recognized for the difference between the carrying amount and the implied fair value of goodwill as a component of operating income . the implied fair value of goodwill is calculated by subtracting the fair value of tangible and intangible assets associated with the reporting unit from the fair value of the unit . in addition , we evaluate impairment if events or circumstances change between the annual assessments , indicating a possible impairment . examples of such events or circumstances include : ( i ) a significant adverse change in legal factors or in the business climate ; ( ii ) an adverse action or assessment by a regulator ; or ( iii ) a significant decline in market capitalization as compared to book value . we have two operating segments and two reporting units . the estimated fair value of each reporting unit , as calculated for the april 30 , 2016 impairment test , exceeded the carrying value of the reporting unit . judgments regarding the existence of impairment indicators are based on legal factors , market conditions and operational performance of the acquired businesses . future events , including but not limited to continued declines in economic activity , loss of contracts or a significant number of customers or a rapid increase in costs or capital expenditures , could cause us to conclude that impairment indicators exist and that goodwill is impaired . any resulting goodwill impairment could have a material adverse impact on our financial condition and results of operations . accounting for income taxes 18 we use the asset and liability method to account for income taxes . significant management judgment is required in determining the provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets . in preparing the consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . this process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items , such as deferred revenue , depreciation on property , plant and equipment , goodwill and losses for tax and accounting purposes . these differences result in deferred tax assets , which include tax loss carry-forwards , and liabilities , which are included within the consolidated balance sheet . we then assess the likelihood that deferred tax assets will be recovered from future taxable income , and to the extent that recovery is not likely or there is insufficient operating history , a valuation allowance is established . to the extent a valuation allowance is established or increased in a period , we include an expense within the tax provision of the consolidated statements of operations . as of april 30 , 2016 and 2015 , we have established a full valuation allowance for all deferred tax assets . as of april 30 , 2016 and 2015 , we recognized a liability for uncertain tax positions on the balance sheet relative to foreign operations in the amount of $ 165,000 and $ 100,000 , respectively . we do not anticipate any significant unrecognized tax benefits will be recorded during the next 12 months . any interest or penalties related to unrecognized tax benefits is recognized in income tax expense . the company has not accrued for any penalties and interest . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued asu no . 2014-09 , “ revenue from contracts with customers ” , on revenue recognition . the new standard provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature , amount , timing and uncertainty of revenue and cash flows relating to customer contracts . companies have an option to
| cost of translational oncology solutions tos cost of sales were $ 6.6 million and $ 4.9 million for the years ended april 30 , 2016 and 2015 , respectively , an increase of $ 1.7 million , or 34.4 % . for the years ended april 30 , 2016 and 2015 , gross margins for tos were 28.5 % and 31.9 % , respectively . the increase in tos cost of sales was due to an increase in tos studies . gross margin varies based on timing differences between expense and revenue recognition . the decline in gross margin was due to expenses recognized in advance of revenue . research and development research and development expense was $ 4.2 million and $ 4.8 million for the years ended april 30 , 2016 and 2015 , respectively , a decrease of $ 600,000 or 13.4 % . the decrease is largely due to lower expenses in genomic characterization of our champions tumorgraft bank . sales and marketing sales and marketing expense was $ 3.4 million and $ 4.3 million for the years ended april 30 , 2016 and 2015 , respectively , a decrease of $ 900,000 , or 19.6 % . the decrease is due to the consolidation of sales and marketing personnel resources of the pos and tos division . general and administrative general and administrative expense was $ 5.2 million and $ 5.3 million for the years ended april 30 , 2016 and 2015 , respectively , a decrease of $ 100,000 , or 3.1 % . the decrease is mainly due to the decrease in stock option expense . other income/ ( expense ) other income/ ( expense ) consists of the change in the fair value of warrants that were accounted for as liabilities and are described further below and in note 7 to the accompanying consolidated financial statements , a modification charge due to the extinguishment of the liability as stated in the amended 2011 and 2013 warrant agreements both of which are described further below and in note 7 to the accompanying consolidated financial statements and
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brokertec , an electronic trading platform in the fixed income market , reported increased adv of 1 % in 2014 vs. 2013. conversely , intercontinentalexchange inc. ( `` ice '' ) reported approximately a 3 % decline in credit default swap trade execution revenues compared with 2013. in comparison , our overall fixed income volumes were generally mixed , with roughly an equal number of desks experiencing an increase in volumes vs. a decrease in volume , while our margins generally declined in this product category during 2014. our brokerage revenues from fixed income products declined 1 % in the year . interest rate and foreign exchange volumes . our financial product category largely consists of revenues related to the brokerage of foreign exchange and interest rate derivative products . foreign exchange market volumes generally decreased overall for the year ended december 31 , 2014 , primarily driven by a lack of volatility in the first eight months of the year . however , market conditions improved during the latter part of the year as volumes began to increase during the third quarter of 2014 , predominately driven by an increase in foreign exchange volatility during the period . cme foreign exchange futures advs decreased 9 % in 2014 , while ebs , an electronic trading platform for spot currencies , reported a 12 % decrease in volumes year over year . reported market volumes for interest rate products generally increased during the year ended december 31 , 2014 , with cme reporting a 19 % increase in interest rate futures advs in 2014. volumes increased on a majority of our financial products desks 2014 , however our margins were generally lower . our brokerage revenues from financial products increased 5 % in the year ended december 31 , 2014 , compared to the prior year . equity volumes . our equity product category consists of revenues related to the brokerage of cash equity and equity derivative products . cash equity and equity derivative volume indicators in europe and the u.s. were generally mixed during 2014 compared with the prior year . international securities exchange 's equity derivative volumes declined approximately 21 % in 2014 , while eurex european equity derivative volumes declined approximately 4 % , year over year . however , options clearing corporation reported a 4 % increase in cleared equity option contract volumes . in addition , advs for nyse 's u.s. cash products increased 2 % in 2014 , while advs for euronext 's european cash products ( the vast majority of which are cash equity products ) increased 9 % , compared to the prior year . in comparison , our equity volumes declined on a majority of our desks in 2014 as compared to the prior year , with lower trading margins on the whole within our equity business . our brokerage revenues from all equity products declined 9 % from the prior year . commodity volumes . our commodity product category consists of revenues related to the brokerage of a wide range of energy products , and to a lesser extent , other commodity products . cme 's energy derivatives advs decreased 3 % in 2014 , while ice 's energy derivatives advs decreased 11 % , year over year . in addition , ice reported an increase of approximately 11 % in the quarterly rate per contract ( `` rpc '' ) , while cme 's reported rpc was flat , year over year . similarly , our volumes across the various energy products for which we provide brokerage services generally declined in 2014 from the prior year , while margins were mixed across our desks , with a majority of desks seeing lower margins . our brokerage revenues from commodity products declined 5 % in 2014. clearing services volumes . our kyte subsidiary 's clearing operations are subject to many of the same drivers that influence otc market volumes . kyte 's clearing revenues declined by 17 % in 2014 , primarily due to a decrease in trading volumes . kyte 's clearing services revenues include the exchange fees that kyte charges to its clients but then passes on to the exchanges . 65 competitive and regulatory environment another major external market factor affecting our business and results of operations is competition , which may take the form of competitive pressure on the commissions we charge for our services or competition for qualified personnel with extensive experience in the specialized markets we serve . we currently compete for the services of skilled brokerage personnel with other wholesale market participants and , more broadly , we compete for the services of highly qualified technology development personnel . we believe that the demand for productive brokers has lessened in recent periods , as the wholesale brokerage industry has been impacted by lower trading volumes and sluggish trading conditions in certain markets we serve and due to the increased importance of technology . however , we believe that there continues to be increased competition to provide brokerage services to a smaller number of market participants in the near term as dealers have exited or reduced their proprietary trading operations . in addition , we believe that the continued regulatory uncertainty in certain markets has resulted in lower trading volumes and fewer participants in these markets . gfi swaps exchange llc , our sef platform , was temporarily registered as a sef by the cftc in september 2013 and many of the rules governing the operation of a sef for swaps in the u.s. became effective on october 2 , 2013. the requirements for sef trading are still developing and regulations are still being interpreted and analyzed , including their cross-border application . this continues to create uncertainty and depressed volumes , as market participants work to understand how to structure their global business and trading . additionally , the sec has not yet finalized its rules for security-based sefs , nor has it published a timetable for the finalization and implementation of such rules . story_separator_special_tag however , in the long run , we remain optimistic that the regulatory reform of recent years , including requirements for enhanced regulatory transparency , central clearing and efficient execution , will benefit and enable growth in the global derivatives markets . technology development over the past year , we have continued the expansion of our proprietary electronic trade execution capabilities for our sef and non-sef businesses , as well as the number of users of our hybrid electronic trading platforms . we continue to believe that our capabilities have provided us with a market leading position to address customer needs and service our markets in light of new regulatory requirements .. for example , revenues from our electronic matching sessions have increased approximately 42 % in cash fixed income products in 2014. the provision of electronic trade execution requires increasingly complex systems and infrastructures and new regulations may require new business models . our continued success will depend on our ability to enhance and improve our existing platforms and services , develop and or license new products and technologies that address the increasingly sophisticated needs of the markets and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis . financial overview our results of operations are significantly impacted by the amount of revenues we generate and the amount of compensation and benefits we provide to our employees . the following factors had a 66 significant impact on our revenues and employee costs during the three year period ended december 31 , 2014 : our total revenues decreased 2.3 % to $ 881.0 million in 2014 from $ 901.5 million for 2013. the main factors contributing to this decrease in our revenues were : decreased clearing services revenues due to a decline in the number of trades cleared by our kyte subsidiary ; and lower volatility in certain markets in which we provide brokerage services and continued low global interest rate environments , both of which adversely impacted trading volumes . partially offsetting the above factors were the following factors that we believe positively affected our brokerage and other revenues : increased trading volumes in our financial product category beginning in the latter half of the third quarter , as currency market volatility began to increase from historically low rates ; increased customer usage of our electronic trading platforms and matching sessions in cash fixed income products ; and the continued strong performance of our trayport subsidiary , which led to an increase in our software , analytics and market data revenue . the most significant component of our cost structure is employee compensation and benefits , which includes salaries , amortization of sign-on and retention bonuses , incentive compensation and related employee benefits and taxes . our employee compensation and benefits expense decreased $ 4.7 million to $ 511.5 million in 2014 from $ 516.2 million in 2013. our compensation and employee benefits for all employees have both a fixed and a variable component . base salaries and benefit costs are primarily fixed for all employees , while performance bonuses constitute the variable portion of our compensation and employee benefits . within overall compensation and employee benefits , the employment cost of our brokerage personnel is the key component . bonuses for brokerage personnel are primarily based on individual performance and or the operating results of their related brokerage desk . additionally , a portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period . for many of our brokerage employees , bonuses constitute a significant component of their overall compensation . broker performance bonuses decreased to $ 150.2 million for the year ended december 31 , 2014 from $ 151.6 million for the prior year . further , we may pay sign-on bonuses to certain newly-hired brokers and retention bonuses to certain of our existing brokers who agree to long-term employment agreements . these bonuses may be paid in the form of cash , deferred cash , long term equity or forgivable loans , or a combination of the foregoing , and are typically expensed over the term of the related employment agreement for cash bonuses and forgivable loans and the related service period for deferred cash and long term equity , which is generally two to four years . these employment agreements typically contain provisions requiring the repayment of all or a portion of the cash payment or forgivable loan and forfeiture provisions for unvested deferred cash or equity should the employee voluntarily terminate his or her employment or if the employee 's employment is terminated for cause during the initial term of the agreement . sign-on and retention bonuses , when granted , also increase the fixed component of our compensation and employee benefits expense for the remainder of the term over which such bonus is earned by the employee . compensation expense resulting from the amortization of broker sign-on and retention bonuses was $ 29.0 million for 2014 , as compared to $ 34.5 million for 2013 . 67 results of consolidated operations the following table sets forth our consolidated results of operations for the periods indicated : replace_table_token_4_th 68 the following table sets forth our consolidated results of operations as a percentage of our revenues , net of interest and transaction-based expenses for the periods indicated : replace_table_token_5_th year ended december 31 , 2014 compared to the year ended december 31 , 2013 net loss gfi 's net loss for the year ended december 31 , 2014 increased $ 88.0 million to $ 108.0 million from a net loss of $ 20.0 million for the year ended december 31 , 2013. total revenues decreased by $ 20.5 million , or 2.3 % , to $ 881.0 million in 2014 from $ 901.5 million in the prior year .
| million , or 16.5 % , to $ 147.3 million for 2014. the decrease was due primarily to a decrease in clearing services revenues as a result of a decrease in the number of trades cleared by our kyte subsidiary . total revenues for all other increased by $ 15.0 million , or 16.8 % , to $ 104.4 million for the year ended december 31 , 2014. this increase was primarily as a result of an increase in software revenues at our trayport subsidiary due to the expansion of product and service offerings to its existing customer base . also contributing to the increase was a net increase in other income , net largely related to a gain on the mark-to-market of the contingent consideration liability associated with the acquisition of contigo limited . total interest and transaction-based expenses total interest and transaction-based fees for our three brokerage segments increased by $ 0.5 million , or 2.4 % , to $ 20.9 million in 2014. total interest and transaction-based fees for our clearing and backed trading segment decreased by $ 24.9 million to $ 110.6 million in 2014 from $ 135.5 million in the prior year primarily due a decrease in the number of trades cleared by our kyte subsidiary . other expenses other expenses for americas brokerage increased $ 63.1 million , or 34.9 % , to $ 244.2 million for the year ended december 31 , 2014. other expenses for emea brokerage increased $ 14.1 million , or 6.6 % , to $ 229.2 million for the year . these increases were primarily due to non-cash impairment charges related to goodwill of $ 83.3 million at americas brokerage and $ 14.8 million at emea brokerage , during the second quarter of 2014. the increase at both segments was partially offset by a decrease in compensation and employee benefits expense for the year . other expenses for asia brokerage increased $ 1.2 million , or 2.3 % , to $ 52.9 million for the year , largely as a
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the purchase order for such customer for the current fiscal year was received during the twelve month period ended september 30 , 2019 and shipments commenced in may 2019. service revenues for the twelve month periods ended september 30 , 2019 and 2018 , we generated $ 3,253,034 and $ 2,075,717 in revenues from sales of services , respectively . service revenues include our feasibility projects and any research and or development contracts as well as fibertyping and authentication services . the increase in service revenues of $ 1,177,317 or 57 % for the twelve month period ended september 30 , 2019 as compared to the prior fiscal year is attributable to an increase in revenue from a cannabis licensing agreement ( now terminated ) of $ 1,000,000 , as well as an additional increase of $ 122,832 for a cannabis pre-commercial feasibility project . 57 costs and expenses cost of revenues cost of revenues for the twelve month period ended september 30 , 2019 decreased by $ 329,201 or 27 % from $ 1,206,814 for the twelve month period ended september 30 , 2018 to $ 877,613 for the twelve month period ended september 30 , 2019. cost of revenues as a percentage of product revenues was 41 % and 66 % for the twelve month periods ended september 30 , 2019 and 2018 , respectively . this decrease in cost of revenues as a percentage of product revenues is due to product sales mix , as sales during the twelve month period ended september 30 , 2018 were primarily comprised of biopharmaceutical and consumer asset marking sales , which are at a lower gross margin . selling , general and administrative selling , general and administrative expenses for the fiscal year ended september 30 , 2019 decreased by $ 765,418 or 7 % to $ 10,278,045 from $ 11,043,463 in fiscal year 2018. the decrease is primarily attributable to a decrease in payroll of $ 862,395 due to headcount reductions and salesforce realignment as well as a decrease in stock based compensation expense of $ 227,353. these decreases were offset by an increase in legal expenses of $ 463,967. research and development research and development expenses increased to $ 2,967,278 for the twelve month period ended september 30 , 2019 from $ 2,751,578 for the twelve month period ended september 30 , 2018 , an increase of $ 215,700 or 8 % . this increase is primarily due to approximately $ 345,000 for the in-process research and development purchased as part of the vitatex asset acquisition . this increase was offset by decreases relating to the completion of the government contract award of approximately $ 100,000 . 58 depreciation and amortization in the twelve month period ended september 30 , 2019 , depreciation and amortization decreased by $ 157,372 or 29 % from $ 547,796 for the twelve month period ended september 30 , 2018 to $ 390,424 for the twelve month period ended september 30 , 2019. this decrease is related primarily to items becoming fully depreciated during fiscal 2019 and therefore not having a full 12 months of expense in the current fiscal year . interest ( expense ) income interest ( expense ) income for the fiscal year ended september 30 , 2019 , increased to expense of $ 162,432 from expense of $ 9,615 in the same period of 2018. the increase in interest expense was due to interest incurred on the secured convertible notes payable for the fiscal year ended september 30 , 2019. other ( expense ) income other expense for the fiscal year ended september 30 , 2019 , increased to $ 43,299 from $ 37,005 in fiscal 2018. loss on extinguishment of debt loss on extinguishment of debt increased to $ 1,260,399 for the fiscal year ended september 30 , 2019 and relates to the august 2018 and november 2018 secured convertible notes amendment during july 2019 resulting in accounting for such notes as an extinguishment of debt and issuance of new debt . the majority of these notes were subsequently converted into equity during september 2019. gain on change in fair value of secured convertible notes payable gain on change in fair value of secured convertible notes payables increased to $ 1,972,955 for the fiscal year ended september 30 , 2019 and relates to fair value adjustments relating to the august 2018 and november 2018 secured convertible notes as amended in july 2019. due to the amendment , the company elected the fair value option and adjusts the remaining secured convertible notes to fair value upon conversion as well as at every quarter-end . net loss net loss decreased $ 3,069,805 , or 26 % to $ 8,623,123 for the fiscal year ended september 30 , 2019 compared to $ 11,692,928 for the fiscal year ended september 30 , 2018 due to the factors noted above . recently issued accounting pronouncements see note b , “ recent accounting principles , ” to the accompanying consolidated financial statements for a description of accounting standards which may impact our consolidated financial statements in future reporting periods . liquidity and capital resources our liquidity needs consist of our working capital requirements and research and development expenditure funding . as of september 30 , 2019 , we had a working capital deficit of $ 99,682. for the fiscal year ended september 30 , 2019 , we used cash in operating activities of $ 6,861,772 consisting primarily of our loss of $ 8,623,123 net with non-cash adjustments of $ 390,424 in depreciation and amortization charges , $ 1,260,399 for loss on extinguishment of debt , $ 1,972,955 for gain on change in fair value of secured convertible notes payable , $ 1,129,110 in stock-based compensation expense , $ 251,420 for the vitatex asset acquisition , $ 9,323 for the net loss attributable to noncontrolling interest , $ 7,624 of bad debt expense and $ 23,828 in amortization of debt issuance costs . story_separator_special_tag additionally , we had a net decrease in operating assets of $ 740,846 and a net decrease in operating liabilities of $ 60,022. cash used in investing activities was $ 67,438 , for the purchase of property and equipment . cash provided by financing activities was $ 5,828,634 , which included net proceeds from the sale of common stock and warrants of $ 2,463,591 , net proceeds from the sale of common stock to a private placement in august 2019 of $ 402,381 , net proceeds from the exercise of warrants of $ 987,501 and the proceeds from the sale of secured convertible promissory notes during november 2018 and july 2019 of $ 1,985,392. in addition , on november 15 , 2019 , we closed on an underwritten public offering of common stock and warrants which resulted in aggregate gross proceeds of approximately $ 12.0 million , exclusive of warrant proceeds . after deducting underwriting discounts and commissions and other estimated offering expenses total expected net proceeds are approximately $ 10.8 million . 59 we have recurring net losses , which have resulted in an accumulated deficit of $ 256,805,589 as of september 30 , 2019. we have incurred a net loss of $ 8,632,446 for the fiscal year ended september 30 , 2019. at september 30 , 2019 , we had cash and cash equivalents of $ 558,988. our current capital resources include cash and cash equivalents , accounts receivable and inventories . we expect to finance our operations primarily through cash received from the november 2019 public offering , as well as collection of our accounts receivable . we estimate that we will have sufficient cash and cash equivalents to fund operations for the next twelve months from the date of filing of this annual report . historically , we have financed our operations principally from the sale of equity and equity-linked securities . we may require additional funds to complete the continued development of our products , product manufacturing , and to fund expected additional losses from operations until revenues are sufficient to cover our operating expenses . if revenues are not sufficient to cover our operating expenses , and if we are not successful in obtaining the necessary additional financing , we will most likely be forced to reduce operations . we expect capital expenditures to be less than $ 250,000 in fiscal 2019. our primary investments will be in laboratory equipment related to our biotherapeutic research and development activities . substantially all of the real property used in our business is leased under operating lease agreements . 60 recent debt and equity financing transactions fiscal 2019 private placement of secured convertible notes . on november 29 , 2018 , we closed a securities purchase agreement with our chairman , president and chief executive officer and one member of the management team , pursuant to which we issued and sold an aggregate of $ 550,000 in principal amount of secured convertible notes bearing interest at a rate of 6 % per annum ( the “ november 2018 notes ” ) . the november 2018 notes are substantially similar to our august 2018 notes ( as defined below ) except with respect to maturity date . the november 29 th notes are secured on a pari passu basis with the same company assets as the august 2018 notes . underwritten public offering . on december 21 , 2018 , the company entered into an underwriting agreement ( the “ agreement ” ) with maxim group llc ( “ maxim ” ) , as the sole underwriter and book running manager , with respect to the issuance and sale of an aggregate of 137,500 shares ( the “ shares ” ) of common stock , together with warrants to purchase an aggregate of 137,500 shares of common stock ( the “ warrants ” ) at an exercise price equal to $ 20.00 per share of common stock ( the “ exercise price ” ) in an underwritten public offering . the public offering price for each share together with the accompanying warrant was $ 20.00. pursuant to the agreement , the company also granted maxim a 45-day option to purchase an additional 20,625 shares and or additional warrants to purchase 20,625 shares to cover any over-allotments made by the underwriters in the sale and distribution of the shares and warrants . the gross proceeds of the offering , before deducting underwriter discounts and commissions and other offering expenses , were approximately $ 2,750,000 the offering closed on december 26 , 2018. on december 26 , 2018 , maxim partially exercised its overallotment option and purchased an additional 20,000 warrants at a price of $ 0.0000004 per warrant . after deducting underwriting fees and other expenses related to the offering , the aggregate net proceeds were approximately $ 2,262,000. on january 25 , 2019 , the company closed on the underwriters ' partial exercise of its over-allotment option for 12,500 shares of common stock for gross proceeds of $ 250,000. after deducting underwriting fees and other expenses related to the over-allotment option , the aggregate net proceeds were approximately $ 201,000. the total number of common stock and warrants issued under this offering , including the exercise of the over-allotment option was 150,000 and 157,500 , respectively . the gross proceeds to us were $ 3.0 million and net proceeds after deducting underwriting expenses and other estimated offering expenses was approximately $ 2.5 million . the warrants are immediately exercisable beginning on the date of issuance ( the “ initial exercise date ” ) . the warrants will be exercisable for five years from the initial exercise date , but not thereafter . the warrants include an adjustment provision that , subject to certain exceptions , reduces their exercise price if the company issues common stock or common stock equivalents at a price lower than the then-current exercise price of the warrants , subject to a minimum exercise price of $ 5.60 per share .
| in addition , we seek to develop , acquire and commercialize , ourselves or with partners , a diverse portfolio of nucleic acid-based drugs and biologics based on pcr-produced linear dna to improve existing nucleic acid-based therapeutics or to create new nucleic acid-based therapeutics that address unmet medical needs . we are also engaged in preclinical and animal drug candidate development activities focusing on therapeutically relevant dna constructs manufactured through our large scale pcr production systems . lrx uses its pcr systems to rapidly produce customized dna for use by our contract research organization/contract manufacturing organization clients , our preclinical drug and biologic clients and partners , and for our own nucleic acid-based preclinical drugs and biologics under development in the field of car t-cell immunotherapy . lrx 's proprietary processes enables large , gram-scale production of dna through pcr for bio-based therapeutics , adoptive cell therapies , vaccines ( including cancer ) , clustered regularly interspaced short palindromic repeats , or crispr and other nucleic acid-based therapies . linear dna does not require recombination , therefore , there is no need for a virus or for plasmids . this reduces the risk of unwanted dna or other contaminants that would need to be removed . critical accounting policies financial reporting release no . 60 , published by the sec , recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements . while all these significant accounting policies impact our financial condition and results of operations , we view certain of these policies as critical . policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates . actual results may differ from those estimates . we believe that given current facts and circumstances , it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations , financial position or liquidity for
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an overview of our three businesses and related operating segments follows . software and cloud business our software and cloud business , which represented 77 % , 76 % and 75 % of our total revenues in fiscal 2015 , 2014 and 2013 , respectively , is comprised of three operating segments : ( 1 ) new software licenses and cloud software subscriptions , ( 2 ) cloud infrastructure as a service and ( 3 ) software license updates and product support . on a constant currency basis , we expect that our software and cloud business ' total revenues generally will continue to increase due to continued demand for our software products and cloud software subscription offerings , our software license updates and product support offerings , including the high percentage of customers that renew their software license updates and product support contracts , and our acquisitions , which should allow us to grow and continue to make investments in research and development . new software licenses and cloud software subscriptions : our new software licenses and cloud software subscriptions line of business markets , sells and delivers our application and platform technologies including our saas and paas offerings ( our saas and paas offerings are collectively referred to as cloud software subscriptions ) , which provide customers a choice of software applications and platforms that are delivered via a cloud-based it environment that we host , manage and support , and the licensing of our software products including oracle applications , oracle database , oracle fusion middleware and java , among others . our application and platform technologies are substantially built on standards-based architectures that are designed to help customers reduce the cost and complexity of their it infrastructure . our commitment to industry standards results in software that works in customer environments with oracle or non-oracle hardware or software components and that can be adapted to meet specific industry or business needs . we focus the engineering of our products and services to best connect cloud and on-premises deployment models to enable flexibility , ease , agility , compatibility , extensibility and seamlessness . our software offerings are substantially designed to operate on both single server and clustered server configurations for cloud or on-premises it environments , and to support a choice of operating systems including oracle solaris , oracle linux , microsoft windows and third party unix products , among others . these approaches are designed to support customer choice and reduce customer risk . our customers include businesses of many sizes , government agencies , educational institutions and resellers . we market and sell our software products and services to these customers with a sales force positioned to offer the combinations that best fit their needs . we enable customers to evolve and transform to substantially any it environment at whatever pace is most appropriate for them . the growth in our new software licenses and our saas and paas revenues that we report is affected by the strength of general economic and business conditions , governmental budgetary constraints , the competitive position of our software offerings , our acquisitions and foreign currency fluctuations . the substantial majority of our new software license transactions are characterized by long sales cycles and the timing of a few large software license transactions can substantially affect our quarterly new software licenses revenues . new software licenses and cloud software subscriptions revenues represented 26 % of our total revenues in fiscal 2015 and 28 % in each of fiscal 2014 and 2013. our cloud software subscriptions contracts , which consist of saas and paas arrangements , are generally one to three years in duration and we strive to renew these contracts when they are eligible for renewal . our new software licenses and cloud software subscriptions segment 's margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical 38 upward trend of our new software licenses revenues over those quarterly periods and because the majority of our costs for this segment are predominantly fixed in the short-term . however , our new software licenses and cloud software subscriptions segment 's margin has been and will continue to be affected by the fair value adjustments relating to the cloud saas and paas obligations that we assumed in our business combinations ( described further below ) and by the amortization of intangible assets associated with companies and technologies that we have acquired . for certain of our acquired businesses , we recorded adjustments to reduce the cloud saas and paas obligations to their estimated fair values at the acquisition dates . as a result , as required by business combination accounting rules , we did not recognize cloud saas and paas revenues related to acquired contracts that would have been otherwise recorded by the acquired businesses as independent entities in the amounts of $ 12 million , $ 17 million and $ 45 million in fiscal 2015 , 2014 and 2013 , respectively . to the extent underlying cloud saas and paas contracts are renewed with us following an acquisition , we will recognize the revenues for the full values of these contracts over their respective contractual periods . cloud infrastructure as a service : our cloud infrastructure as a service offerings , which represented 2 % of our total revenues in fiscal 2015 and 1 % in each of fiscal 2014 and 2013 , provide comprehensive software and hardware management and maintenance services for customer it infrastructure for a fee for a stated term that is hosted at our oracle data center facilities , select partner data centers or physically on-premises at customer facilities ; deployment and management offerings for our software and hardware and related it infrastructure including virtual machine instances that are subscription-based and designed for computing and reliable and secure object storage ; and certain of our oracle engineered systems and related support offerings that are deployed in our customers ' data centers for a monthly fee . story_separator_special_tag software license updates and product support : customers that purchase software license updates and product support are granted rights to unspecified product upgrades and maintenance releases and patches released during the term of the support period , as well as technical support assistance . our software license updates and product support contracts are generally one year in duration . substantially all of our software license customers renew their software license updates and product support contracts annually . the growth of software license updates and product support revenues is primarily influenced by three factors : ( 1 ) the percentage of our software support contract customer base that renews its software support contracts , ( 2 ) the amount of new software support contracts sold in connection with the sale of new software licenses and ( 3 ) the amount of software support contracts assumed from companies we have acquired . software license updates and product support revenues , which represented 49 % , 47 % and 46 % of our total revenues in fiscal 2015 , 2014 and 2013 , respectively , is our highest margin business unit . our software support margins during fiscal 2015 were 90 % and accounted for 81 % of our total margins over the same period . our software license updates and product support margins have been affected by fair value adjustments relating to software support obligations assumed in business combinations ( described further below ) and by amortization of intangible assets . however , over the longer term , we believe that software license updates and product support revenues and margins will grow for the following reasons : substantially all of our customers , including customers from acquired companies , renew their software support contracts when eligible for renewal ; substantially all of our customers purchase software license updates and product support contracts when they buy new software licenses , resulting in a further increase in our software support contract base . even if new software licenses revenues growth was flat , software license updates and product support revenues would continue to grow in comparison to the corresponding prior year periods assuming contract renewal and cancellation rates and foreign currency rates remained relatively constant since substantially all new software licenses transactions result in the sale of software license updates and product support contracts , which add to our software support contract base ; and our acquisitions have increased our software support contract base , as well as the portfolio of products available to be licensed and supported . we recorded adjustments to reduce software support obligations assumed in business combinations to their estimated fair values at the acquisition dates . as a result , as required by business combination accounting rules , 39 we did not recognize software license updates and product support revenues related to software support contracts that would have been otherwise recorded by the acquired businesses as independent entities in the amounts of $ 11 million , $ 3 million and $ 14 million in fiscal 2015 , 2014 and 2013 , respectively . to the extent underlying software support contracts are renewed with us following an acquisition , we will recognize the revenues for the full values of the software support contracts over the respective support periods , the majority of which are one year . hardware systems business our hardware systems business is comprised of two operating segments : ( 1 ) hardware systems products and ( 2 ) hardware systems support . our hardware business represented 14 % of our total revenues in fiscal 2015 , 2014 and 2013. we expect our hardware business to have lower operating margins as a percentage of revenues than our software and cloud business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . we expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services . hardware systems products : we provide a broad selection of hardware systems and related services including oracle engineered systems , servers , storage , networking , workstations and related devices , industry specific hardware , virtualization software , operating systems , and management software to support diverse it environments , including cloud computing environments . we engineer our hardware systems with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud and on-premises it infrastructures . our hardware products support many of the world 's largest cloud infrastructures , including the oracle cloud . our hardware systems products are designed to be easier to deploy , manage and maintain for our customers and to improve computing performance relative to our competitors ' offerings . we design our hardware products to seamlessly connect on-premises and cloud it environments to further enable interoperability , interchangeability and extendibility and to work in customer environments that may include other oracle or non-oracle hardware or software components . our flexible and open approach provides oracle customers with a broad range of choices in how they deploy our hardware products , which we believe is a priority for our customers . oracle engineered systems are core to our hardware offerings and are important elements of our data center and cloud computing offerings including the oracle cloud . these pre-integrated products are designed to integrate multiple oracle technology components to work together to deliver improved performance , availability , security and operational efficiency relative to our competitors ' products , to be upgraded effectively and efficiently and to simplify maintenance cycles by providing a single solution for software patching . oracle engineered systems are tested before they are shipped to customers and delivered ready-to-run , enabling customers to shorten the time to production . we offer a wide range of server systems using our sparc microprocessor . our sparc servers run the oracle solaris operating system and are designed to be differentiated by their reliability , security , and scalability .
| we caution readers that , while pre- and post-acquisition comparisons , as well as any quantified amounts themselves , may provide indications of general trends , any acquisition information that we provide has inherent limitations for the following reasons : any qualitative and quantitative disclosures can not specifically address or quantify the substantial effects attributable to changes in business strategies , including our sales force integration efforts . we believe that if our acquired companies had operated independently and sales forces had not been integrated , the relative mix of products sold would have been different ; and although substantially all of our software license customers , including customers from acquired companies , renew their software license updates and product support contracts when the contracts are eligible for renewal and we strive to renew cloud saas and paas contracts and hardware systems support contracts , the amounts shown as cloud saas and paas deferred revenues , software license updates and product support deferred revenues , and hardware systems support deferred revenues in our supplemental disclosure related to certain charges ( presented below ) are not necessarily indicative of revenue improvements we will achieve upon contract renewals to the extent customers do not renew . constant currency presentation our international operations have provided and will continue to provide a significant portion of our total revenues and expenses . as a result , total revenues and expenses will continue to be affected by changes in the u.s. dollar against major international currencies . in order to provide a framework for assessing how our underlying businesses performed excluding the effects of foreign currency fluctuations , we compare the percent change in the results from one period to another period in this annual report using constant currency disclosure . to present this information , current and comparative prior period results for entities reporting in currencies other than u.s. dollars are converted into u.s. dollars at constant exchange rates ( i.e. , the rates in effect on may 31 , 2014 , which was the last day of our prior fiscal year ) rather than the actual exchange rates in effect during the respective periods . for example , if an entity reporting in euros had revenues of 1.0 million euros from products sold on may
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additionally , the federal open market committee reduced the target federal funds rate to 0 % to 0.25 % on march 16 , 2020. these reductions in interest rates and other effects of the covid-19 outbreak may adversely affect the company 's financial condition and results of operations . 2020 compared to 2019 tax-equivalent net interest income amounted to $ 64.4 million in 2020 , an increase of $ 6.8 million from $ 57.6 million in 2019. the company 's net interest margin decreased 10 basis points to 3.85 percent in 2020 , compared to 3.95 percent in 2019. the net interest spread was 3.48 percent , a decrease of 6 basis points from 3.54 percent in 2019. during 2020 , tax-equivalent interest income was $ 78.9 million , an increase of $ 3.2 million or 4.3 percent when compared to 2019. this increase was driven primarily by the increase in the average volume of loans : ● of the $ 3.2 million increase in interest income on a tax-equivalent basis , $ 8.6 million was due to the increased volume of earning assets , partially offset by a $ 5.4 million decrease in yields on average interest-earning assets . ● the yield on interest-earning assets decreased 47 basis points to 4.71 percent in 2020 when compared to 2019 . ● the average volume of interest-earning assets increased $ 214.4 million to $ 1.7 billion in 2020 compared to $ 1.5 billion in 2019. this was due primarily to a $ 197.2 million increase in average loans , primarily sba , ppp , commercial , residential mortgage and consumer loans , and a $ 25.2 million increase in average federal funds and interest-bearing deposits , partially offset by a $ 8.0 million decrease in average investment securities . total interest expense was $ 14.5 million in 2020 , a decrease of $ 3.6 million or 19.8 percent compared to 2019. this decrease was driven by the decreased rates on interest-bearing deposits , partially offset by an increase in the average volume of interest-bearing deposits : ● of the $ 3.6 million decrease in interest expense , $ 4.8 million was due to decreased rates on interest-bearing liabilities , partially offset by an increase of $ 1.2 million in the volume of average interest-bearing liabilities . ● the average cost of interest-bearing liabilities decreased 41 basis points to 1.23 percent in 2020 when compared to 2019. the cost of interest-bearing deposits and borrowed funds and subordinated debentures decreased 41 basis points and 35 basis points , respectively , in 2020 . ● interest-bearing liabilities averaged $ 1.2 billion in 2020 , an increase of $ 75.7 million or 6.9 percent , compared to 2019. the increase in interest-bearing liabilities was primarily due to an overall increase in time , savings , and interest-bearing demand deposits . 2019 compared to 2018 tax-equivalent net interest income amounted to $ 57.6 million in 2019 , an increase of $ 3.8 million from $ 53.8 million in 2018. the company 's net interest margin decreased 2 basis points to 3.95 percent in 2019 , compared to 3.97 percent in 2018. the net interest spread was 3.54 percent , a decrease of 11 basis points from 3.65 percent in 2018. during 2019 , tax-equivalent interest income was $ 75.7 million , an increase of $ 8.4 million or 12.5 percent when compared to 2018. this increase was driven primarily by the increase in the average volume of loans : 25 ● of the $ 8.4 million increase in interest income on a tax-equivalent basis , $ 5.2 million of the increase was due primarily to the increased volume of earning assets and $ 3.2 million of the increase was due to an increase in yields on average interest-earning assets . ● the yield on interest-earning assets increased 21 basis points to 5.18 percent in 2019 when compared to 2018 . ● the average volume of interest-earning assets increased $ 105.3 million to $ 1.5 billion in 2019 compared to $ 1.4 billion in 2018. this was due primarily to a $ 105.4 million increase in average loans , primarily residential mortgage , commercial and consumer loans , and a $ 2.6 million increase in average federal funds , interest-bearing deposits and repos , partially offset by a $ 2.0 million decrease in average investment securities . total interest expense was $ 18.1 million in 2019 , an increase of $ 4.5 million or 33.6 percent compared to 2018. this increase was driven by the increased rates on interest-bearing deposits and volume of time deposits , partially offset by a decrease in the average volume of borrowed funds and subordinated debentures compared to a year ago : ● of the $ 4.5 million increase in interest expense , $ 3.0 million was due to increased rates on interest-bearing liabilities and $ 1.6 million was due to an increase in the volume of average interest-bearing liabilities . ● the average cost of interest-bearing liabilities increased 32 basis points to 1.64 percent in 2019 when compared to 2018. the cost of interest-bearing deposits and borrowed funds and subordinated debentures increased 36 basis points and 14 basis points , respectively , in 2019 ● interest-bearing liabilities averaged $ 1.1 billion in 2019 , an increase of $ 72.1 million or 7.0 percent , compared to 2018. the increase in interest-bearing liabilities was primarily due to an increase in average time deposits . the following table reflects the components of net interest income , setting forth for the periods presented herein : ( 1 ) average assets , liabilities and shareholders ' equity , ( 2 ) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities , ( 3 ) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities , ( 4 ) net interest spread , and ( 5 ) net interest income/margin on average earning assets . rates/yields are computed on a fully tax-equivalent basis , assuming a federal income tax rate of 21 percent . story_separator_special_tag 26 consolidated average balance sheets ( dollar amounts in thousands , interest amounts and interest rates/yields on a fully tax-equivalent basis ) replace_table_token_4_th ( a ) yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis . they are reduced by the nondeductible portion of interest expense , assuming a federal tax rate of 21 percent in 2020 , 2019 and 2018 and 35 percent in prior years and applicable state rates . ( b ) the loan averages are stated net of unearned income , and the averages include loans on which the accrual of interest has been discontinued . 27 replace_table_token_5_th 28 the rate volume table below presents an analysis of the impact on interest income and expense resulting from changes in average volume and rates over the periods presented . changes that are not solely due to volume or rate variances have been allocated proportionally to both , based on their relative absolute values . amounts have been computed on a tax-equivalent basis , assuming a federal income tax rate of 21 percent . replace_table_token_6_th provision for loan losses the provision for loan losses totaled $ 7.0 million for 2020 , $ 2.1 million in 2019 and $ 2.1 million in 2018. the increase in provision for loan losses in 2020 was primarily due to the increased risk of loan defaults as a result of covid-19 . the company may incur elevated provisions until restrictions on businesses have been loosened and they can fully open . each period 's loan loss provision is the result of management 's analysis of the loan portfolio and reflects changes in the size and composition of the portfolio , the level of net charge-offs , delinquencies , current economic conditions and other internal and external factors impacting the risk within the loan portfolio . additional information may be found under the captions “ financial condition - asset quality ” and “ financial condition - allowance for loan losses and unfunded loan commitments. ” the current provision is considered appropriate based upon management 's assessment of the adequacy of the allowance for loan losses . 29 noninterest income the following table shows the components of noninterest income for the past three years : replace_table_token_7_th 2020 compared to 2019 noninterest income was $ 12.9 million for 2020 , a $ 3.4 million increase compared to $ 9.5 million for 2019. this increase was primarily due to increased gains on sales of mortgages . changes in noninterest income reflect : ● branch fee income decreased $ 456 thousand to $ 1.0 million when compared to 2019 , primarily due to a decrease in overdraft fees and transactions as a result of covid-19 . ● service and loan fee income , which consists of prepayment fees , application fees and servicing fees , decreased $ 223 thousand in 2020 , primarily due to lower loan late charges from waived fees for customers during the covid-19 pandemic . ● net gains on the sale of sba loans increased $ 733 thousand in 2020 as a result of higher premiums on loan sales . in 2020 , $ 18.2 million in sba loans were sold compared to $ 14.9 million in the prior year . ● gains on sales of mortgage loans increased $ 4.2 million in 2020 as a result of a volume increase . during the year , $ 290.8 million in residential mortgage loans were sold at a gain of $ 6.3 million compared to $ 120.2 million in loans sold at a gain of $ 2.1 million during the prior year . ● boli income increased $ 25 thousand from prior year . ● gains on sales of securities totaled $ 322 thousand in 2020 , compared to $ 52 thousand in 2019. in 2020 , these gains were partially offset by $ 229 thousand from the decrease in the market value of equity securities , as compared to an increase of $ 321 thousand in 2019 . ● there were no gains on sale of premises and equipment in 2020. the 2019 gain in premises and equipment was primarily due to the sale of our union , nj branch building . ● other income increased $ 120 thousand , primarily due to an increase in wire transfer fee income . 2019 compared to 2018 noninterest income was $ 9.5 million for 2019 , a $ 508 thousand increase compared to $ 9.0 million for 2018. this increase was primarily due to market fluctuations on our equity securities and increased gains on sales of mortgages . changes in noninterest income reflect : ● branch fee income decreased $ 17 thousand to $ 1.5 million when compared to 2018 . ● service and loan fee income , which consists of prepayment fees , applications fees and servicing fees , decreased $ 165 thousand in 2019 . 30 ● net gains on the sale of sba loans decreased $ 771 thousand to $ 909 thousand in 2019 due to a decrease in the volume of sba loans sales . in 2019 , $ 14.9 million in sba loans were sold compared to $ 22.3 million in the prior year . the company elected not to sell sba loans during the third quarter of 2019 . ● during 2019 , $ 120.2 million in residential mortgage loans were sold at a gain of $ 2.1 million compared to $ 80.7 million in loans sold at a gain of $ 1.7 million during the prior year . ● boli income decreased $ 387 thousand from prior year , primarily due to a $ 291 thousand death benefit in the third quarter of 2018 .
| ● a 24.6 percent increase in total deposits with a 64.3 percent increase in noninterest-bearing demand deposits and a 28.3 percent increase in interest-bearing demand deposits . the company 's performance ratios for the past three years are listed in the following table : replace_table_token_2_th ( 1 ) defined as net income divided by weighted average shares outstanding . ( 2 ) defined as net income divided by the sum of weighted average shares and the potential dilutive impact of the exercise of outstanding options . ( 3 ) defined as net income divided by average shareholders ' equity . ( 4 ) the efficiency ratio is a non-gaap measure of operational performance . it is defined as noninterest expense divided by the sum of net interest income plus noninterest income less any gains or losses on securities . covid-19 on march 13 , 2020 , the coronavirus disease ( “ covid-19 ” ) pandemic was declared a national emergency by the president of the united states . the spread of covid-19 has negatively impacted the national and local economy , disrupted supply chains and increased unemployment levels . in response to the covid-19 pandemic , many businesses have been faced with restrictions in an effort to prioritize public health . the initial temporary closure and gradual reopening of many businesses and the implementation of social distancing and stay-at-home policies has and will continue to impact many of the company 's customers . covid-19 continues to aggressively spread globally and in the united states . the company is committed to supporting its customers , employees and communities during this difficult time and has adapted to the changing environment . we have taken and continue taking steps to protect the health and safety of our employees and to work with our customers experiencing economic consequences from the epidemic . the company has and is working with its loan customers to provide short term payment deferrals and to waive certain fees . these accommodations are likely to have a negative impact on the company 's results of operations during
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to augment our existing manufacturing capabilities , we have constructed building 55 , a 50,000 square foot large-scale manufacturing facility on our lansing campus . in july 2010 , we entered into an agreement with the biomedical advanced research and development authority , or barda , to finalize development of and obtain regulatory approval for large-scale manufacturing of biothrax in building 55. this agreement provides for funding from barda of up to approximately $ 107 million over a five-year contract term , including a two-year base period of performance valued at approximately $ 55 million . in november 2009 , we purchased a building in baltimore , maryland for product development and manufacturing purposes , and are in the process of completing renovation , improvement and equipment acquisitions at this facility . we have entered into two loan agreements with pnc bank totaling up to $ 42.0 million to fund these renovations , improvements and equipment acquisitions . our specific plans for this facility will be contingent on the progress of our existing development programs and the outcome of our efforts to acquire new product candidates . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses , income taxes , stock-based compensation , investments , in-process research and development , goodwill and contingent value rights . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements . revenue recognition we recognize revenues from product sales if four basic criteria have been met : § there is persuasive evidence of an arrangement ; § delivery has occurred or title has passed to our customer based on contract terms ; § the fee is fixed or determinable ; and § collectibility is reasonably assured . we have generated biothrax sales revenues under u.s. government contracts with hhs and the cdc . under our current contract with the cdc , we invoice the cdc and recognize the related revenues upon acceptance by the government at the delivery site , at which time title to the product passes to the cdc . from time to time , we are awarded reimbursement contracts for services and development grant contracts with government entities and philanthropic organizations . under these contracts , we typically are reimbursed for our costs as we perform specific development activities , and we may also be entitled to additional fees . revenue on our reimbursable contracts is recognized as costs are incurred , generally based on the allowable costs incurred during the period , plus any recognizable earned fee . the amounts that we receive under these contracts vary greatly from quarter to quarter , depending on the scope and nature of the work performed . we record the reimbursement of our costs and any associated fees as contracts and grants revenue and the associated costs as research and development expense . we also generate revenues from our collaborations in which certain internal and external research and development costs and patent costs are reimbursed in connection with our collaboration agreements . reimbursed costs under our agreement with pfizer are recognized as revenue in the period in which the costs are incurred . under the collaboration agreement with abbott , which abbott terminated effective march 20 , 2012 , abbott shares development and clinical costs with us equally . each quarter the parties are required to report the total costs incurred for development . the total spending by each party is then compared to the spending by the other party . in the event that our spending for a given quarter exceeds the spending of abbott , we record a net receivable in our financial statements for the difference between our spending and 50 % of the total spending for the period , and recognize revenue equal to this amount . if abbott 's spending for the quarterly period exceeds our spending , we record a net payable in our financial statements equal to the difference between our spending and 50 % of the total spending , and record additional research and development expenses in this amount . as a result , our revenues and research and development expenses for periods that end prior to or include the termination date of the collaboration agreement may fluctuate depending on which party in the collaboration incurred the majority of the development costs in any particular quarterly period . contracts and grants revenues are subject to the estimation processes to the extent that the reimbursable costs underlying these revenues are incurred but not billed and agreed to on a timely basis , and are subject to change in future periods when actual costs are known . to date we have not made material adjustments to these estimates . we recognize revenues from the achievement of research and development milestones , if deemed substantive , when the milestones are achieved . if not deemed substantive , we recognize revenue on a straight line basis over the remaining expected term of continued involvement in the research and development process . inventories inventories are stated at the lower of cost or market , with cost being determined using a standard cost method , which approximates average cost . story_separator_special_tag average cost consists primarily of material , labor and manufacturing overhead expenses and includes the services and products of third party suppliers . we analyze our inventory levels quarterly and write down inventory that has become obsolete , inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected customer demand . we also write off costs related to expired inventory . we capitalize the costs associated with the manufacture of biothrax as inventory from the initiation of the manufacturing process through the completion of manufacturing , labeling and packaging . income taxes under the asset and liability method of income tax accounting , deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis of assets and liabilities and are measured using the tax rates and laws that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . a net deferred tax asset or liability is reported on the balance sheet . our deferred tax assets include the unamortized portion of in-process research and development expenses , the anticipated future benefit of the net operating losses and other timing differences between the financial reporting and tax basis of assets and liabilities . we have historically incurred net operating losses for income tax purposes in some states , primarily maryland , and in some foreign jurisdictions , primarily the united kingdom . in connection with our october 2010 acquisition of trubion pharmaceuticals , inc. , or trubion , we acquired significant federal net operating losses and research and development tax credits along with other tax attributes . the amount of the deferred tax assets on our balance sheet reflects our expectations regarding our ability to use our net operating losses and research and development tax credit carryforwards , including those acquired in our acquisition of trubion , to offset future taxable income . the applicable tax rules in particular jurisdictions limit our ability to use net operating losses and research and development tax credit carryforwards as a result of ownership changes . in particular , we believe that these rules will significantly limit our ability to use net operating losses generated by microscience limited , or microscience , and antex biologics , inc. , or antex , prior to our acquisition of microscience in june 2005 and our acquisition of substantially all of the assets of antex in may 2003. we do not expect that these limitation rules will significantly limit the net operating losses and research and development tax credit carryforwards acquired in the trubion acquisition . we review our deferred tax assets on a quarterly basis to assess our ability to realize the benefit from these deferred tax assets . if we determine that it is more likely than not that the amount of our expected future taxable income will not be sufficient to allow us to fully utilize our deferred tax assets , we increase our valuation allowance against deferred tax assets by recording a provision for income taxes on our income statement , which reduces net income or increases net loss for that period and reduces our deferred tax assets on our balance sheet . if we determine that the amount of our expected future taxable income will allow us to utilize net operating losses in excess of our net deferred tax assets , we reduce our valuation allowance by recording a benefit from income taxes on our income statement , which increases net income or reduces net loss for that period and increases our deferred tax assets on our balance sheet . uncertainty in income taxes is accounted for using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . we recognize in our financial statements the impact of a tax position if that position is more likely than not of being sustained on audit , based on the technical merits of the position . contingent value rights in accordance with the terms of our acquisition of trubion in october 2010 , we have committed to make potential future contingent value right , or cvr , payments to former shareholders and stock option holders of trubion . the obligation to make cvr payments expires on october 28 , 2013. cvr payments generally become due and payable only upon achievement of certain developmental , regulatory or commercial milestones . the obligation for these contingencies has been recorded in our financial statements at fair value . the fair value model used for the cvr obligations is based on a discounted cash flow model that has been risk adjusted based on the probability of achievement of the milestones . we re-evaluate the fair value of the cvr obligations on a quarterly basis . any future increase in the fair value of the cvr obligations , based on an increased likelihood that the underlying milestones will be achieved and the associated payment or payments will therefore become due and payable , will result in a charge to research and development expense in the period in which the increase is determined . similarly , any future decrease in the fair value of the cvr obligation will result in a reduction in research and development expense . acquired in-process research and development acquired in-process research and development , or ipr & d , represents the fair value assigned to research and development assets that we acquire that have not been completed at the date of acquisition . the value assigned to acquired ipr & d is determined by estimating the costs to develop the acquired technology into commercially viable products , estimating the resulting revenue from the projects , and discounting the net cash flows to present value . the revenue and costs projections used to value acquired ipr & d were , as applicable , reduced based on the probability of developing a new product .
| contracts and grants revenue for 2010 primarily consisted of $ 30.6 million from niaid and barda , $ 2.2 million from abbott and pfizer , $ 1.2 million related to the u.s. government 's therapeutic-discovery project program and $ 750,000 from a milestone payment related to the 2008 sale of technology rights and related materials to our pertussis technology . cost of product sales cost of product sales decreased by $ 4.9 million , or 10 % , to $ 42.2 million for 2011 from $ 47.1 million for 2010. this decrease was attributable to the 21 % decrease in the number of biothrax doses sold , partially offset by an increase in the cost per dose sold associated with decreased production yields in the period in which the doses were produced . research and development expenses research and development expenses increased by $ 35.5 million , or 40 % , to $ 124.8 million for 2011 from $ 89.3 million for 2010. this increase primarily reflects higher contract service and personnel-related costs , and includes increased expenses of $ 30.0 million for product candidates and technology platform development activities that are categorized in the biosciences segment , increased expenses of $ 4.0 million for product candidates that are categorized in the biodefense segment , and increased expenses of $ 1.6 million in other research and development , which are in support of central research and development activities . during 2011 and 2010 , we incurred research and development expenses net of development contract and grant reimbursements along with the net loss attributable to noncontrolling interests of $ 47.0 million and $ 50.0 million , respectively . the increase in spending on biodefense product candidates , detailed in the table below , was primarily attributable to the timing of development efforts on various programs as we completed various studies and prepared for subsequent studies and trials . the increase in spending for nuthrax was due to manufacturing , process characterization , assay validation and the conduct of clinical trial activities . the increase in spending for our large-scale manufacturing for biothrax program was primarily due to characterization assay development , validation activities and manufacturing
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as of december 31 , 2020 , our mob segment had an occupancy of 91.6 % with a weighted-average remaining lease term of 4.9 years , ( based on annualized straight-line rent as of december 31 , 2020 ) and our triple-net leased healthcare facilities segment had an occupancy of 94.5 % with a weighted average remaining lease term of 6.5 years ( based on annualized straight-line rent as of december 31 , 2020 ) and our shop segment had an occupancy of 75.1 % . during the year ended december 31 , 2020 , we experienced a decline in occupancy and an increase in costs at our shop portfolio , however , we received grants under the cares act of $ 3.6 million that helped offset the covid-19 related operating 56 costs . subsequent to december 31 , 2020 , we received an additional $ 5.1 million in funding through the cares act . for additional information on our shop portfolio , see the “ management actions - seniors housing properties ” section below . capital market volatility and a tightening of credit standards could negatively impact our ability to obtain debt financing . we do not have any significant debt principal repayments due until 2024. the volatility in the financial market could negatively impact our ability to raise capital through equity offerings , which as a result , could impact our decisions as to when and if we will seek additional equity funding . the negative impact of the pandemic on our results of operations and cash flows could impact our ability to comply with covenants in our senior “ credit facility ” and the amount available for future borrowings thereunder . the potential negative impact on the health of personnel of our advisor and operators of our shop facilities , particularly if a significant number of the advisor 's employees or operator 's employees are impacted , could result in a deterioration in our ability to ensure business continuity . for additional information on the risks and uncertainties associated with the covid-19 pandemic , please see item 1a . “ risk factors — we are subject to risks associated with a pandemic , epidemic or outbreak of a contagious disease , such as the ongoing global covid-19 pandemic ” included in this annual report on form 10-k for the year ended december 31 , 2020. the advisor has responded to the challenges resulting from the covid-19 pandemic . beginning in early march , the advisor took proactive steps to prepare for and actively mitigate the inevitable disruption covid-19 would cause , such as enacting safety measures , both required or recommended by local and federal authorities , including remote working policies , cooperation with localized closure or curfew directives , and social distancing measures at all of our properties . additionally , there has been no material adverse impact on our financial reporting systems or internal controls and procedures and the advisor 's ability to perform services for us . in light of the current covid-19 pandemic , we are supplementing the historical discussion of our results of operations for the year ended december 31 , 2020 with a current update on the measures we have taken to mitigate the negative impacts of the pandemic on our business and future results of operations . management 's actions rent collections we have taken several steps to mitigate the impact of the pandemic on our business . for rent collections , we have been in direct contact with our tenants and operators since the crisis began , cultivating open dialogue and deepening the fundamental relationships that we have carefully developed through prior transactions and historic operations . based on this approach and the overall financial strength and creditworthiness of our tenants , we believe that we have had positive results in our cash rent collections during this pandemic . we have collected approximately 100 % of the original cash rent due for the fourth quarter of 2020 in our mob segment and 100 % in our triple-net leased healthcare facilities segment . cash rental payments for our 59 shops is primarily paid for by the residents through private payer insurance or directly , and to a lesser extent , by government reimbursement programs such as medicaid and medicare . these cash rental payments are subject to timing differences , therefore we have not provided the amount of second , third or fourth quarter 2020 cash rent collected for our shop segment . rent collections in january and february 2021 were materially consistent with the fourth quarter 2020 , and we expect this trend to continue . we have also granted rent concessions which serve to reduce revenue in our shop segment . the impact of the covid-19 pandemic on our tenants and operators thus our ability to collect rents in future periods can not be determined at present . seniors housing properties in early march 2020 , we implemented preventative actions at all our seniors housing properties in our shop segment , including restrictions on visitation except in very limited and controlled circumstances , social distancing measures , and the screening of all persons entering these facilities . some of the additional steps we have taken to address the covid-19 pandemic include , enhanced training for staff members , the implementation of telehealth to help residents be safe while keeping appointments with important , but non-emergency , health providers , virtual tours for potential new residents , and agreements between some of our facilities and local lab partners to provide testing services . starting in march 2020 , the covid-19 pandemic and measures to prevent its spread began to affect us in a number of ways . in our shop portfolio , occupancy has trended lower since the second half of march 2020 as government policies and implementation of infection control best practices and prospective residents ' concerns about communal-setting covid-19 spread and prospective residents ' concerns about communal-setting covid-19 spread limited resident move-ins . story_separator_special_tag these and other impacts of the covid-19 pandemic have affected and could continue to affect our ability to fill vacancies . we have also continued to experience lower inquiry volumes and reduced in-person tours during the pandemic . shop occupancy has continued to decline from 84.1 % as of march 31 , 2020 , to 79.5 % as of june 30 , 2020 , to 77.9 % , as of september 30 , 2020 and 75.1 % as of december 31 , 2020. the declines in revenue we experienced during the fourth quarter were primarily attributable 57 to this decline in occupancy which also represented a decline from december 31 , 2019 , when shop occupancy was 85.7 % . in addition , starting in mid-march , operating costs began to rise materially , including for services , labor and personal protective equipment and other supplies , as our operators took appropriate actions to protect residents and caregivers . at our shop facilities , we bear these cost increases . these trends accelerated during the second , third and fourth quarters of 2020 and into the beginning of the first quarter of 2021 as the surge of new covid-19 cases that started in late 2020 crested , and may continue to impact us in the and have a material adverse effect on our revenues and income in the other quarters thereafter . we believe that , as infections decline and more vaccinations are administered during 2021 , our occupancy will stop declining , and may start to increase , but there can be no assurance as to when or if we will be able to approach pre-pandemic levels of occupancy . the pandemic raises the risk of an elevated level of resident exposure to illness and restrictions on move-ins at our shops , which has and could also continue to adversely impact occupancy and revenues as well as increase costs . we believe that the actions we have taken help reduce the incidences of covid-19 at our properties , but there can be no assurance in this regard . there have been some incidences of covid-19 among the residents and staff at certain of our seniors housing properties . further incidences , or the perception that outbreaks may occur , could materially and adversely affect our revenues and income , as well as cause reputational harm to us and our tenants , managers and operators . the extent to which the ongoing global covid-19 pandemic , including the outbreaks that have occurred and may occur in markets where we own properties , impacts our operations and those of our tenants and third-party operators , will continue to depend on future developments , including the scope , severity and duration of the pandemic , and the actions taken to contain the covid-19 or treat its impact , among others , which are highly uncertain and can not be predicted with confidence , but could be material . on march 27 , 2020 , coronavirus aid , relief , and economic security act ( “ cares act ” ) was signed into law and it provides funding to medicare providers in order to provide financial relief during the covid-19 pandemic . funds provided under the program were to be used for the preparation , prevention , and medical response to covid-19 , and were designated to reimburse providers for healthcare related expenses and lost revenues attributable to covid-19 . as of december 31 , 2020 w e received $ 3.6 million in these funds related to four of our shops and we considered the funds to be a grant contribution from the government . the full amount was recognized as a reduction of property operating expenses in our consolidated statement of operations for the year ended december 31 , 2020 to offset the incurred covid-19 expenses . subsequent to december 31 , 2020 , we received an additional $ 5.1 million in cares act funding which will reduce property operating expenses incurred due to covid-19 during the first quarter of 2021. there can be no assurance that the program will be extended or any further amounts received under currently effective or potential future government programs . significant accounting estimates and critical accounting policies set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and critical accounting policies include : impacts of the covid-19 pandemic as discussed above we have taken a proactive approach to achieve mutually agreeable solutions with its tenants and in some cases , in the second , third and fourth quarters of 2020 , we executed lease amendments providing for deferral of rent . for accounting purposes , in accordance with asc 842 : leases , normally a company would be required to assess a lease modification to determine if the lease modification should be treated as a separate lease and if not , modification accounting would be applied which would require a company to reassess the classification of the lease ( including leases for which the prior classification under asc 840 was retained as part of the election to apply the package of practical expedients allowed upon the adoption of asc 842 , which does n't apply to leases subsequently modified ) . however , in light of the covid-19 pandemic in which many leases are being modified , the fasb and sec have provided relief that allows companies to make a policy election as to whether they treat covid-19 related lease amendments as a provision included in the pre-concession arrangement , and therefore , not a lease modification , or to treat the lease amendment as a modification .
| operating fees to related parties operating fees to related parties increased $ 0.5 million to $ 23.9 million for the year ended december 31 , 2020 from $ 23.4 million for the year ended december 31 , 2019. our advisor and property manager are paid for asset management and property management services for managing our properties on a day-to-day basis . the fixed portion of the base management fee we pay for asset management services is equal to $ 1.6 million per month , while the variable portion of the base management fee is equal , per month , to one twelfth per month of 1.25 % of the cumulative net proceeds of any equity the we raise . asset management fees increased $ 0.5 million to $ 20.0 million for the year ended december 31 , 2020 , due to the increase in the variable portion of the base management fee related to the issuance and sale of series a preferred stock in december 2019. property management fees increased $ 0.3 million to $ 4.2 million , inclusive of $ 0.3 million of leasing commissions paid , during the year ended december 31 , 2020 from $ 3.9 million during the year ended december 31 , 2019. property management fees increase or decrease in direct correlation with gross revenues of the properties managed . see note 9 — related party transactions and arrangements to our consolidated financial statements found in this annual report on form 10-k which provides detail on our fees and expense reimbursements . acquisition and transaction related expenses acquisition and transaction related expenses were $ 0.2 million for the year ended december 31 , 2020 and $ 0.4 million for the year ended december 31 , 2019. the expenses in both periods primarily related to indirect costs associated with potential acquisitions . general and administrative expenses general and administrative expenses increased $ 1.0 million to $ 21.6 million for the year ended december 31 , 2020 compared to $ 20.5 million for the year ended december 31 , 2019 , which includes a $ 0.8 million increase in expense reimbursements to related parties . the increase in expense reimbursements to related parties was primarily
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while we have seen a reduction in the availability of supplies and an increase in costs , our procurement efforts have helped create a positive supply chain for our company and clients during the pandemic , particularly as city and state mandates on ppe for employees have arisen . we will continue to monitor our supply chain for potential impacts as future developments unfold . the pandemic continues to create a dynamic client environment , and we are working diligently to ensure our clients ' changing staffing and service needs are met . we are also developing new cleaning initiatives in accordance with various protocols issued by global experts , including deep cleaning services , special project cleaning services , and other work orders . in april 2020 , we announced our enhancedclean tm program ( “ enhancedclean ” ) , an innovative solution that helps provide clients with healthy spaces . we designed enhancedclean under the guidance of experts on infectious diseases and industrial hygiene to help provide our clients with processes that use hospital-grade disinfectants , specialized equipment , and innovative solutions and technology . these solutions include : hygiene and safety protocols , utilization of disinfecting procedures and products for high-touch surfaces , employment of ppe , and communication and training protocols . expense management as we adapted to the changing demand environment resulting from the pandemic , during 2020 we implemented numerous cost cutting actions , such as : various human capital management actions , including : temporary pay reductions for executives , certain employees , and our board of directors , with full pay reinstated as of august 1 , 2020 ; 22 temporary furloughs or reduced working hours for certain staff and management employees , most of whom returned to work effective august 1 , 2020 ; and the temporary suspension of certain benefits , including our 401 ( k ) match , which will be reinstated effective january 1 , 2021 ; actively managing direct labor and related personnel costs , including furloughs or reduced hours for certain service employees in markets significantly impacted by business slowdowns and shutdowns ; reducing our planned capital expenditures and operating expenditures for 2020 , including the postponement of various technology initiatives ( such as implementing our erp system ) that were deemed non-critical to our operations , some of which we re-engaged during the fourth quarter ; and limiting travel and entertainment expenses ; and reducing our sales expenses and discretionary spending projects across the company . liquidity , cash flows , and financial position as of october 31 , 2020 , we had $ 394.2 million of cash and cash equivalents , and we had net cash provided by operating activities of $ 457.5 million during th e year ended october 31 , 2020. we have taken and continue to take actions to help preserve cash , increase liquidity , and strengthen our financial position , including : borrowing approximately $ 300 million under our line of credit in march 2020 , which represented all remaining amounts then available under our credit facility , as a precautionary measure to provide increased liquidity and preserve financial flexibility due to uncertainty resulting from the pandemic ( refer to “ liquidity and capital resources ” for more information ) . during the quarter ended july 31 , 2020 , we repaid substantially all of these amounts borrowed under the revolving line of credit without penalty . we have not borrowed additionally in the fourth quarter of 2020 ; amending our credit facility on may 28 , 2020 , to further enhance our financial flexibility as a precautionary measure in response to uncertainty arising from the pandemic ( refer to “ liquidity and capital resources ” for more information ) ; focusing on collection of client receivables and monitoring the adequacy of our reserves ; extending vendor payment terms where possible ; utilizing certain governmental relief efforts ( as further described below ) ; and suspending share repurchases under our share repurchase program . as a result of the actions taken above , we were able to strengthen our cash flow in fiscal 2020 , allowing us to pay down our line of credit borrowings . as of october 31 , 2020 , this resulted in a borrowing capacity of $ 596.6 million , reflecting covenant restrictions . in addition , we had $ 394.2 million of cash and cash equivalents , as noted above . in response to the pandemic , congress enacted the coronavirus aid , relief , and economic security act ( “ cares act ” ) on march 27 , 2020. the cares act provides various stimulus measures , including several income tax and payroll tax provisions . among the payroll tax provisions is the creation of a refundable credit for employee retention and the deferral of certain payroll tax remittances through december 31 , 2020 , to future years ( with 50 % of the deferred amount due by december 31 , 2021 , and the remaining 50 % due by december 31 , 2022 ) . we evaluated the impact of business tax provisions in the cares act . the impact of the income tax provisions was not material . the impact of the payroll tax provisions was the deferral of approximately $ 101 million of payroll tax as of october 31 , 2020. additionally , we received grants under the united kingdom 's job retention scheme to reimburse us for a portion of certain furloughed employees ' salaries . the pandemic is an unprecedented situation and is continuously evolving . since we can not predict the duration or scope of the pandemic , we can not fully anticipate or reasonably estimate all the ways in which the current global health crisis and financial market conditions could adversely impact our business in 2021 or in the future . story_separator_special_tag even after the pandemic has moderated and the business and social distancing restrictions have eased , we may continue to experience adverse effects on our business , consolidated results of operations , financial position , and cash flows resulting from a recessionary economic environment that may persist . 23 the pandemic has had a profoundly negative impact on the public health and safety of the global and american public . as a result , the global and u.s. economies continue to experience significant uncertainty . gross domestic product has demonstrated considerable volatility since the onset of the pandemic , contracting to a historic and sudden low during 2020. the unemployment rate has more than doubled , as well , given the struggling macroeconomic environment . these factors have led to lower demand for some of our services in certain end-markets . to date , the pandemic has impacted and is expected to continue impacting global communities and commerce for the foreseeable future . restructuring and related costs we may periodically engage in various restructuring activities intended to drive long-term profitable growth and increase operational efficiency , which can include streamlining and realigning our overall organizational structure and reallocating resources . these activities may result in restructuring costs related to employee severance , other project fees , external support fees , lease exit costs , and asset impairment charges . gca restructuring and other initiatives following the acquisition of gca , during the first quarter of 2018 , we initiated a restructuring program to achieve cost synergies and subsequently incurred expenses primarily related to employee severance , the migration and upgrade of several key technology platforms , and the consolidation of certain real estate leases . additionally , during 2019 , we reorganized our former healthcare business and incurred immaterial severance expense . in early 2020 , we continued our technology-based modernization efforts , including standardizing our financial systems . however , due to the pandemic , the majority of these projects have been temporarily suspended since the second quarter of 2020. replace_table_token_2_th insurance reserves we use a combination of insured and self-insurance programs to cover workers ' compensation , general liability , automobile liability , property damage , and other insurable risks . insurance claim liabilities represent our estimate of retained risks without regard to insurance coverage . we retain a substantial portion of the risk related to certain workers ' compensation and medical claims . liabilities associated with these losses include estimates of both filed claims and incurred but not reported claims ( “ ibnr claims ” ) . with the assistance of third-party actuaries , we periodically review our estimate of ultimate losses for ibnr claims and adjust our required self-insurance reserves as appropriate . as part of this evaluation , we review the status of existing and new claim reserves as established by third-party claims administrators . the third-party claims administrators establish the case reserves based upon known factors related to the type and severity of the claims , demographic factors , legislative matters , and case law , as appropriate . we compare actual trends to expected trends and monitor claims developments . the specific case reserves estimated by the third-party administrators are provided to an actuary who assists us in projecting an actuarial estimate of the overall ultimate losses for our self-insured or high deductible programs , which includes the case reserves plus an actuarial estimate of reserves required for additional developments , such as ibnr claims . we utilize the results of actuarial studies to estimate our insurance rates and insurance reserves for future periods and to adjust reserves , if appropriate , for prior years . the actuarial reviews demonstrate that the changes we have made to our risk management program continue to positively impact the frequency and severity of claims . the claims management strategies and programs that we have implemented have resulted in improvements . furthermore , we continue to adjust our reserves consistent with known fact patterns . based on the results of the actuarial reviews performed , we decreased our total reserves for known claims as well as our estimate of the loss amounts associated with ibnr claims by $ 36.6 million , $ 30.2 million of which relates to prior years , during 2020. in 2019 , we decreased our total reserves related to prior year claims by $ 3.4 million . 24 key financial highlights revenues decreased by $ 511.0 million , or 7.9 % , during 2020 , as compared to 2019 , primarily due to the impact of pandemic-related disruptions across our businesses . revenues were also impacted by the loss of certain accounts , primarily in our aviation business and our u.s. b & i business . however , this decrease was partially offset by the expansion of certain accounts and new business within b & i , t & m , and technical solutions ( primarily before pandemic-related disruptions ) , as well as by a significant increase in work orders and new services , including enhancedclean , primarily relating to the pandemic . operating profit decreased by $ 112.6 million , or 54.0 % , during 2020 , as compared to 2019. the decrease in operating profit is primarily attributable to impairment charges recorded on goodwill and intangible assets totaling $ 172.8 million due to the adverse impact of market and business conditions resulting from the pandemic . the decrease was also driven by account compression resulting from : pandemic-related disruptions in certain markets ; a reserve on notes receivable related to a unique , entertainment-related project within technical solutions , mainly associated with increasing credit risk resulting from the pandemic ; an increase in bad debt expense primarily due to specific reserves established for client receivables associated with increasing credit risk in certain industries ( including for clients with deteriorating credit ratings and resulting bankruptcies ) arising from the pandemic ; and investments in enhancedclean , other pandemic-related projects , and certain corporate initiatives .
| selling , general and administrative expenses selling , general and administrative expenses increased by $ 53.2 million , or 11.7 % , during 2020 , as compared to 2019. the increase in selling , general and administrative expenses was primarily attributable to : a $ 17.6 million reserve on notes receivable related to a unique , entertainment-related project within technical solutions , mainly associated with increasing credit risk resulting from the pandemic ; 26 a $ 13.1 million increase related to investments in enhancedclean , other pandemic-related projects , and certain corporate initiatives ; a $ 12.9 million increase in bad debt expense primarily due to specific reserves established for client receivables associated with increasing credit risk in certain industries ( including for clients with deteriorating credit ratings and resulting bankruptcies ) arising from the pandemic ; an $ 11.6 million increase in legal costs and settlements ; and a $ 4.6 million increase in medical and dental insurance expense as a result of actuarial evaluations performed in the year ended october 31 , 2020. this increase was partially offset by : the absence of a $ 3.9 million reserve for an anticipated union pension settlement in the prior year ; and a $ 3.5 million decrease in compensation and related expenses mainly due to management and staff labor reductions , including wage reductions , employee furloughs , and the suspension of certain benefits such as 401 ( k ) matching , and also due to a decrease in travel and entertainment expenses , partially offset by additional share-based compensation expense . restructuring and related expenses restructuring and related expenses decreased by $ 3.6 million , or 32.2 % , during 2020 , as compared to 2019. the decrease was primarily due to a decline in severance , other expenses incurred in the prior year related to the gca integration , and expenses related to our ongoing technology initiatives . the majority of these initiatives have been temporarily suspended since the second quarter of 2020 due to the pandemic . amortization of intangible assets amortization of intangible assets decreased by $ 10.1 million , or 17.3 % , during 2020 , as compared to 2019 , mainly due to the lower intangible assets balance resulting from the impairment loss recorded in the second quarter of 2020 and to certain intangible assets being amortized using the sum-of-the-years'-digits method , which results in declining amortization expense over the useful lives of the assets . impairment loss during 2020 , we recorded impairment charges on goodwill related to our education , aviation , and u.k. technical solutions businesses totaling $ 163.8
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a continuing strong u.s. dollar could adversely affect our reported revenues and profitability , both from a translation perspective as well as a competitive perspective , as the cost of our international competitors ' products and solutions improves relative to our products and solutions . a strengthening dollar could also affect the demand for u.s. goods sold to consumers in other countries through our global ecommerce solutions . story_separator_special_tag 2013 as margin improvement in our presort operations and marketing services more than offset our continuing investment in our global ecommerce solutions . business services revenue increased 6 % in 2013 compared to 2012 . revenue from our global ecommerce solutions increased revenue by 10 % , but lower marketing services fees resulting from certain contract renewals decreased revenue by 4 % . cost of business services 18 as a percentage of business services revenue increased to 71.3 % in 2013 compared to 66.7 % in 2012 primarily due to continuing investment in our global ecommerce solutions and lower marketing services fees . selling , general and administrative ( sg & a ) sg & a expense decreased 3 % in 2014 compared to 2013 . the decrease was primarily due to the benefits of our restructuring actions and productivity initiatives and lower depreciation expense . these benefits were partially offset by expenses of $ 36 million incurred in connection with expanded branding and marketing programs and the planned implementation of an erp system . sg & a expense decreased 5 % in 2013 compared to 2012 primarily driven by lower employee-related costs resulting from ongoing restructuring actions and productivity initiatives . restructuring charges and asset impairments , net in 2013 , we initiated actions designed to enhance our responsiveness to changing market conditions , further streamline our business operations , reduce our cost structure and create long-term flexibility to invest in growth ( operational excellence ) . this program was completed as of december 31 , 2014. total restructuring charges recorded in 2013 and 2014 related to this program were $ 157 million . we anticipate this program will provide annualized pre-tax benefits of $ 130 to $ 165 million , net of investments , by 2016. in addition , a non-cash asset impairment charge of $ 26 million was recorded in 2013 to write-down the carrying value of our corporate headquarters building to its fair value . see note 11 to the consolidated financial statements for further details . other expense , net other expense , net for 2014 includes costs of $ 62 million incurred in connection with the early redemption of debt offset by $ 16 million recognized in connection with the divestiture of a partnership investment . see liquidity and capital resources - financings and capitalization and note 14 to the consolidated financial statements for further details . other expense , net for 2013 includes costs associated with the early redemption of debt . see liquidity and capital resources - financings and capitalization for further details . other expense , net in 2012 includes losses of $ 6 million on a forward rate swap agreement , $ 2 million on the early redemption of debt and $ 4 million on the sale of leveraged lease assets offset by income of $ 11 million from insurance proceeds received in connection with the 2011 presort facility fire . income taxes see note 14 to the consolidated financial statements . discontinued operations see note 3 to the consolidated financial statements . preferred stock dividends of subsidiaries attributable to noncontrolling interests see note 15 to the consolidated financial statements . business segments the principal products and services of each of our reportable segments are as follows : small & medium business solutions : north america mailing : includes the revenue and related expenses from the sale , rental , financing and servicing of mailing equipment and supplies for small and medium businesses to efficiently create mail and evidence postage in the u.s. and canada . international mailing : includes the revenue and related expenses from the sale , rental , financing and servicing of mailing equipment and supplies for small and medium businesses to efficiently create mail and evidence postage in areas outside north america . enterprise business solutions : production mail : includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation equipment , high-speed production print systems , supplies and related support services to large enterprise clients to process inbound and outbound mail . presort services : includes revenue and related expenses from presort mail services for our large enterprise clients to qualify large mail volumes for postal worksharing discounts . 19 digital commerce solutions : digital commerce solutions : includes the worldwide revenue and related expenses from ( i ) the sale of non-equipment-based mailing , customer information management , location intelligence and customer engagement solutions and related support services ; ( ii ) shipping and global ecommerce solutions ; and ( iii ) direct marketing services for targeted clients . segment earnings before interest and taxes ( ebit ) is determined by deducting from segment revenue the related costs and expenses attributable to the segment . segment ebit excludes interest , taxes , general corporate expenses , restructuring charges and asset impairment charges , which are not allocated to a particular business segment . management uses segment ebit to measure profitability and performance at the segment level . management believes segment ebit provides investors with a useful measure of our operating performance and underlying trends of the businesses . segment ebit may not be indicative of our overall consolidated performance and therefore , should be read in conjunction with our consolidated results of operations . refer to note 2 to the consolidated financial statements for a reconciliation of segment ebit to income from continuing operations before income taxes . revenue and ebit by business segment are presented in the tables below . replace_table_token_6_th replace_table_token_7_th small & medium business solutions north america mailing north america mailing revenue decreased 4 % in 2014 compared to 2013 . story_separator_special_tag this decrease was due to lower rentals revenue and support services revenue due to a decline in the number of installed meters in service and lower equipment sales primarily due to a temporary distraction due to the transition to an inside sales organization and reassignment of accounts and resources . financing revenue also declined due to lower equipment sales in current and prior years , but was offset by higher supply sales due to sales efficiencies and 20 favorable pricing . despite the decline in revenue , ebit remained relatively flat due to cost savings from the transition to an inside sales organization and other ongoing productivity initiatives and cost reductions . north america mailing revenue decreased 5 % in 2013 compared to 2012 . recurring stream revenues , comprised of supplies , rentals and financing revenue , declined 5 % primarily due to fewer meters in service and lower equipment sales in prior periods . the decline in recurring stream revenues caused a 3 % decline in north america mailing revenue . the remaining 2 % decrease was due to lower equipment sales and support services revenue primarily due to declines in the u.s. ebit decreased 1 % in 2013 compared to 2012 due to the decline in revenue , partially offset by various productivity initiatives . ebit also benefited from the progress made in implementing our go-to-market strategy designed to improve the sales process and reduce costs by providing our clients broader access to products and services through online and direct sales channels . international mailing international mailing revenue decreased 5 % in 2014 compared to 2013 primarily due to the exit of certain non-core product lines in norway , the transition of our business in certain european countries to a dealer network and lower equipment sales and rentals in france . ebit increased 24 % in 2014 compared to 2013 primarily due to productivity and cost reduction initiatives and savings from the transition to an inside sales organization in certain european markets . international mailing revenue in 2013 was relatively flat compared to 2012 as higher equipment sales , supplies sales and financing revenue were offset by lower rental revenue . equipment sales increased 1 % primarily due to higher sales in france and germany , partially offset by lower sales in the u.k. supplies revenue increased 2 % due to a stabilization in our international meter population , favorable pricing in the u.k. and higher sales in asia-pacific . rentals revenue declined 8 % primarily due to a change in mix from rental to equipment sales in france . ebit decreased 6 % in 2013 compared to 2012 primarily due to lower margins on equipment sales . enterprise business solutions production mail production mail revenue decreased 10 % in 2014 compared to 2013 primarily due to a 19 % decline in equipment sales due to significant installations of production mail inserters and high-speed printers to certain enterprise customers in 2013. support services revenue also declined but was more than offset by higher supplies revenue due to the growing base of production printers . ebit decreased 14 % in 2014 compared to 2013 primarily due to the decline in revenue . production mail revenue increased 6 % in 2013 compared to 2012 . higher sales and installations of large production printers globally and sorters in north america increased production mail revenue 8 % , while higher supplies sales due to the growing base of production printers increased production mail revenue 2 % . these increases were partially offset by lower support services revenue primarily due to fewer maintenance contracts on new equipment installations which caused a 3 % decline in production mail revenue . ebit increased 12 % in 2013 compared to 2012 primarily due to the increase in revenue and productivity improvement initiatives . presort services presort services revenue increased 6 % in 2014 compared to 2013 primarily due to a 2 % increase in the volume of first-class mail processed and improved operational efficiencies . ebit increased 18 % in 2014 compared to 2013 primarily due to the increase in revenue and improved operational efficiencies . presort services revenue in 2013 was flat compared to 2012 as reduced discounts in certain presort categories offset the impact of a 2 % increase in presort mail volumes . ebit decreased 22 % in 2013 compared to 2012 primarily due to a benefit of $ 11 million from insurance recoveries in 2012 and margin compression in 2013. digital commerce solutions dcs revenue increase d 21 % in 2014 compared to 2013 . of this amount , 16 % was due to higher revenue from our global ecommerce solutions due to an increase in the number of orders processed and parcels shipped . late in the third quarter , we began outbound ecommerce services from the u.k. , which had a small benefit to the full-year revenue . higher licensing revenue from our software solutions products , particularly enterprise location intelligence , increased dcs revenue 5 % . licensing revenue increased 36 % in north america and 29 % internationally , primarily due to product enhancements and investments in the specialization of the software sales channel . ebit increase d 53 % in 2014 compared to 2013 primarily due to the increase in revenue and improved operating leverage which offset fixed costs and continued investments in global ecommerce technology and infrastructure . dcs revenue increase d 4 % in 2013 compared to 2012 . revenue from our global ecommerce solutions and our digital mail delivery service drove a 10 % increase in dcs revenue . however , this revenue growth was partially offset by a decline in worldwide software revenue and lower marketing services fees , which caused dcs revenue to decline 4 % and 3 % , respectively . ebit increased 3 % in 2013 21 compared to 2012 as higher volumes in global ecommerce parcels helped partially offset the high level of fixed costs and our continuing investment in this business and reduced margins on equipment sales .
| of this amount , 3 % was due to targeted outreach to customers and favorable pricing in our postage meter business and the remaining 2 % was due to the growing base of production print equipment . cost of supplies as a percentage of supplies revenue was virtually unchanged at 31.2 % in 2014 compared to 31.3 % in 2013. supplies revenue increased 2 % in 2013 compared to 2012 primarily due to supply sales related to the growing base of production print equipment installations . supplies sales for our postage meter business in 2013 were flat compared to 2012 due to higher ink sales in the u.k. and a slowing decline in worldwide meter population trends . cost of supplies as a percentage of supplies revenue was 31.3 % compared to 30.7 % in the prior year primarily due to lower relative margins on supplies for production print equipment . software software revenue increased 8 % in 2014 compared to 2013 , primarily due to a 33 % worldwide increase in licensing revenue . cost of software as a percentage of software revenue increased to 28.8 % compared to 27.8 % in the prior year primarily due to investments in the specialization of the software sales channel and higher production costs . software revenue decreased 3 % in 2013 compared to 2012 primarily due to constrained public sector spending , especially in our international markets , and lower licensing revenue in north america . this decrease was partially offset by licensing revenue from our digital mail delivery service offering . cost of software as a percentage of software revenue improved slightly to 27.8 % compared with 28.0 % in the prior year . rentals rentals revenue decreased 5 % in 2014 compared to 2013 . of this amount , 4 % was due to a reduction in the number of installed meters and clients downgrading to lower cost , less functional machines as a result of declining mail volumes . lower rentals revenue in france accounted for the remaining 1 % decrease . cost of rentals as a percentage of rentals revenue increased to 20.1 % compared to 19.6 % in
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as noted above , on february 10 , 2017 , judge caproni issued an opinion and order granting federated 's motion for summary judgment in its entirety and directed that ccm 's lawsuit against federated be closed . federated believes a material loss related to this lawsuit ( even if ccm appeals ) is remote and , as such , does not believe this lawsuit is material to federated or its consolidated financial statements . based on this assessment and the current stage of the lawsuit , federated currently estimates the loss from damages as a result of ccm 's claims to be zero . other litigation . federated also has claims asserted and threatened against it in the ordinary course of business . as of december 31 , 2016 , federated does not believe that a material loss related to these claims is reasonably possible . see item 1a - risk factors under the caption potential adverse effects of litigation , investigations , proceedings and other claims for additional information regarding risks related to claims asserted or threatened against federated . ( 18 ) subsequent events on january 26 , 2017 , the board of directors declared a $ 0.25 per share dividend . the dividend was payable to shareholders of record as of february 8 , 2017 , resulting in $ 25.5 million being paid on february 15 , 2017 . 81 ( 19 ) supplementary quarterly financial data ( unaudited ) replace_table_token_41_th 1 as a result of the adoption of asu 2016-09 , the income-tax provision for march 31 , 2016 was reduced by $ 0.2 million from amounts previously reported ( see note ( 2 ) for additional information ) . 2 for the quarter ended december 31 , 2016 , federated paid $ 1.00 per share as a special cash dividend and a $ 0.25 per share regular cash dividend . all dividends were considered ordinary dividends for tax purposes . the special dividend negatively impacted fourth quarter 2016 earnings per share by $ 0.02 . 82 item 9 – changes in and disagreements with accountants on accounting and financial disclosure none . item 9a – controls and procedures conclusion regarding the effectiveness of disclosure controls and procedures federated carried out an evaluation , under the supervision and with the participation of management , including federated 's president and chief executive officer and chief financial officer , of the effectiveness of federated 's disclosure controls and procedures ( as defined in exchange act rules 13a-15 ( e ) and 15d-15 ( e ) ) as of december 31 , 2016 . based upon that evaluation , the president and chief executive officer and the chief financial officer concluded that federated 's disclosure controls and procedures were effective at december 31 , 2016 . management 's report on internal control over financial reporting see item 8 – financial statements and supplementary data – under the caption management 's assessment of internal control over financial reporting for information required by this item , which is incorporated herein . attestation report of independent registered public accounting firm see item 8 – financial statements and supplementary data – under the caption report of ernst & young llp , independent registered public accounting firm , on effectiveness of internal control over financial reporting for information required by this item , which is incorporated herein . changes in internal control over financial reporting there has been no change in federated 's internal control over financial reporting that occurred during the fourth quarter ended december 31 , 2016 that has materially affected , or is reasonably likely to materially affect , federated 's internal control over financial reporting . item 9b – other information none . part iii item 10 – directors , executive officers and corporate governance the information required by this item ( other than the information set forth below ) is contained in federated 's information statement for the 2017 annual meeting of shareholders under the captions board of directors and election of directors and security ownership – section 16 ( a ) beneficial ownership reporting compliance , and is incorporated herein by reference . executive officers the information required by this item with respect to federated 's executive officers is contained in item 1 of part i of this form 10-k under the section executive officers of federated investors , inc. code of ethics in october 2003 , federated adopted a code of ethics for its senior financial officers . this code meets the requirements provided by item 406 of regulation s-k and is incorporated by reference in part iv , item 15 ( a ) ( 3 ) of this form 10-k as exhibit 14.01. the code of ethics is available at www.federatedinvestors.com . in the event that federated amends or waives a provision of this code and such amendment or waiver relates to any element of the code of ethics definition enumerated in paragraph ( b ) of item 406 of regulation s-k , federated would post such information on its website . item 11 – executive compensation the information required by this item is contained in federated 's information statement for the 2017 annual meeting of shareholders under the captions board of directors and election of directors and executive compensation and is incorporated herein by reference . 83 item 12 – security ownership of certain beneficial owners and management and related stockholder matters the following table sets forth information regarding federated 's share-based compensation plans as of december 31 , 2016 : replace_table_token_42_th 1 under federated 's stock incentive plan , as amended , grants of other share-based awards , such as restricted stock to federated employees and shares of federated class b common stock to non-management directors , may be authorized in addition to the stock options listed above . all other information required by this item is contained in federated 's information statement for the 2017 annual meeting of shareholders under the caption story_separator_special_tag as noted above , on february 10 , 2017 , judge caproni issued an opinion and order granting federated 's motion for summary judgment in its entirety and directed that ccm 's lawsuit against federated be closed . federated believes a material loss related to this lawsuit ( even if ccm appeals ) is remote and , as such , does not believe this lawsuit is material to federated or its consolidated financial statements . based on this assessment and the current stage of the lawsuit , federated currently estimates the loss from damages as a result of ccm 's claims to be zero . other litigation . federated also has claims asserted and threatened against it in the ordinary course of business . as of december 31 , 2016 , federated does not believe that a material loss related to these claims is reasonably possible . see item 1a - risk factors under the caption potential adverse effects of litigation , investigations , proceedings and other claims for additional information regarding risks related to claims asserted or threatened against federated . ( 18 ) subsequent events on january 26 , 2017 , the board of directors declared a $ 0.25 per share dividend . the dividend was payable to shareholders of record as of february 8 , 2017 , resulting in $ 25.5 million being paid on february 15 , 2017 . 81 ( 19 ) supplementary quarterly financial data ( unaudited ) replace_table_token_41_th 1 as a result of the adoption of asu 2016-09 , the income-tax provision for march 31 , 2016 was reduced by $ 0.2 million from amounts previously reported ( see note ( 2 ) for additional information ) . 2 for the quarter ended december 31 , 2016 , federated paid $ 1.00 per share as a special cash dividend and a $ 0.25 per share regular cash dividend . all dividends were considered ordinary dividends for tax purposes . the special dividend negatively impacted fourth quarter 2016 earnings per share by $ 0.02 . 82 item 9 – changes in and disagreements with accountants on accounting and financial disclosure none . item 9a – controls and procedures conclusion regarding the effectiveness of disclosure controls and procedures federated carried out an evaluation , under the supervision and with the participation of management , including federated 's president and chief executive officer and chief financial officer , of the effectiveness of federated 's disclosure controls and procedures ( as defined in exchange act rules 13a-15 ( e ) and 15d-15 ( e ) ) as of december 31 , 2016 . based upon that evaluation , the president and chief executive officer and the chief financial officer concluded that federated 's disclosure controls and procedures were effective at december 31 , 2016 . management 's report on internal control over financial reporting see item 8 – financial statements and supplementary data – under the caption management 's assessment of internal control over financial reporting for information required by this item , which is incorporated herein . attestation report of independent registered public accounting firm see item 8 – financial statements and supplementary data – under the caption report of ernst & young llp , independent registered public accounting firm , on effectiveness of internal control over financial reporting for information required by this item , which is incorporated herein . changes in internal control over financial reporting there has been no change in federated 's internal control over financial reporting that occurred during the fourth quarter ended december 31 , 2016 that has materially affected , or is reasonably likely to materially affect , federated 's internal control over financial reporting . item 9b – other information none . part iii item 10 – directors , executive officers and corporate governance the information required by this item ( other than the information set forth below ) is contained in federated 's information statement for the 2017 annual meeting of shareholders under the captions board of directors and election of directors and security ownership – section 16 ( a ) beneficial ownership reporting compliance , and is incorporated herein by reference . executive officers the information required by this item with respect to federated 's executive officers is contained in item 1 of part i of this form 10-k under the section executive officers of federated investors , inc. code of ethics in october 2003 , federated adopted a code of ethics for its senior financial officers . this code meets the requirements provided by item 406 of regulation s-k and is incorporated by reference in part iv , item 15 ( a ) ( 3 ) of this form 10-k as exhibit 14.01. the code of ethics is available at www.federatedinvestors.com . in the event that federated amends or waives a provision of this code and such amendment or waiver relates to any element of the code of ethics definition enumerated in paragraph ( b ) of item 406 of regulation s-k , federated would post such information on its website . item 11 – executive compensation the information required by this item is contained in federated 's information statement for the 2017 annual meeting of shareholders under the captions board of directors and election of directors and executive compensation and is incorporated herein by reference . 83 item 12 – security ownership of certain beneficial owners and management and related stockholder matters the following table sets forth information regarding federated 's share-based compensation plans as of december 31 , 2016 : replace_table_token_42_th 1 under federated 's stock incentive plan , as amended , grants of other share-based awards , such as restricted stock to federated employees and shares of federated class b common stock to non-management directors , may be authorized in addition to the stock options listed above . all other information required by this item is contained in federated 's information statement for the 2017 annual meeting of shareholders under the caption
| a valuation allowance has been recognized for $ 15.6 million ( or 99 % ) of the deferred tax asset for state tax net operating losses , and for $ 2.2 million ( or 92 % ) of the deferred tax asset for foreign tax net operating losses . the valuation allowances were recorded due to management 's belief that it is more likely than not that federated will not realize the full benefit of these net operating losses . federated and its subsidiaries file annual income tax returns in the u.s. federal jurisdiction , various u.s. state and local jurisdictions , and in certain foreign jurisdictions . based upon its review of these filings , there were no material unrecognized 77 tax benefits as of december 31 , 2016 or 2015 . therefore , there were no material changes during 2016 , and no reasonable possibility of a significant increase or decrease in unrecognized tax benefits within the next twelve months . ( 14 ) earnings per share attributable to federated investors , inc. shareholders the following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to federated for the years ended december 31 : replace_table_token_37_th 1 income available to participating unvested restricted shareholders includes dividends paid on unvested restricted shares and their proportionate share of undistributed earnings . 2 federated common stock excludes unvested restricted stock which are deemed participating securities in accordance with the two-class method of computing earnings per share . ( 15 ) leases the following is a schedule by year of future minimum payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of december 31 , 2016 : replace_table_token_38_th federated holds a material operating lease for its corporate headquarters building in pittsburgh , pennsylvania . during the third quarter 2016 , federated extended the term through 2030 through an amendment which
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the company 's capital expenditure payments aggregated approximately $ 245 million for the three fiscal years ended october 30 , 2016 , which has significantly contributed to the company 's operating expenses . we intend to continue to make the required investments to support the technological demands of our customers that we believe will position us for future growth . in support of this effort , we expect capital expenditure payments to be approximately $ 100 million in fiscal year 2017. the manufacture of photomasks for use in fabricating ics and other related products built using comparable photomask-based process technologies has been , and continues to be , capital intensive . the company 's integrated global manufacturing network , which consists of nine manufacturing sites , and its employees represent a significant portion of its fixed operating cost base . should sales volumes decrease as a result of a decrease in design releases from our customers , we may have excess or underutilized production capacity , which could significantly impact operating margins or result in write-offs from asset impairments . in the fourth quarter of fiscal 2016 the company announced that it had signed an investment agreement with the xiamen torch hi-tech industrial development zone ( xiamen torch ) to establish an ic manufacturing facility in xiamen , china . under the terms of the agreement the company will build and operate a state-of-the-art ic manufacturing and research and development facility , in return for which xiamen torch will provide certain investment incentives and support . in the third quarter of fiscal 2016 , the company 's majority owned ic facility in taiwan paid a dividend of $ 11.9 million to its noncontrolling interests . in the third quarter of fiscal 2016 , the company sold its investment in mp mask to micron for $ 93.1 million and recorded a gain of $ 0.1 million on the sale . on that same date a supply agreement commenced between the company and micron , which provides that we will be the majority outsourced supplier of micron 's photomasks and related services . the supply agreement has a one year term , subject to mutually agreeable renewals . in addition , the company forevermore has the rights to use technology under its prior technology license agreement . in the second quarter of fiscal 2016 , $ 57.5 million of the company 's senior convertible notes matured . the company repaid $ 50.1 million to noteholders , and issued approximately 0.7 million shares to noteholders that elected to convert their notes to common stock . the notes were exchanged at the rate of approximately 96 shares per $ 1,000 note principle , equivalent to a conversion rate of $ 10.37 per share . in the first quarter of fiscal 2015 the company privately exchanged $ 57.5 million in aggregate principal amount of its 3.25 % convertible senior notes with a maturity date of april 1 , 2016 , for new 3.25 % convertible senior notes with an aggregate principal amount of $ 57.5 million with a maturity date of april 1 , 2019. the conversion rate of the new notes is the same as that of the exchanged notes , which were issued in march 2011 with a conversion rate of approximately 96 shares of common stock per $ 1,000 note principal , equivalent to a conversion price of $ 10.37 per share of common stock , and is subject to adjustment upon the occurrence of certain events which are described in the indenture dated january 22 , 2015. note holders may convert each $ 1,000 principal amount of notes at any time prior to the close of business on the second scheduled trading day immediately preceding april 1 , 2019 , and the company is not required to redeem the notes prior to their maturity date . interest on the notes accrues in arrears , and is paid semiannually through the notes ' maturity date . 20 in the fourth quarter of fiscal 2014 the company amended its credit facility . the credit facility , which expires in december 2018 , has a $ 50 million limit with an expansion capacity to $ 75 million , and is secured by substantially all of our assets located in the united states and common stock we own in certain of our foreign subsidiaries . the credit facility is subject to a minimum interest coverage ratio , total leverage ratio and minimum unrestricted cash balance financial covenants , all of which we were in compliance with at october 30 , 2016. the company had no outstanding borrowings against the credit facility at october 30 , 2016 , and $ 50 million was available for borrowing . the interest rate on the credit facility ( 1.78 % at october 30 , 2016 ) is based on our total leverage ratio at libor plus a spread , as defined in the credit facility . in the second quarter of fiscal 2014 the company acquired dptt in a non-cash transaction that resulted in the company owning 50.01 % and dnp owning 49.99 % of pdmc , whose financial results are included in the company 's consolidated financial statements . since its formation , pdmc has generated sufficient cash flows to fund its operating and capital requirements . see note 2 of the consolidated financial statements for more information . story_separator_special_tag > replace_table_token_10_th the effective tax rate differs from the u.s. statutory rate of 35 % in fiscal years 2016 , 2015 and 2014 primarily due to earnings , including the fiscal year 2014 dptt acquisition gain , being taxed at lower statutory rates in foreign jurisdictions , the benefit of various investment credits claimed in a foreign jurisdiction as well as valuation allowances in jurisdictions with historic and continuing losses . story_separator_special_tag the effective income tax rate decreased in 2016 , as compared with 2015 , as a result of the following major factors : the recognition in 2016 of $ 4.3 million , compared with $ 1.5 million in 2015 , of previously unrecognized deferred tax assets which primarily resulted from the improved performance of the company 's fpd operations ; the reversal of previously recognized tax expense of $ 2.4 million that was eliminated by a distribution of the 2015 earnings of a foreign subsidiary to its foreign parent ; and a higher percentage of income before income taxes , including an $ 8.8 million gain on the sale of an investment in 2016 , generated in jurisdictions where the company previously incurred losses that , due to valuation allowances , did not result in the company recognizing tax benefits . the company considers all available evidence when evaluating the potential future realization of its deferred tax assets and when , based on the weight of all available evidence , it determines that it is more likely than not that some portion or all of its deferred tax assets will not be realized , it reduces its deferred tax assets by a valuation allowance . the company also regularly assesses the potential outcomes of ongoing and future tax examinations and , accordingly , has recorded accruals for such contingencies . included in the balance of unrecognized tax benefits as of october 30 , 2016 , november 1 , 2015 and november 2 , 2014 , are $ 4.6 million , $ 4.1 million and $ 5.0 million recorded in other liabilities in the consolidated balance sheets that , if recognized , would impact the effective tax rate . net income attributable to noncontrolling interests net income attributable to noncontrolling interests decreased $ 2.7 million to $ 9.5 million in 2016 , as compared with $ 12.2 million in 2015 , due to decreased net income at the company 's ic manufacturing facility in taiwan , and increased $ 6.2 million to $ 12.2 million in 2015 , as compared with $ 6.0 million in 2014 , primarily as a result of changes in the ownership structure of that same facility . during 2014 the company exchanged a 49.99 % noncontrolling interest in this subsidiary in return for the net assets of an acquiree . see notes 2 and 13 of the consolidated financial statements for further information . liquidity and capital resources replace_table_token_11_th 24 as of october 30 , 2016 , the company had cash and cash equivalents of $ 314.1 million as compared with $ 205.9 million as of november 1 , 2015. the company 's working capital increased $ 192.2 million to $ 360.3 million at october 30 , 2016 , as compared with $ 168.1 million ( as retrospectively adjusted to reflect our adoption of asu 2015-17 in the fourth quarter of fiscal year 2016 ) at november 1 , 2015. the increase in cash and cash equivalents in 2016 was primarily attributable to the sale of the company 's 49.99 % interest in the mp mask joint venture for $ 93.1 million and proceeds from the sale of an investment in a foreign entity of $ 8.8 million . the increase in working capital was the result of these same factors , as well as the conversion of $ 7.4 million of debt to common stock , reduced accounts payable and accrued expense balances as of the end of 2016 , as compared with the end of 2015 , which were caused , in significant part , by lower accruals for capital expenditures and employee compensation . the company may use its available cash on hand for operations , capital expenditures , debt repayments , strategic opportunities , stock repurchases or other corporate uses , any of which may be material . as of november 1 , 2015 , the company had cash and cash equivalents of $ 205.9 million compared with $ 192.9 million as of november 2 , 2014. the company 's working capital decreased $ 26.0 million to $ 171.4 million at november 1 , 2015 , as compared with $ 197.4 million at november 2 , 2014. the increase in cash and cash equivalents in 2015 was primarily related to increased cash generated from operating activities , while the decrease in working capital was the result of $ 57.5 million 3.25 % convertible senior notes due in april 2016 classified as a current liability at november 1 , 2015 , and as a long-term liability at november 2 , 2014. as of october 30 , 2016 and november 1 , 2015 , the company 's total cash and cash equivalents include $ 141.4 million and $ 102.9 million , respectively , held by its foreign subsidiaries . the majority of earnings of the company 's foreign subsidiaries are considered to be indefinitely reinvested . the repatriation of these funds to the u.s. may subject these funds to u.s. federal income taxes and local country withholding taxes in certain jurisdictions . the company 's foreign subsidiaries continue to grow through the reinvestment of earnings in additional manufacturing capacity and capability , particularly in the high-end ic and fpd areas . net cash provided by operating activities decreased to $ 122.1 million in fiscal 2016 , as compared with $ 133.2 million in fiscal 2015 , primarily due to reduced year-over-year operating income , partially offset by net cash favorable changes in accrual accounts . net cash provided by operating activities increased to $ 133.2 million in fiscal 2015 , as compared with $ 96.4 million in fiscal 2014 , primarily due to increased net income in 2015 , excluding the 2014 noncash gain on the acquisition of dptt . net cash provided by operating activities decreased to $ 96.4 million in fiscal 2014 , as compared with $ 99.4 million in fiscal 2013 , primarily due to reduced net income in 2014 , less the noncash gain on the acquisition of dptt discussed in note 2 to the consolidated financial statements .
| high-end ic sales increased by $ 62.9 million to $ 166.9 million in 2015 as a result of increased high-end memory and logic demand , and high-end fpd sales increased by $ 4.5 million to $ 70.9 million in 2015. by geographic area , net sales in 2015 as compared with 2014 increased ( decreased ) by $ 38.1 million or 22.8 % in taiwan , $ 7.5 million or 5.4 % in korea , $ 26.1 million or 24.4 % in the united states , and by $ ( 2.9 ) million or ( 7.6 ) % in europe . as a percent of total sales in 2015 , sales were 39 % in taiwan , 28 % in korea , 25 % in the united states , 7 % in europe , and 1 % at other international locations . gross margin replace_table_token_6_th gross profit and gross margin percentage decreased in 2016 , as compared with 2015 , primarily as a result of decreased sales of high-end ic and , to a lesser extent , mainstream ic photomasks . gross profit and gross margin increased in 2015 , compared with 2014 , primarily due to increased high-end ic sales and reduced manufacturing costs . the company operates in a high fixed cost environment and , to the extent that the company 's revenues and utilization increase or decrease , gross margin will generally be positively or negatively impacted . 22 selling , general and administrative expenses replace_table_token_7_th selling , general and administrative expenses decreased by $ 4.4 million in 2016 , as compared with 2015 , primarily due to reduced compensation , freight and other expenses . selling , general and administrative expenses decreased $ 0.6 million in 2015 , as compared with 2014 , primarily due to expenses incurred in 2014 related to the acquisition of dptt , offset in part by increased compensation and benefits expenses . research and development replace_table_token_8_th research and development expenses , which did not significantly change over the periods presented , consist primarily of global development efforts related to high-end process technologies . other income ( expense ) replace_table_token_9_th in january 2016 the company sold a minority interest investment in a
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we ended 2019 with 25 patient intake representatives and administrative personnel and plan to continue to scale the rental intake team in 2020 , which we believe will lead to increased patients on service and modest growth in rental revenue for the year . increase international business-to-business adoption . although our main growth opportunity remains portable oxygen concentrator adoption in the united states given what we still believe is a relatively low penetration rate , we are aware of the large international market opportunity . in order to take advantage of these international opportunities , we have built out an infrastructure over the past few years , which includes sales in 46 international countries and a contract manufacturing partner , foxconn , located in the czech republic to support european sales volumes . further , we are also in the process of developing regulatory and sales pathways to capture opportunities in new and emerging markets . we expect to begin sales in the chinese market as early as 2021. over time , as the u.s. and european markets mature , our growth will depend on our ability to drive portable oxygen concentrator adoption in emerging markets , where limited oxygen therapy treatment exists today . however , growth may also be limited by currency fluctuations , capital expenditure constraints , ongoing restructuring challenges , and tender uncertainty . invest in our oxygen product offerings to develop innovative products . we expended $ 9.4 million , $ 7.0 million and $ 5.3 million in 2019 , 2018 and 2017 , respectively , in research and development expenses , and we intend to continue to make such investments in the foreseeable future . we launched our fifth-generation portable oxygen concentrator , the inogen one g5 , in our direct-to-consumer channel during the second quarter of 2019 , in our domestic business-to-business channel during the third quarter of 2019 , and in certain markets in our international business-to-business channel in the fourth quarter of 2019. some international markets require additional regulatory or reimbursement clearances to release the product , and we are in the process of obtaining additional clearances to access additional markets . the inogen one g5 weighs 4.7 pounds and produces 1,260 ml per minute of oxygen output , with very quiet operation at 38 dba and our longest battery life at 6.5 hours for a single battery and up to 13 hours for a double battery . we estimate that the inogen one g5 is suitable for over 90 % of ambulatory long-term oxygen therapy patients based on our analysis of the patients who have contacted us and their clinical needs . we expect the inogen one g5 to obsolete the inogen one g3 over the intermediate term . at volume , we expect the inogen one g5 to be our lowest cost product to manufacture . the inogen one g5 represented more than 55 % of total domestic units sold in the fourth quarter of 2019 , showing the strong demand for this product from both patients and providers . in the fourth quarter of 2018 , we launched inogen connect , our new connectivity platform on our inogen one g4 in our direct-to-consumer channel and in our domestic business-to-business channel in the first quarter of 2019. we also launched inogen connect in our inogen one g5 at the launch of this product in the united states . inogen connect is compatible with apple and android platforms and includes patient features such as purity status , battery life , product support functions , notification alerts , and remote software updates . we believe home oxygen providers will also find features such as remote troubleshooting , equipment health checks , and location tracking to help drive operational efficiencies when transitioning away from the oxygen tank delivery model . expand our product offerings . in august 2019 , we acquired new aera , inc. ( new aera ) . new aera 's patented and fda- cleared tidal assist ventilator ( tav ) system is designed to deliver increased air flow and pressure from an approximately 4-ounce pocket-size unit , features a state-of-the-art nasal pillow interface , and is compatible with certain oxygen concentrators , oxygen cylinders , wall gas , and certain medical air sources . tav therapy with oxygen has been clinically demonstrated during periods of exercise to reduce breathlessness , increase exercise endurance , and improve oxygen saturation for patients suffering from certain chronic lung disease compared to oxygen therapy alone . we began a limited launch of the tav product in december 2019 , and we plan to integrate this product across our domestic direct-to-consumer channel and in our domestic business-to-business channel in 2020 , although we expect limited contributions to revenue in 2020. we plan to incorporate the tav technology directly into our inogen one portable oxygen concentrators and make the tav product compatible with our inogen at home stationary concentrators to continue to advance patient preference and maintain our technology leadership position in the long-term oxygen therapy market . 63 in addition , we plan to use this technology as a platform to expand our total addressable market into the high-growth non-invasive ventilation ( niv ) market , where we believe there is a significant worldwide untreated market opportunity . we believe this market could undergo disruption similar to oxygen given the pending reimbursement changes due to the inclusion of this category in competitive bidding r ound 2021 and the immobile nature of legacy niv product offerings . the monthly medicare reimbursement rate is significantly higher for niv products than oxygen therapy at a minimum of $ 934 a month . also , effective january 1 , 2019 , a new medicare h ealthcare c ommon p rocedure c oding s ystem ( hcpcs ) code has been added to allow billing for a multi-function ventilator that includes both ventilation and oxygen . story_separator_special_tag we are targeting to launch a product for this purpose in 2021. it is uncertain if the tav product acquired from new aera will be reimbursable in its current configuration under hcpcs code e0466 . we requested confirmation on the assigned hcpcs codes for the tav system from the pricing , data analysis , and coding ( pdac ) contractor in august 2019 following the closing of the new aera transaction . in august 2019 , we received positive confirmation that this product was assigned hcpcs code e0466 . however , in september 2019 , we received a revised communication that the product was assigned hcpcs code e1390 and e1352 , which was then revoked at our request in december 2019. in september 2019 , we appealed to the centers for medicare and medicaid services , and in january 2020 our appeal was denied . we are currently pursuing additional appeal opportunities . if we do not receive revised coding , it could limit this product 's adoption by home medical equipment providers and also our direct rentals until revisions are made to the product to meet the coding requirements . for a discussion of certain significant risks relating to the tav reimbursement and the upcoming round of competitive bidding , please see the risk factor entitled “ the competitive bidding process under medicare could negatively affect our business and financial condition. ” we have been developing and refining the manufacturing of our inogen one systems since 2004. while nearly all of our manufacturing and assembly processes were originally outsourced , assembly of the compressors , sieve beds , concentrators and certain manifolds were brought in-house in order to improve quality control and reduce cost . in support of our european sales , we have an office in the netherlands for sales , customer service , and repairs , and use a contract manufacturer located in the czech republic to manufacture high volume products to improve delivery to our european accounts . we expect to maintain our assembly operations for our products at our facilities in richardson , texas and goleta , california . in 2020 , we are focused on reducing the cost of our inogen one g5 product , expanding manufacturing of the tav product , and increasing the robustness of our supply chain to reduce potential component constraints as we grow our business . we also use lean manufacturing practices to maximize manufacturing efficiency . we rely on third-party manufacturers to supply several components of our products . we typically enter into master service agreements for these components that specify quantity and quality requirements and delivery terms . in certain cases , these agreements can be terminated by either party upon relatively short notice . we have elected to source certain key components from single sources of supply , including our batteries , motors , valves , columns , and some molded plastic components . we believe that maintaining a single source of supply allows us to control production costs and inventory levels and to manage component quality . in order to mitigate against the risks related to a single source of supply , for certain components we qualify alternative suppliers and develop contingency plans for responding to disruptions . however , any reduction or halt in supply from one of these single-source suppliers could limit our ability to manufacture our products or devices until a replacement supplier is found and qualified . for additional discussion of potential risks related our manufacturing and raw materials , please see the risk factor entitled “ we obtain some of the components , subassemblies and completed products included in our products from a single source or a limited group of manufacturers or suppliers , and the partial or complete loss of one or more of these manufacturers or suppliers could cause significant production delays , an inability to meet customer demand , substantial loss in revenue , and an adverse effect on our financial condition and results of operations . ” historically , we have generated a majority of our revenue from sales and rentals to customers in the united states . in the years ended december 31 , 2019 , 2018 and 2017 , approximately 21.5 % , 21.6 % and 22.3 % , respectively , of our total revenue was from sales to customers outside the united states , primarily in europe . approximately 70.2 % , 74.8 % and 73.5 % of the non-u.s. revenue for the years ended december 31 , 2019 , 2018 and 2017 , respectively , was invoiced in euros with the remainder invoiced in united states dollars . we sell our products in 46 countries outside the united states through our wholly-owned subsidiary , distributors or directly to large “ house ” accounts , which include gas companies , hme oxygen providers , and resellers . in those instances , we sell to and bill the distributor or “ house ” accounts directly , leaving responsibility for the patient billing , support and clinical setup to the local provider . 64 our total revenue was $ 361.9 million , $ 358.1 million and $ 2 49 . 4 million for the years ended december 31 , 2019 , 201 8 and 201 7 , respectively . the increase in total revenue in the year ended december 31 , 2019 compared to the prior year was primarily due to growth in sales revenue associated with the increases in direct-to-consumer and international business-to-business sales , partially offset by a decline in domestic business-to-business sales . the increase in total revenue in the year ended december 30 , 2018 compared to the prior year was primarily due to growth in sales revenue associated with the increases in direct-to-consumer and business-to-business sales . we generated net income of $ 21 . 0 million , $ 51.8 million and $ 2 1.0 million in the years ended december 31 , 2 01 9 , 201 8 and 201 7 , respectively . we generated adjusted ebitda of $ 4 3.3 million , $ 61.3 million and $ 50.8
| the decrease in rental revenue was primarily related to a 5.9 % decline in rental patients on service from the comparative period , an additional 3.9 % reduction in medicare reimbursement rates for our products effective january 1 , 2019 and the adoption of accounting standards update ( asu ) no . 2018-19 that require d reclassification of rental bad debt expense to be charged against rental revenue . replace_table_token_7_th domestic business-to-business sales decreased 8.7 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the decrease was primarily the result of decreased demand from our private label partner due to reduced orders from the large national provider referenced above , partially offset by increased demand from traditional hme providers . business-to-business international sales increased slightly by 0.8 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to increased sales to our partners in canada , south america , and australia , partially offset by a decline in sales to our partners in europe primarily due to unfavorable currency exchange rates and tender uncertainty in certain european regions . in the year ended december 31 , 2019 , sales in europe as a percentage of total international sales revenue decreased to 86.4 % versus 88.3 % in the comparative period in 2018 , primarily because of the increase in sales in canada , south america , and australia and reduced sales in europe . domestic direct-to-consumer sales increased 9.9 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to increased marketing expenditures and increased productivity of inside sales representatives , partially offset by a decline in sales representative headcount . cost of revenue and gross profit replace_table_token_8_th cost of sales revenue increased $ 12.0 million for the year ended december 31 , 2019 from the year ended december 31 , 2018 , or an increase of 7.3 % over the comparable year . the increase in cost of sales revenue was primarily attributable to labor and overhead expenses , product and sales
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2018 compared to 2017 the comparison of the results of operations for the years ended december 31 , 2018 and 2017 are included in management 's discussion in nep 's annual report on form 10-k for the year ended december 31 , 2018. liquidity and capital resources nep 's ongoing operations use cash to fund o & m expenses , maintenance capital expenditures , debt service payments and distributions to common and preferred unitholders and holders of noncontrolling interests . nep expects to satisfy these requirements primarily with internally generated cash flow . in addition , as a growth-oriented limited partnership , nep expects from time to time to make acquisitions and other investments . these acquisitions and investments are expected to be funded with borrowings under credit facilities or term loans , issuances of indebtedness , issuances of additional nep common units or preferred units , capital raised pursuant to other financing structures , cash on hand and cash generated from operations . these sources of funds are expected to be adequate to provide for nep 's short-term and long-term liquidity and capital needs , although its ability to make future acquisitions , expand or repower existing projects and increase its distributions to common unitholders will depend on its ability to access capital on acceptable terms . as a normal part of its business , depending on market conditions , nep expects from time to time to consider opportunities to repay , redeem , repurchase or refinance its indebtedness . in addition , nep expects from time to time to consider potential investments in new acquisitions . these events may cause nep to seek additional debt or equity financing , which may not be available on acceptable terms or at all . additional debt financing , if available , could impose operating restrictions , additional cash payment obligations and additional covenants . nep opco has agreed to allow neer or one of its affiliates to withdraw funds received by nep opco or its subsidiaries and to hold those funds in accounts of neer or one of its affiliates to the extent the funds are not required to pay project costs or otherwise required to be maintained by nep 's subsidiaries , until the financing agreements permit distributions to be made , or , in the case of nep opco , until such funds are required to make distributions or to pay expenses or other operating costs . nep opco will have a claim for any funds that neer fails to return : when required by its subsidiaries ' financings ; when its subsidiaries ' financings otherwise permit distributions to be made to nep opco ; when funds are required to be returned to nep opco ; or when otherwise demanded by nep opco . in addition , neer and certain of its affiliates may withdraw funds in connection with certain long-term debt agreements and hold those funds in accounts belonging to neer or its affiliates and provide credit support in the amount of such withdrawn funds . if neer fails to return withdrawn funds when required by nep 's subsidiaries ' financing agreements , the lenders will be entitled to draw on any credit support provided by neer in the amount of such withdrawn funds . if neer or one of its affiliates realizes any earnings on the withdrawn funds prior to the return of such funds , it will be permitted to retain those earnings . 41 liquidity position at december 31 , 2019 , nep 's liquidity position was approximately $ 758 million . the table below provides the components of nep 's liquidity position : replace_table_token_7_th ( a ) excludes credit facilities discussed below due to restrictions on the use of the borrowings . see note 11 - debt . ( b ) in february 2020 , an additional $ 50 million was borrowed under the nep opco credit facility and the maturity date was extended until 2025 . ( c ) excludes current restricted cash of approximately $ 3 million and $ 8 million at december 31 , 2019 and 2018 , respectively . see note 2 - restricted cash . management believes that nep 's liquidity position and cash flows from operations will be adequate to finance o & m , maintenance capital expenditures , distributions to its unitholders and liquidity commitments . management continues to regularly monitor nep 's financing needs consistent with prudent balance sheet management . financing arrangements nep opco and its direct subsidiary are parties to a $ 1,250 million revolving credit facility ( nep opco credit facility ) maturing in february 2025. during 2019 , $ 1,150 million was drawn under the nep opco credit facility and $ 640 million of the outstanding borrowings under this facility were repaid with proceeds from other financing activities discussed in note 11. at december 31 , 2019 , $ 510 million was outstanding under the nep opco credit facility . for a discussion of the nep opco credit facility , see note 11 - debt . during 2019 , an indirect subsidiary of nep entered into a credit agreement which provides $ 205 million under a limited-recourse senior secured variable rate term loan and provides up to $ 270 million under a revolving credit facility ( stx holdings revolving credit facility ) . proceeds from any borrowings under the stx holdings revolving credit facility are available exclusively to fund the cash portion of nep 's repurchase , if any , of the class b noncontrolling interests related to stx midstream ( see note 11 ) , subject to certain limitations . at december 31 , 2019 , $ 270 million remains available under the stx holdings revolving credit facility . during 2017 , nep issued $ 300 million in aggregate principal amount of convertible notes and nep opco issued $ 550 million in aggregate principal amount of 4.25 % senior notes due september 2024 and $ 550 million in aggregate principal amount of 4.50 % senior notes due september 2027. during 2019 , nep opco issued $ 700 million in aggregate principal amount of 4.25 story_separator_special_tag % senior notes due july 2024 and $ 500 million in aggregate principal amount of 3.875 % senior notes due october 2026. see note 11 - debt . in 2019 , indirect subsidiaries of nep entered into a credit agreement ( meade credit agreement ) which provides up to $ 915 million under three limited-recourse senior secured variable rate term loans to finance a portion of the meade acquisition and the expansion ( see note 3 ) . at december 31 , 2019 , approximately $ 90 million remains available under the meade credit agreement to fund the expansion . see note 11 - debt . nep opco and certain indirect subsidiaries are subject to financings that contain financial covenants and distribution tests , including debt service coverage ratios . in general , these financings contain covenants customary for these types of financings , including limitations on investments and restricted payments . certain of nep 's financings provide for interest payable at a fixed interest rate . however , certain of nep 's financings accrue interest at variable rates based on an underlying index plus a margin . interest rate contracts were entered into for certain of these financings to hedge against interest rate movements with respect to interest payments on the related borrowings . in addition , under the project-level financings , each project will be permitted to pay distributions out of available cash so long as certain conditions are satisfied , including that reserves are funded with cash or credit support , no default or event of default under the applicable financings has occurred and is continuing at the time of such distribution or would result therefrom , and each project is otherwise in compliance with the project-level financing 's covenants . for the majority of the project financings , minimum debt service coverage ratios must be satisfied in order to make a distribution . for one project financing , the project must maintain a leverage ratio and an interest coverage ratio in order to make a distribution . at december 31 , 2019 , nep 's subsidiaries were in compliance with all financial debt covenants under their financings other than as discussed in note 15 - pg & e bankruptcy . equity arrangements in 2019 , nep converted approximately 9.35 million series a convertible preferred units into nep common units on a one-for-one basis . see note 11 - equity . 42 in 2019 and 2018 , nep issued and sold noncontrolling class b interests in certain of its subsidiaries . nep has buyout rights , subject to certain limitations and extensions , under which nep has the right to pay a portion of the buyout price in nep non-voting common units or nep common units , as specified in the related agreement . the class b investors receive a specified allocation of the related subsidiaries ' distributable cash , which could increase if certain minimum buyout rights are not exercised or are not exercised during a certain period . see note 11 - equity . nep established an at-the-market equity issuance program ( atm program ) in 2015 pursuant to which nep may issue , from time to time , up to $ 150 million of its common units which gives nep the flexibility to issue new units when the price is acceptable . in july 2018 , nep implemented a $ 150 million atm program which replaced its prior program . at december 31 , 2019 , nep may issue up to approximately $ 64 million in additional common units under the atm program . in july 2018 , nep filed a shelf registration statement with the sec , which became effective upon filing , for an unspecified amount of securities . the amount of securities issuable by nep is established from time to time by its board of directors . securities that may be issued under the registration statement include common units , preferred units , warrants , rights , debt securities , equity purchase contracts and equity purchase units . contractual obligations nep 's contractual obligations at december 31 , 2019 were as follows : replace_table_token_8_th ( a ) includes principal , interest , fees on credit facilities and interest rate swaps . variable rate interest was computed using december 31 , 2019 rates . such amounts reflect scheduled payments under the financing agreements for debt in default as the lenders have not issued any acceleration notices . see note 11 - debt . ( b ) primarily reflects commitments related to construction activities ( see note 15 - development , engineering and construction commitments ) , lease payment obligations ( see note 14 ) and payments related to the acquisition of certain development rights . ( c ) represents expected cash payments adjusted for inflation for estimated costs to perform asset retirement activities . ( d ) represents minimum fees under the msa and cscs agreement . see note 13 . capital expenditures annual capital spending plans are developed based on projected requirements by the projects . capital expenditures primarily represent the estimated cost of capital improvements , including construction expenditures that are expected to increase nep opco 's operating income or operating capacity over the long term . capital expenditures for projects that have already commenced commercial operations are generally not significant because most expenditures relate to repairs and maintenance and are expensed when incurred . for the years ended december 31 , 2019 and 2018 , nep had capital expenditures of approximately $ 93 million and $ 23 million , respectively , excluding the purchase prices of acquired projects . subject to regulatory approvals , nep expects to have capital expenditures totaling approximately $ 128 million related to a potential expansion investment at one of the texas pipelines expected to be in-service during the fourth quarter of 2020 and $ 90 million of additional investment in cpl related to an expansion scheduled for commercial operation by mid-2022 .
| o & m expenses increased $ 79 million during the year ended december 31 , 2019 primarily due to increases of approximately $ 53 million related to the projects acquired in december 2018 and june 2019 and $ 23 million in higher other corporate expenses , including higher idr fees related to growth in nep 's distributions to its common unitholders . o & m expenses related to the existing portfolio are expected to remain relatively stable from year to year . however , nep 's o & m expenses are likely to increase as nep acquires new projects . 39 depreciation and amortization depreciation and amortization expense reflects costs associated with depreciation and amortization of nep 's assets , based on depreciable asset lives and consistent depreciation methodologies . for certain of the renewable energy projects , citcs are recorded as a reduction in property , plant and equipment - net on the consolidated balance sheets and amortized as a reduction to depreciation and amortization expense over the estimated life of the related property . depreciation and amortization expense also includes a provision for wind and solar facility dismantlement , asset removal costs and accretion related to asset retirement obligations and the amortization of finite-lived intangible assets . depreciation and amortization expense increased $ 56 million during the year ended december 31 , 2019 primarily as a result of approximately $ 61 million of depreciation related to projects acquired in december 2018 and june 2019. gain on disposal of canadian holdings during the year ended december 31 , 2018 , a subsidiary of nep completed the sale of canadian holdings and nep recognized a pre-tax gain of approximately $ 153 million . see note 2 - disposal of canadian holdings . other income ( deductions ) interest expense interest expense primarily consists of interest under long-term debt agreements and mark-to-market gains and losses on interest rate contracts . in 2019 , interest expense also reflects approximately $ 153 million of costs , including cash payments and the write-off of debt issuance costs , primarily related to the retirement of debt associated with genesis ( see note 15 - pg & e bankruptcy ) and certain wind projects that are being repowered . interest expense increased approximately $ 454 million during the year ended december 31 , 2019 primarily due to
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income taxes cbiz recorded income tax expense from continuing operations of $ 16.4 million and $ 14.1 million for the years ended december 31 , 2013 and 2012 , respectively . the effective tax rate for the years ended december 31 , 2013 and 2012 was 39.7 % and 38.2 % , respectively . the increase in the effective tax rate is primarily due to an increase in state taxes driven by a release of a valuation allowance in 2012 with respect to a state tax credit carryforward as well as a lower amount of valuations allowances released in 2013 compared to 2012 with respect to state net operating losses . for further discussion regarding income tax expense , see note 7 to the accompanying consolidated financial statements . earnings per share and non-gaap earnings per share earnings per share from continuing operations were $ 0.51 and $ 0.46 per diluted share for the years ended december 31 , 2013 and 2012 , respectively . earnings per share for the year ended december 31 , 2012 included a gain of approximately $ 0.02 per diluted share related to a legal settlement recovery that was recorded in other income and a gain of approximately $ 0.03 per diluted share related to the divestiture of the wealth management business that occurred in the first quarter of 2011. non-gaap earnings per share were $ 1.08 and $ 0.92 per diluted share for the years ended december 31 , 2013 and 2012 , respectively . the company believes non-gaap earnings and non-gaap earnings per diluted share , which are both non-gaap measures , illustrate the impact of certain non-cash charges to income from continuing operations and are a useful performance measure for the company , its analysts and its stockholders . management uses these performance measures to evaluate cbiz 's business , including ongoing performance and the allocation of resources . non-gaap earnings and non-gaap earnings per diluted share are provided in addition to the presentation of gaap measures and should not be regarded as a replacement or alternative of performance under gaap . the following is a reconciliation of income from continuing operations to non-gaap earnings from operations and earnings per diluted share from continuing operations to non-gaap earnings per diluted share for the years ended december 31 , 2013 and 2012. non-gaap earnings and per share data reconciliation of income from continuing operations to non-gaap earnings from continuing operations replace_table_token_9_th 28 operating practice groups financial services replace_table_token_10_th the growth in same-unit revenue was approximately 65 % attributable to stronger performance in the units that provide certain national services and 35 % attributable to the traditional accounting and tax services . growth in the national units was primarily due to increased project work in the federal and state governmental health care compliance industry as well as in risk and advisory services . the growth in the traditional accounting and tax services was due to a 0.7 % increase in billable hours and a 1.3 % increase in revenue per hour for the year ended december 31 , 2013 compared to the same period a year ago . revenue from acquired businesses was the result of the acquisition of phbv partners , l.l.p . ( phbv ) , which occurred on december 31 , 2012. cbiz provides a range of services to affiliated cpa firms under joint referral and asas . fees earned by cbiz under the asas are recorded as revenue in the accompanying consolidated statements of comprehensive income and were approximately $ 140.2 million and $ 116.1 million for the years ended december 31 , 2013 and 2012 , respectively . the increase in asa fees was primarily the result of the phbv acquisition . the largest components of operating expenses for the financial services practice group are personnel costs , occupancy costs , and travel and related costs which represented 89.3 % and 89.1 % of total operating expenses for the years ended december 31 , 2013 and 2012 , respectively . personnel costs increased $ 30.9 million during the year ended december 31 , 2013 compared to the same period in 2012 , and represented 68.7 % and 68.9 % of revenue for the years ended december 31 , 2013 and 2012 , respectively . the increase was largely attributable to the acquisition of phbv , comprising $ 23.0 million of the variance , as well as a same-unit increase of $ 7.1 million due to increased headcount . occupancy costs are relatively fixed in nature and were $ 25.2 million and $ 24.3 million , or 5.5 % and 5.9 % of revenue , for the years ended december 31 , 2013 and 2012 , respectively . the increase in occupancy costs is related primarily to the phbv acquisition . travel and related costs were $ 14.8 million and $ 11.4 million , or 3.2 % and 2.8 % of total revenue , for the years ended december 31 , 2013 and 2012 , respectively . the increase in travel and related costs was due to a higher volume of engagement-related costs ( which are billed to clients ) and professional staff training efforts , as well as from the impact of the phbv acquisition . in addition to the expenses discussed above , professional service costs were $ 6.2 million and $ 3.3 million , or 1.4 % and 0.8 % of total revenue , for the years ended december 31 , 2013 and 2012 , respectively . the increase in professional service costs was associated with outside services related to client engagements for our federal and state governmental health care contracts . 29 employee services replace_table_token_11_th the increase in same-unit revenue was attributable to several factors . property and casualty revenues increased 5.1 % due to better pricing throughout the industry as well as strong performance within the specialty program businesses . payroll business revenues increased 5.0 % primarily due to an increase in volume resulting from new clients coupled with pricing increases for core services . story_separator_special_tag retirement consulting revenues increased 4.3 % due to net growth in assets resulting from client contributions and favorable equity market conditions . these increases were partially offset by a decline in the life insurance business of $ 2.5 million due to several large non-recurring policies that were placed in 2012. excluding the impact of the life insurance business , same-unit revenue increased 2.1 % for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the growth in revenue from acquisitions was provided by : strategic employee benefit services , an employee benefits client list in the chicago , illinois market that was acquired in the first quarter of 2012 ; primarily care , inc. , an employee benefits business located in cranston , rhode island that was acquired in the second quarter of 2012 ; stoltz and company , ltd. , l.l.p. , a property and casualty insurance and employee benefits business headquartered in midland , texas that was acquired in the third quarter of 2012 ; trinity risk advisors , inc. , a property and casualty insurance business located in atlanta , georgia that was acquired in the third quarter of 2012 ; strategic employee benefit services the pruett group , inc. , an employee benefits business headquartered in nashville , tennessee that was acquired in the fourth quarter of 2012 ; the employee benefit division of leavitt pacific insurance brokers , inc. , located in the san jose , california market that was acquired in the fourth quarter of 2012 ; diversified industries , inc. d/b/a payroll control systems , a payroll business in minneapolis , minnesota that was acquired in the fourth quarter of 2012 ; and associated insurance agents , a property and casualty and employee benefits business located in minneapolis , minnesota , that was acquired in the second quarter of 2013. the largest components of operating expenses for the employee services group are personnel costs , including commissions paid to third party brokers , and occupancy costs , representing 82.1 % and 82.6 % of total operating expenses for the year ended december 31 , 2013 and 2012 , respectively . excluding costs related to the acquired businesses of $ 9.7 million , personnel costs increased approximately $ 0.5 million , primarily due to commissions paid to producers relating to increased revenue in the property and casualty , payroll , and retirement services 30 businesses . occupancy costs are relatively fixed and were $ 11.3 million and $ 10.7 million the years ended december 31 , 2013 and 2012 , respectively , and increased due to the acquisitions in 2013. national practices replace_table_token_12_th the national practices group is primarily comprised of a cost-plus contract with cbiz 's largest client ( edward jones ) and cbiz 's healthcare consulting business . revenues from the edward jones business accounted for approximately 70 % of the national practice group 's revenue , with the healthcare consulting accounting for the remaining revenue . effective december 31 , 2013 , cbiz sold its mergers and acquisition business which comprises the divested operations reflected in the table above . the increase in same-unit revenue was attributable to an increase of $ 1.4 million resulting from an increase in services provided to edward jones as a result of an increase in required technology support as well as an increase in reimbursement dollars due to an increase in compensation . the largest components of operating expenses for the national practices group are personnel costs , occupancy costs , and travel and related costs representing 94.5 % and 94.0 % of total operating expenses for the years ended december 31 , 2013 and 2012 , respectively . personnel costs increased $ 1.0 million for the year ended december 31 , 2013 compared to the same period in 2012 , and increased as a percentage of revenue to 82.9 % of revenue for the year ended december 31 , 2013 compared to 80.6 % of revenue for the same period last year . the increase in personnel costs is due primarily to increases in demand for services provided under the edward jones cost-plus contract arrangement as well as an increase in wages for annual raises . travel and related costs were relatively consistent in both periods and were $ 0.3 million and $ 0.4 million for the years ended december 31 , 2013 and 2012 , respectively . occupancy costs are relatively fixed in nature and were $ 0.5 million for the years ended december 31 , 2013 and 2012 . 31 year ended december 31 , 2012 compared to year ended december 31 , 2011 revenue the following table summarizes total revenue for the years ended december 31 , 2012 and 2011 ( in thousands , except percentages ) : replace_table_token_13_th a detailed discussion of revenue by practice group is included under operating practice groups . gross margin and operating expenses operating expenses increased to $ 555.5 million for the year ended december 31 , 2012 from $ 518.5 million in 2011 , and increased as a percentage of revenue to 88.7 % for the year ended december 31 , 2012 from 87.7 % for 2011. the primary components of operating expenses for the years ended december 31 , 2012 and 2011 are illustrated in the following table : replace_table_token_14_th ( 1 ) other operating expenses include office expenses , equipment costs , restructuring charges , bad debt and other expenses , none of which are individually significant as a percentage of total operating expenses . personnel costs as a percentage of revenue increased 0.6 % to 67.9 % for the year ended december 31 , 2012 compared to 2011. the increase in personnel costs as a percentage of revenue was primarily the result of a 0.3 % increase in incentive compensation and a 0.3 % increase in salaries and wages and related benefits costs resulting from an increase in headcount and personnel investments made in the financial services practice group .
| during the year ended december 31 , 2013 , cbiz acquired two businesses : associated insurance agents ( aia ) , located in minneapolis , minnesota , an insurance brokerage agency specializing in property and casualty insurance , personal lines and health and benefit insurance ; and knight field fabry , llp ( knight ) , primarily located in denver , colorado , an accounting service company providing traditional accounting , tax , litigation support and valuation services . revenues from these business acquisitions are estimated to exceed $ 5.3 million for the year ending december 31 , 2014. the operating results of aia and knight are reported in the employee services and financial services practice groups , respectively . in addition to the business acquisitions , cbiz acquired three client lists , two of which are reported in the employee services practice group and the third being reported in the financial services practice group . for more details regarding cbiz 's acquisitions , refer to note 19 of the accompanying consolidated financial statements . on august 30 , 2013 , cbiz sold all of the issued and outstanding capital stock of cbiz medical management professionals , inc. and cbiz medical management , inc. and substantially all of the stock of their subsidiary companies , collectively consisting of all of cbiz 's mmp 's ongoing operations and business for a purchase price of $ 201.6 million , subject to final working capital adjustments pursuant to a stock purchase agreement among cbiz operations , inc. and zotec partners , llc dated july 26 , 2013. after transaction costs and taxes , proceeds from the transaction were approximately $ 145 million . the proceeds were used to repurchase shares from westbury as discussed below and to pay down outstanding debt on the unsecured credit facility . the results of operations for mmp for the years ended december 31 , 2013 , 2012 and 2011 are included in income for discontinued operations , net of tax and the gain on the sale of mmp of approximately $ 58.3 million is recorded in gain on disposal of discontinued operations , net of tax on the consolidated statements of comprehensive income . the assets and liabilities of mmp have been consolidated and are included in assets of discontinued
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based on the company 's candidate development work during the fourth quarter of 2016 , dicerna is positioned to advance dcr-pcsk9 , which targets the pcsk9 gene and is indicated for the treatment of statin-refractory patients with hypercholesterolemia , into formal preclinical development . pcsk9 is a validated target for hypercholesterolemia , and there are fda-approved therapies targeting pcsk9 that are based on mab technology . based on preclinical studies , we believe that our galxc rnai platform can produce a pcsk9-targeted therapy with more attractive commercial properties than existing mab therapies , based on comparatively smaller subcutaneous injection volumes and less frequent dosing , while providing equal or superior control of serum cholesterol . an undisclosed rare disease involving the liver . we are developing a galxc-based therapeutic , targeting a liver-expressed gene involved in a serious rare disease . for competitive reasons we have not stages of development product candidate indication research preclinical clinical poc studies dcr-phxc primary hyperoxaluria undisclosed rare disease dcr-pcsk9 cardiovascular disease dcr-hbv hepatitis b virus undisclosed cardiovascular disease undisclosed chronic liver disease our 75 yet publicly disclosed the target gene or disease . we have selected this target gene and disease based on criteria that include having a strong therapeutic hypothesis , a readily-identifiable patient population , the availability of a potentially predictive biomarker , high unmet medical need , favorable competitive positioning , and what we believe is a rapid projected path to approval . we plan to file an ind and or cta for this program in the second quarter of 2018. chronic hepatitis b virus infection : based on our candidate development work during the fourth quarter of 2016 , we are positioned to advance dcr-hbv , which targets the hbv directly , into formal preclinical development . we are using our galxc rnai platform to investigate potential pharmaceutical treatments for hbv . current therapies for hbv rarely lead to a long-term immunological cure as measured by the clearance of hbsag and sustained hbv dna suppression . based on preclinical studies , we believe that our galxc rnai platform can produce an experimental hbv-targeted therapy that eliminates hbsag expression in hbv patients and that has the potential to be delivered in a commercially attractive subcutaneous dosing paradigm . in addition to our galxc development programs , we have partnered our early generation , non-galxc rnai technology against two targets , the kras oncogene and an additional undisclosed gene , with the global pharmaceutical company , khk , to use for development in oncology and formulated using khk 's proprietary drug delivery system . khk is responsible for global development of the kras program , including all development expenses . for the kras product candidate , we retain an option to co-promote in the u.s. for an equal share of the profits from u.s. net sales . we are also developing , with khk , a therapeutic candidate targeting a second cancer-related gene , which we are not identifying at this time . for each product candidate in our collaboration with khk , we have the potential to receive clinical , regulatory and commercialization milestone payments of up to $ 110.0 million and royalties on net sales of each such product candidate . khk is responsible for all preclinical and clinical development activities , including the selection of patient population and disease indications for clinical trials . according to information received from khk , both product candidates are in preclinical development . we also have developed a wholly owned clinical candidate , dcr-bcat , targeting the b -catenin oncogene . dcr-bcat is based on an extended version of our earlier generation dicer substrate rnai technology and is delivered by our lnp tumor delivery system , encore tm . we plan to out-license or spin out the dcr-bcat opportunity , given our focus on our galxc platform-based programs . in oncology , we had been directing our development efforts towards our proprietary product candidate dcr-myc for the treatment of myc-related cancers , which was being investigated in two clinical trials : a phase 1 trial in patients with advanced solid tumors and hematological malignancies , including an expansion cohort in patients with pancreatic neuroendocrine tumors ; and a phase 1b/2 trial in patients with advanced hcc . myc is an oncogene frequently amplified or overexpressed in a wide variety of tumor types . however , in september 2016 , we announced our plan to discontinue the clinical development programs for dcr-myc . while preliminary data from the dcr-myc-101 trial provided evidence of clinical response and molecular knockdown of myc in patients , the early efficacy results from dcr-myc-101 and dcr-myc-102 in hcc did not meet the company 's expectations to warrant further development . data from these studies were presented at the oligonucleotide therapeutics society conference on september 28 , 2016. recent developments on march 30 , 2017 , we entered into a spa with investors pursuant to which we agreed to issue and sell in the private placement 700,000 shares of our newly designated redeemable convertible preferred , at a purchase price of $ 100.00 per share , for total gross proceeds of $ 70.0 million . other participants in the financing include ecor1 capital , cormorant asset management , ra capital , domain associates and skyline ventures , among others . the private placement is expected to close on or before april 11 , 2017 , subject to the satisfaction of customary closing conditions . story_separator_special_tag 76 we plan to file a certificate of designation with the secretary of state of the state of delaware establishing that each share of redeemable convertible preferred will have a stated value of $ 100.00. pursuant to the certificate of designation , we shall have the right to require the investors to convert the redeemable convertible preferred into common stock ( mandatory conversion ) , at any time following the earlier of ( i ) the second anniversary of the closing of the private placement or ( ii ) the occurrence of both of the following : ( a ) ( 1 ) the time that we first administer , after the issue date , a dose of a pharmaceutical product candidate ( which such product candidate shall be one of the following candidates , or a variation thereof : dcr-phxc , dcr-pcsk9 or the undisclosed rare disease program currently in pre-clinical development ( each , a product candidate ) ) to a human being pursuant to an ind filed by us with the fda ; or ( 2 ) after we have first administered , after the issue date , a dose of a product candidate to a human being pursuant to a clinical trial authorization with the medicine and healthcare products regulatory agency in the european union and an ind relating to such product candidate has become effective ; and ( b ) we enter into a partnership or license agreement with a major company in the pharmaceutical or biotechnology industry relating to a non-product candidate , pursuant to which such company provides us with an up-front cash payment of a minimum amount agreed upon by us and the lead investor and agrees to customary future milestone and royalty payments , provided , that , in each case ( ( i ) and ( ii ) ) , the trading price of our common stock exceeds 200 % of the conversion price , as defined below , for 45 out of the 60 most recent trading days . our ability to require conversion shall be subject to the conversion blockers and applicable regulatory restrictions . conversion price shall mean an initial price of $ 3.19 per share , subject to proportionate adjustment for any stock split , stock dividend , combination or other similar recapitalization event . following the date of a mandatory conversion , any shares of redeemable convertible preferred that are not converted as a result of the conversion blockers or applicable regulatory restrictions shall continue to be entitled to all of the rights of the holders of redeemable convertible preferred except that they will no longer be entitled to cumulative dividends , priority distribution of assets upon consummation of a change of control or a liquidation event and certain special voting provisions . on or at any time following the seventh anniversary of the closing of the private placement , ( i ) we shall also have the right to redeem the redeemable convertible preferred for a cash consideration equal to the sum of the accrued value , as of the date of redemption , plus an amount equal to all accrued or declared and unpaid dividends on the redeemable convertible preferred that have not previously been added to the accrued value , and ( ii ) the holders of a majority of the redeemable convertible preferred shall also have the right to cause us to redeem the redeemable convertible preferred at the same price . accrued value means , with respect to each share of redeemable convertible preferred , the sum of ( i ) the stated value plus ( ii ) on each quarterly dividend date , an additional amount equal to the dollar value of any dividends on a share of redeemable convertible preferred which have accrued on any dividend payment date and have not previously been added to such accrued value . at any time and from time to time at their election , the holders of redeemable convertible preferred will have the option to convert the redeemable convertible preferred into shares of our common stock by dividing ( i ) the sum of the accrued value plus an amount equal to all accrued or declared and unpaid dividends on the redeemable convertible preferred that have not previously been added to the accrued value by ( ii ) the conversion price in effect at the time of such conversion . the conversion of shares of redeemable convertible preferred into shares of common stock is subject to the conversion blockers . in the event of our liquidation , dissolution or winding up , the holder of each share of redeemable convertible preferred will be entitled to receive , in preference to the holders of the common stock and any junior preferred stock , an amount per share equal to the greater of ( i ) the sum of the accrued value plus an amount equal to all accrued or declared and unpaid dividends on the redeemable convertible preferred that have not previously been added to the accrued value , or ( ii ) the amount that such shares would have been entitled to receive if they had converted into common stock immediately prior to such liquidation , dissolution or winding up . upon consummation of a specified change of control transaction , each holder of redeemable convertible preferred will be entitled to receive in preference to the holders of common stock and any junior preferred stock , 77 an amount equal to the greater of ( i ) 101 % of the sum of the accrued value plus an amount equal to all accrued or declared and unpaid dividends on the redeemable convertible preferred that have not previously been added to the accrued value , or ( ii ) the amount that such shares would have been entitled to receive if they had converted into common stock immediately prior to such event .
| facilities , depreciation 84 and other expenses were $ 3.5 million for 2016 , compared to $ 3.0 million for 2015. the increase of $ 0.5 million is due to increased facility costs . we expect our research and development expenses to increase in 2017 as we continue spending on our development programs . general and administrative expenses general and administrative expenses were $ 18.3 million and $ 19.2 million for the years ended december 31 , 2016 and 2015 , respectively . the decrease of $ 0.9 million was primarily due to a $ 0.4 million decrease in termination benefits as compared to 2015 , a decrease in stock-based compensation of $ 0.8 million in 2016 , partially offset by an increase in professional fees of $ 0.1 million , which in turn related primarily to legal costs incurred in connection with the alnylam complaint . we expect general and administrative expenses to increase in the future as we continue to expand our operating activities and incur additional costs associated with being a publicly traded company . these increases will likely include legal , accounting and other professional services costs , directors ' and officers ' liability insurance premiums and costs associated with investor relations . other income other income remained relatively stable at $ 0.2 million for each of the years ended december 31 , 2016 and 2015 and represents interest earned from the company 's money market accounts and held-to-maturity investments . comparison of the years ended december 31 , 2015 and 2014 the following table summarizes the results of our operations for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_5_th revenue during the year ended december 31 , 2015 , we recognized $ 0.2 million of revenue associated with the nih grant award . we did not record any revenue for the year ended december 31 , 2014 . 85 research and development expenses the following table summarizes our research and development expenses incurred during the years ended december 31 , 2015
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we evaluate the performance of our product segment based on the timely delivery of our products , performance quality of our products , revenues and expenses and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders . trends and uncertainties the geothermal industry in the united states has historically experienced significant growth followed by a consolidation of owners and operators of geothermal power plants . during the 1990s , growth and development in the geothermal industry occurred primarily in foreign markets and only minimal growth and development occurred in the united states . since 2001 , there has been increased demand for energy generated from geothermal resources in the united states as costs for electricity generated from geothermal resources have become more competitive . recently , much of this is attributable to legislative and regulatory requirements and incentives , such as state renewable portfolio standards and federal tax credits . the arra further encourages the use of geothermal energy through ptcs or itcs as well as cash grants ( which are discussed in more detail in the section entitled “ government grants and tax benefits ” below ) . in response , the geothermal industry in the united states has seen a wave of new entrants and , over the last several years , consolidation involving smaller developers . we believe that the future demand for energy generated from geothermal and other renewable resources in the united states will be driven by further commitment and implementation of renewable portfolio standards as well as the introduction of additional tax incentives . the trends that from time to time impact our operations are subject to market cycles . 89 although other trends , factors and uncertainties may impact our operations and financial condition , including many that we do not or can not foresee , we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following trends , factors and uncertainties : ● we expect to continue to generate the majority of our revenues from our electricity segment through the sale of electricity from our power plants . all of our current revenues from the sale of electricity are derived from payments under long-term ppas related to fully-contracted power plants . we also intend to continue to pursue opportunities , as they arise in our recovered energy business and in the solar pv sector . ● our focus continues to be organic growth through exploration , development , construction of new projects and enhancements of existing power plants along with increasing operational efficiency of our operating portfolio . we expect that our investment in organic growth will increase our total generating capacity , consolidated revenues and operating income attributable to our electricity segment from year to year . in addition , we routinely look at acquisition opportunities . ● the continued awareness of climate change may result in significant changes in the business and regulatory environments , which may create business opportunities for us . in 2011 , the first phase of the epa “ tailoring rule ” took effect . the tailoring rule sets thresholds addressing the applicability of the permitting requirements under the clean air act 's prevention of significant deterioration and title v programs to certain major sources of ghg emissions . federal legislation or additional federal regulations addressing climate change are possible . in june 2013 president barack obama announced a new national climate action plan , directing the epa to complete new carbon dioxide pollution standards for both new and existing power plants . in addition , several states and regions are already addressing legislation to reduce ghg emissions . for example , california 's state climate change law , ab 32 , which was signed into law in september 2006 , regulates most sources of ghg emissions and aims to reduce ghg emissions to 1990 levels by 2020. on october 20 , 2011 the carb adopted cap-and-trade regulations to reduce california 's greenhouse gas emissions under ab 32. in addition to california , twenty u.s. states have set ghg emissions reduction targets and two states have reduction goals . regional initiatives , such as the western climate initiative ( which includes california and four canadian provinces ) and the midwest ghg reduction accord ( which includes six u.s. states and one canadian province ) , are also being developed to reduce ghg emissions and develop trading systems for renewable energy credits . in the united states , approximately 40 states have adopted rps , renewable portfolio goals , or similar laws requiring or encouraging electric utilities in such states to generate or buy a certain percentage of their electricity from renewable energy sources or recovered heat sources . on april 12 , 2011 , the california senate bill x1-2 ( sbx1-2 ) was signed into law , and increased california 's rps to 33 % by december 31 , 2020 and instituted a tradable rec program . sbx1-2 is expected to foster a liquid tradable rec market and lead to more creative off-take arrangements . although we can not predict at this time whether the tradable rec program under sbx1-2 and its implementing regulations will have a significant impact on our operations or revenue , it may facilitate additional options when negotiating ppas and selling electricity from our projects . in june 2013 , the nevada state legislature passed three bills that were signed by nevada 's governor and are expected to support renewable energy development in the state . senate bill ( sb ) no . 123 calls for the retirement or elimination of not less than 800 mw of coal-fired electric generating capacity on or before december 31 , 2019 and the construction or acquisition of , or contracting for , 350 mw of electric generating capacity from renewable energy facilities . senate bill 252 revises provisions relating to the renewable portfolio standard by removing energy efficiency , solar multipliers , and station usage from generating portfolio energy credits . story_separator_special_tag finally , assembly bill ( ab ) no . 239 revised statutes 701a.340 defines geothermal energy as renewable energy for purposes of tax abatements and makes geothermal projects eligible for partial sales and property tax abatements , with property tax abatements for a period of twenty years and local sales and use tax abatements for three years . ● outside of the united states , in november 2012 united states , brunei , and indonesia formed the asia-pacific comprehensive partnership and president obama announced the allocation of $ 6.0 billion for green energy development in asia . also , on june 30 , 2013 , president obama announced the “ power africa ” initiative pursuant to which the united states will invest $ 7.0 billion in sub-saharan africa over the following five years , with the aim of doubling access to power . the sub-sahara africa includes three countries ( ethiopia , kenya and tanzania ) that have large geothermal potential as well as operating geothermal power plants . we accelerated our efforts to expand business development activities in those areas by , among other things , participating in new applicable bids . in addition , we expect that a variety of governmental initiatives will create new opportunities for the development of new projects , as well as create additional markets for our products . these initiatives include the award of long- 90 term contracts to independent power generators , the creation of competitive wholesale markets for selling and trading energy , capacity and related energy products and the adoption of programs designed to encourage “ clean ” renewable and sustainable energy sources . ● in the electricity segment , we expect competition from the wind and solar power generation industry to continue . while we believe the expected demand for renewable energy will be large enough to accommodate increased competition , any such increase and the amount of renewable energy under contract may contribute to a reduction in electricity prices . despite increased competition from the wind and solar power generation industry , we believe that base load electricity , such as geothermal-based energy , will continue to be an important source of renewable energy in areas with commercially viable geothermal resource . also , geothermal power plants positively impact electrical grid stability and provide valuable ancillary services because of their base load nature while the intermittent renewables create integration costs . in the geothermal industry , we are experiencing a notable decrease in competition , specifically in the acquisition of geothermal leases . the reduced level of competition has contributed to a decrease in lease costs . ● in the product segment , we expect increased competition from binary power plant equipment suppliers including the major steam turbine manufacturers . while we believe that we have a distinct competitive advantage based on our accumulated experience and current worldwide share of installed binary generation capacity , an increase in competition may impact our ability to secure new purchase orders from potential customers . the increased competition may also lead to a reduction in the prices that we are able to charge for our binary equipment , which in turn may impact our profitability . ● the changing natural gas landscape , the resulting effect on natural gas pricing ( in either direction ) and the corresponding implications for electric utilities and other producers of electricity in terms of planning for and choosing a source of fuel , will affect the pricing under our ppas that have srac pricing , as described below . ● the 38 mw puna complex has three ppas , of which the 25 mw ppa has a monthly variable energy rate based on the local utility 's avoided costs . a decrease in the price of oil will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from oil , which will result in a reduction of the energy rate that we may charge under this ppa . in order to reduce our exposure to oil we recently signed a fixed rate ppas for the rest of the complex and we are currently negotiating a fixed price for the 25 mw ppa as well . in the meantime , we have entered into put and swap contracts to reduce our exposure to fluctuations in the energy rate caused by fluctuations in oil prices through december 31 , 2014. our use of derivative instruments for this purpose has increased , and likely will continue to be used to manage volatility in revenues , net profit and certain other line items in our financial statements . ● we had ppas for the ormesa , mammoth and heber complexes for a total of 161 mw that were fixed until may 1 , 2012. thereafter , the energy price component under these ppas changed from a fixed rate to a variable rate based on srac pricing that is impacted by natural gas prices . in 2013 , we signed new fixed rate ppas that reduced our current exposure to srac by 18 mw and by additional 44 mw in 2016. we have entered into swap transactions at a fixed average price of $ 4.0 per mmbtu in 2013 and $ 4.07 per mmbtu in 2014 to reduce further our exposure to fluctuations in natural gas prices through december 31 , 2014. our use of derivative instruments for this purpose has increased , and likely will continue to be used to manage volatility in revenues , net profit and certain other items in our financial statements . ● the viability of a geothermal resource depends on various factors such as the resource temperature , the permeability of the resource ( i.e. , the ability to get geothermal fluids to the surface ) and operational factors relating to the extraction and injection of the geothermal fluids . such factors , together with the possibility that we may fail to find commercially viable geothermal resources in the future , represent significant uncertainties that we face in connection with our growth expectations .
| this increase was primarily due to a $ 37.3 million increase in revenues from our : ( i ) olkaria iii plant 2 , which commenced commercial operation at the beginning of may 2013 ; ( ii ) a full year of operations of the mcginness hills power plant in 2013 compared to only six months in 2012 ; and ( iii ) tuscarora power plant , which started to receive commercial rates in the second quarter of 2012. this increase was partially offset by : ( i ) an $ 11.0 million decrease resulting from the impact of natural gas prices on the energy rates in our so # 4 ppas in california , which at the beginning of may 2012 changed from a fixed rate to a variable rate ; ( ii ) a $ 4.5 million net decrease due to reduced generation in some of our power plants and a reduction in energy rates in our puna and amatitlan power plants ; and ( iii ) a net loss of $ 5.0 million on derivative contracts on oil and natural gas prices , compared to a net gain of $ 2.3 million over the corresponding period in 2012. power generation in our power plants increased by 7.9 % from 3,942,293 mwh in the year ended december 31 , 2012 to 4,253,489 mwh in the year ended december 31 , 2013. product segment revenues attributable to our product segment for the year ended december 31 , 2013 were $ 203.5 million , compared to $ 186.9 million for the year ended december 31 , 2012 , which represented an 8.9 % increase . the increase in our product segment revenues reflects the increase in new customer orders that we secured in 2012 and 2013. total cost of revenues total cost of revenues for the year ended december 31 , 2013 was $ 373.4 million , compared to $ 372.8 million for the year ended december 31 , 2012. as a percentage of total revenues , our total cost of revenues for the year ended december 31 , 2013 decreased to 70.0 % , compared to 74.3 % for the year ended december 31 , 2012. the decrease was attributable to a decrease in cost of revenues in our electricity offset by an increase in our product segments . electricity segment total cost of revenues attributable to our electricity segment for the year ended december 31 , 2013 was $ 232.9 million , compared to $ 237.4 million for the year ended december 31 , 2012 , which represented a 1.9 % decrease . this decrease was primarily due to a decrease in depreciation in our : ( i ) north brawley power plant as a result of an impairment for the plant we recorded in the fourth quarter of 2012 and ( ii )
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on march 15 , 2017 , in accordance with the terms and conditions of the agreement , dmsi became a wholly owned subsidiary of the company ( the “ closing date ” ) . the story_separator_special_tag this form 10-k and other reports filed by the company from time to time with the sec ( collectively , the “ filings ” ) contain or may contain forward-looking statements and information that are based upon beliefs of , and information currently available to , the company 's management as well as estimates and assumptions made by company 's management . readers are cautioned not to place undue reliance on these forward-looking statements , which are only predictions and speak only as of the date hereof . when used in the filings , the words “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ future , ” “ intend , ” “ plan , ” or the negative of these terms and similar expressions as they relate to the company or the company 's management identify forward-looking statements . such statements reflect the current view of the company with respect to future events and are subject to risks , uncertainties , assumptions , and other factors , including the risks relating to the company 's business , industry , and the company 's operations and results of operations . should one or more of these risks or uncertainties materialize , or should the underlying assumptions prove incorrect , actual results may differ significantly from those anticipated , believed , estimated , expected , intended , or planned . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance , or achievements . except as required by applicable law , including the securities laws of the united states , the company does not intend to update any of the forward-looking statements to conform these statements to actual results . our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . these accounting principles require us to make certain estimates , judgments and assumptions . 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 . our financial statements would be affected to the extent there are material differences between these estimates and actual results . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . the following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report . overview we intend for this discussion to provide information that will assist in understanding our financial statements , the changes in certain key items in those financial statements , and the primary factors that accounted for those changes , as well as how certain accounting principles affect our financial statements . business overview the company is a nevada corporation incorporated on november 3 , 2015 as a holding corporation focusing on the acquisition of healthcare related technology companies . the company 's fiscal year end is december 31. to date , the company has financed and acquired four electronic medical records companies . 11 story_separator_special_tag revenue based factoring agreement with a third party . under the agreement , the company has sold $ 125,875 ( the “ purchase price ” ) in future accounts and contract rights for $ 95,000. the advance was received by the company on june 28 , 2018. a portion of the proceeds was used to satisfy the balance due on the january 18 , 2018 factoring agreement described above . the difference between the amount sold and the purchase price of $ 30,875 has been recorded as a debt discount . in exchange for the purchased amount , the company authorized the third party to ach debit $ 473 daily from the company 's bank account until the purchased amount is fully received . as of december 31 , 2018 , the balance due was $ 49,757 , net of debt discount of $ 15,437. the company amortized $ 15,438 of debt discount during the year ended december 31 , 2018. our auditors have raised substantial doubts as to our ability to continue as a going concern our consolidated financial statements have been prepared assuming we will continue as a going concern . the company has experienced recurring losses from operations which have caused an accumulated deficit of $ 5,227,652 at december 31 , 2018. the ability of the company to continue its operations as a going concern is dependent on management 's plans , which include the raising of capital through debt and or equity markets with some additional funding from other traditional financing sources , including term notes , until such time that funds provided by operations are sufficient to fund working capital requirements . the company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives . story_separator_special_tag the company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future . there can be no assurance that financing will be available in amounts or terms acceptable to the company , if at all . the accompanying financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . these financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern . off-balance sheet arrangements as of december 31 , 2018 , the company had no off-balance sheet arrangements . critical accounting policies we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “ management 's discussion and analysis of financial condition and results of operation. ” 13 revenue recognition the company accounts for revenue in accordance with topic 606 , which the company adopted on january 1 , 2018 , using the modified retrospective method . the adoption of topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position , results of operations , equity or cash flows as of the adoption date or for the year ended december 31 , 2018. the company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial . also , the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods . revenues are recognized when the company satisfies a performance obligation by transferring control of the promised goods or services to our customers at a point in time , in an amount specified in the contract with our customer and that reflects the consideration the company expect to be entitled to in exchange for those goods or services . the company also assesses our customer 's ability and intention to pay , which is based on a variety of factors including our customer 's historical payment experience and financial condition . the company derives revenue from the sale of hardware and software licenses when the products are installed and all required post implementation services are completed . the company recognizes revenue from consulting services as the services are performed . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer under topic 606. a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . the majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services . for contracts with multiple performance obligations , we allocate revenue to each performance obligation based on its relative standalone selling price . in accordance with topic 606 , we do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer . the timing of our performance often differs from the timing of invoicing , which results in the recording of deferred revenue . deferred revenue will be recognized when performance obligation is satisfied . use of estimates in preparing financial statements in conformity with generally accepted accounting principles , management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period . actual results could differ from those estimates . significant estimates include the allocation of purchase price to fair value of assets acquired , allowance for bad debt , determination of useful lives , impairment of intangible assets , valuation of deferred taxes , and stock-based compensation . recent accounting pronouncements in february 2016 , the fasb issued asu 2016-02 “ leases , ” which will amend current lease accounting to require lessees to recognize ( i ) a lease liability , which is a lessee 's obligation to make lease payments arising from a lease , measured on a discounted basis , and ( ii ) a right-of-use asset , which is an asset that represents the lessee 's right to use , or control the use of , a specified asset for the lease term . asu 2016-02 does not significantly change lease accounting requirements applicable to lessors ; however , certain changes were made to align , where necessary , lessor accounting with the lessee accounting model . this standard will be effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . the adoption of this asu is not expected to have any impact on our results of operations , cash flows , or financial condition . in june 2018 , the fasb issued asu 2018-07 “ compensation – stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting. ” this asu relates to the accounting for non-employee share-based payments . the amendment in this update expands the scope of topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor 's own operations by issuing share-based payment awards . the asu excludes share-based payment awards that relate to ( 1 ) financing to the issuer or ( 2 ) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under topic 606 , revenue from contracts from customers . the share-based payments are to be measured at grant-date fair
| expense of $ 87,141 for the year ended december 31 , 2017. this was primarily due to the increase in interest expense resulting from acquisition of dmsi in march 2017 and from the factoring agreements entered into in january and june 2018. net loss net loss of $ 1,656,150 for the year ended december 31 , 2018 , increased by $ 278,734 over net loss of $ 1,377,416 for the year ended december 31 , 2017. this increase was primarily due to the decrease in selling , general , and administrative expenses offset by increases in revenues , cost of revenues , amortization , impairment of intangible assets of $ 345,000 , and other expense described above . liquidity and capital resources the following table summarizes total current assets , liabilities and working capital at december 31 , 2018 compared to december 31 , 2017. replace_table_token_1_th at december 31 , 2018 , we had working capital deficit of $ 1,638,272 as compared to working capital deficit of $ 718,455 at december 31 , 2017 , an increase in working capital deficit of $ 919,817 . 12 net cash used in operations of $ 15,749 decreased by $ 25,116 for the year ended december 31 , 2018 over the same period in 2017 primarily due to increases in amortization expense of $ 53,138 , impairment of $ 345,000 , an increase in stock option expense of $ 48,510 , amortization of debt discount of $ 33,857 , and a net change in operating assets and liabilities of $ 103,673 offset by a decrease in stock issued for services of $ 24,627 and a decrease in provision for bad debt of $ 47,537. net cash provided from financing activities of $ 15,900 during the year ended december 31 , 2018 decreased by $ 1,037,100 from $ 1,053,000 during the same period in 2017. this decrease was primarily due to a decrease of $ 1,053,000 of proceeds from the
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selling , general and administrative expenses our selling , general and administrative expenses consist primarily of salaries , incentive-based compensation , travel and benefits , including related share-based compensation ; marketing costs ; professional fees , including fees for attorneys and outside accountants ; occupancy costs ; insurance ; medical device excise taxes ; and other general and administrative expenses , which include , but are not limited to , corporate licenses , director fees , hiring costs , taxes , postage , office supplies and meeting costs . our selling , general and administrative expenses are expected to increase due to costs associated with the commercialization of our clearpoint system and the increased headcount necessary to support growth in operations . critical accounting policies and significant judgments and estimates our management 's 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 , or gaap . the preparation of these 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 as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods . the accounting estimates that require our most significant , difficult and subjective judgments have an impact on revenue recognition , computation of the fair value of our derivative liabilities and the determination of share-based compensation and financial instruments . we evaluate our estimates and judgments on an ongoing basis . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our consolidated financial statements included elsewhere in this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . revenue recognition . our revenues are comprised of : ( 1 ) product revenues resulting from the sale of clearpoint system reusable products and disposable products ; ( 2 ) development service revenues ; and ( 3 ) other service revenues . we recognize revenue when persuasive evidence of an arrangement exists , the selling price or fee is fixed or determinable , collection is reasonably assured , and , for product revenues , risk of loss has transferred to the customer . for all sales , we require either a purchase agreement or a purchase order as evidence of an arrangement . we analyze revenue recognition on an individual agreement basis . we determine if the deliverables under the arrangement represent separate units of accounting as defined by gaap . application of gaap regarding multiple-element arrangements requires us to make subjective judgments about the values of the individual elements and whether delivered elements are separable from the other aspects of the contractual relationship . ( 1 ) product revenues — sales of clearpoint system reusable products : the predominance of clearpoint system reusable product sales ( consisting primarily of integrated computer hardware and software ) are preceded by customer evaluation periods of generally 90 days . during these evaluation periods , installation of , and training of customer personnel on , the systems have been completed and the systems have been in operation . accordingly , reusable product sales following such evaluation periods are recognized upon receipt of an executed purchase agreement or purchase order that provide for risk of loss to pass to the customer . sales of reusable products not having been preceded by an evaluation period are recognized on an individual agreement basis as described in the preceding paragraph . sales of disposable products : revenues from the sale of disposable products , including clearpoint system disposable products , are recognized at the time risk of loss passes to the customer , which is generally at shipping point or upon delivery to the customer 's location , depending on the agreed upon terms with the customer . ( 2 ) development service revenues — under the terms of an agreement that called for us to provide development services to a third party , we earned revenue equal to costs incurred for outside expenses related to the development services provided , actual direct internal labor costs ( including the cost of employee benefits ) , and an overhead markup of the direct internal labor costs incurred . revenue was recognized in the period in which we incurred the related costs . 44 ( 3 ) other service revenues — other service revenues are comprised of installation fees , training fees , shipping fees and service fees charged in connection with clearpoint system installations and clearpoint system service agreements . typically , we bill upfront for service agreements , which have terms ranging from one to three years . these amounts are recognized as revenues ratably over the term of the related service agreement . inventory . inventory is carried at the lower of cost ( first-in , first-out method ) or net realizable value . all items included in inventory relate to our clearpoint system . software license inventory that is not expected to be utilized within the next twelve months is classified as a non-current asset . we periodically review our inventory for obsolete items and provide a reserve upon identification of potentially obsolete items . derivative liabilities . our derivative liabilities arise from : ( a ) a conversion feature related to the brainlab note ; and ( b ) warrants issued in connection with certain private placements of shares our common stock . the fair values of the conversion feature and the warrants are presented as liabilities based on the terms of the conversion feature that allow for potential conversion at a price that may be less than market value on the date of conversion , and the terms of the warrants that bear certain net cash settlement and exercise price reset , or “ down round , ” provisions . story_separator_special_tag these derivative liabilities , which are recorded on our consolidated balance sheets , are calculated utilizing the monte carlo simulation valuation method . changes in the fair values of these warrants are recognized as other income or expense in the related statement of operations . share-based compensation . we account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments ( including options and warrants ) based on fair value . the fair value of each award is estimated as of the grant date and amortized as compensation expense over the requisite vesting period . the fair values of our share-based awards are estimated on the grant dates using the black-scholes valuation model . this valuation model requires the input of highly subjective assumptions , including the expected stock volatility , estimated award terms and risk-free interest rates for the expected terms . to estimate the expected terms , we utilize the “ simplified ” method for “ plain vanilla ” options discussed in the sec 's staff accounting bulletin 107 , or sab 107. we believe that all factors listed within sab 107 as prerequisites for utilizing the simplified method apply to us and to our share-based compensation arrangements . we intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available . we based our estimate of expected volatility on the average of historical volatilities of publicly traded companies we deemed similar to us because we lack our own relevant historical volatility data . we will consistently apply this methodology until we have sufficient historical information regarding the volatility of our own share prices to use as the input for all of our share-based fair value calculations . we utilize risk-free interest rates based on a zero-coupon u.s. treasury instrument , the term of which is consistent with the expected term of the share-based award . we have not paid , and do not anticipate paying , cash dividends on shares of our common stock ; therefore , the expected dividend yield is assumed to be zero . research and development costs . costs related to research , design and development of products are charged to research and development expense as incurred . these costs include direct salary and employee benefit-related costs for research and development personnel , costs for materials used in research and development activities , sponsored research and costs for outside services . since most of the expenses associated with our development service revenues relate to existing internal resources , these amounts are included in research and development costs . 45 story_separator_special_tag as discussed below and in note 6 to the consolidated financial statements included elsewhere in this annual report . in 2015 , derivative liabilities were limited to the issuance of warrants in connection with the 2012 and 2013 private placement transactions . in april 2016 , we entered into a securities purchase agreement with brainlab ( the “ 2016 purchase agreement ” ) under which the brainlab note was restructured and , among other items , we : ( i ) entered into a patent and technology license agreement with brainlab ( the “ license agreement ” ) for software relating to our smartframe device , in consideration for the cancellation of $ 1.0 million of the principal amount of the brainlab note ; and ( ii ) issued to brainlab , in consideration for the cancellation of approximately $ 1.3 million of the principal amount of the brainlab note , 99,310 units , consisting of one share of our common stock , a series a warrants to purchase 0.4 share of common stock and a series b warrants to purchase 0.3 shares of common stock . execution of the 2016 purchase agreement constituted a debt extinguishment under gaap , necessitating us to record a restructuring gain of $ 941,000 representing the difference between ( a ) the aggregate fair value of the license agreement , which had no cost basis on our consolidated balance sheets , and the equity units , and ( b ) the aggregate principal amount of the brainlab note cancelled as consideration . in june 2016 , we entered into amendments with brainlab , with respect to the new brainlab note , and with two holders of the 2014 secured notes , one of whom is a trust for which one of our non-employee directors serves as a trustee . pursuant to the amendments , the parties agreed that , in the event we close a qualified public offering : ( i ) $ 2,000,000 of the principal balance of those notes , plus all unpaid accrued interest on that amount , will automatically convert into the security offered in the qualified public offering , based on the public offering price of that security ; and ( ii ) the exercise price for 46,207 shares of common stock underlying warrants issued in connection with those notes will be reduced , to equal the greater of ( x ) the public offering price of the security offered in the qualified public offering , or ( y ) if the security offered in the qualified public offering is or includes convertible stock or common stock warrants , the highest price per whole share for which our common stock is issuable upon conversion of such convertible stock or upon exercise of such common stock warrants . execution of the amendments constituted debt extinguishments under gaap , necessitating us to record , on june 30 , 2016 , a debt restructuring loss of $ 820,000 , representing the aggregate difference in fair value between : ( a ) the sum of the fair value of amended notes plus the fair value of the derivative liabilities created by the amendments ; and ( b ) the carrying value of the notes immediately prior to the execution of the amendments .
| cost of product revenues was $ 2.6 million in 2016 , as compared with $ 2.0 million in 2015 , representing gross margin on product revenues of 53 % for 2016 , compared to 55 % for 2015. the decrease in gross margin was due primarily to : ( a ) differences between 2015 and 2016 in the equipment configuration of clearpoint systems sold that resulted in : ( i ) hardware configurations sold in 2016 bearing an aggregate gross margin that was 23 percentage points lower than hardware configurations sold in 2015 ; and ( ii ) a decrease from 2015 to 2016 in software revenues , which bear higher gross margins than hardware ; ( b ) an increase of $ 254,000 from 2015 to 2016 in charges to the provision for obsolete and expired product ; and ( c ) a $ 296,000 increase in 2016 , relative to 2015 , in the allocation of indirect labor to production activities , commensurate with our transition from research and development to commercial activities ; that were partially offset by increases in 2016 , relative to 2015 , in average unit selling prices and decreases in 2016 , relative to 2015 , in average unit costs due to more favorable pricing from vendors resulting from higher order quantities . research and development costs . research and development costs were $ 2.6 million in 2016 , compared to $ 2.0 million in 2015 , an increase of $ 671,000 , or 34 % . the increase was due primarily to : ( a ) an increase of $ 253,000 in connection with our development of the next generation of the clearpoint operating system ; ( b ) an increase of $ 325,000 related to intellectual property costs ; ( c ) an increase of $ 83,000 for other professional fees and consultants ; and ( d ) an increase of $ 61,000 in personnel costs . partially offsetting these items was a $ 168,000 increase in departmental costs allocated to production activities . 46 selling , general and administrative expenses . selling , general and administrative expenses were $ 8.0 million in 2016 , compared with $ 8.4 million in 2015 , a decrease of $ 403,000 , or 5 % . the decrease was primarily attributable to : ( a ) a decrease of $ 568,000 in personnel costs , which includes share-based compensation , and travel and entertainment expenses ; ( b ) an increase of $ 221,000 in the allocation of departmental resources to production activities ; ( c ) a decrease of $ 81,000 in medical device excise taxes , suspended by federal legislation
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nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . we do not track our employee and facility related research and development costs by project , as we typically use our employee and infrastructure resources across multiple research and development programs . we believe that the allocation of such costs would be arbitrary and would not be meaningful . we have not historically tracked external development costs by program as the majority of our development spend was focused on the development and clinical trials of entrectinib . we have contracted with cros to manage our clinical trials under agreed upon budgets , with oversight by our clinical program managers . any deviations from the budgets must be approved by us in writing . our internal research and development costs are controlled through our internal budget and forecast process and subject to quarterly review and analysis of budget versus actual expenditures . research and development activities are central to our business model . our research and development programs that we expect will be our focus in the immediate future consist of the development of our entrectinib , taladegib , rxdx-105 , and rxdx-106 programs , and drug discovery activities for the development of our spark program . since product candidates in later stages of development generally have higher development costs than those in earlier stages of development , we expect research and development costs relating to each of those programs to increase significantly for the foreseeable future as those programs progress . however , the successful development of any of our product candidates , or any others we may seek to pursue , is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development for our programs , or whether any of our product candidates will reach successful commercialization . we are also unable to predict when , if ever , any net cash inflows will commence from any of the product candidates we currently or may in the future pursue . this lack of predictability is due to the numerous risks and uncertainties associated with developing medicines , many of which , such as our ability to obtain approvals to market and sell those medicines from the fda , and other applicable regulatory authorities , are beyond our control , including the uncertainty of : establishing an appropriate safety profile with toxicology studies to submit an ind to the fda or comparable applications to foreign regulatory authorities ; successful enrollment in and adequate design and completion of clinical trials ; successful demonstration of an acceptable safety profile with clinically meaningful efficacy to achieve a favorable benefit/risk profile sufficient to obtain regulatory approval in one or more countries ; receipt of marketing approvals from applicable regulatory authorities , including the fda and or comparable foreign authorities ; establishing commercial manufacturing capabilities or , more likely , seeking to establish arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , including establishing an internal sales and marketing force and or establishing relationships with third parties for such purpose ; developing and commercializing , individually or with third-party collaborators , companion diagnostics ; and a continued acceptable safety profile of the products following approval , if any . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs , timing and likelihood of success associated with the development of that product candidate . 54 general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal , commercial and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to facilities expansion , the hiring of additional personnel and increased fees to outside consultants , lawyers and accountants , among other expenses . additionally , increased costs associated with operating as a public company are expected to include expenses related to services associated with maintaining compliance with requirements of the sec , insurance and investor relations costs . critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with united states generally accepted accounting principles . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of expenses during the reporting periods . we base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances at the time the estimates are made , the results of which form the basis for making judgments about the book value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag we periodically evaluate our estimates and judgments , including those described in greater detail below , in light of changes in circumstances , facts and experience . our critical accounting policies are those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are described in more detail in the notes to our financial statements included in this annual report on form 10-k. we believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows : research and development we enter into consulting , research and other agreements with commercial firms , researchers , universities and others for the provision of goods and services . under such agreements , we may pay for services on a monthly , quarterly , project or other basis . such arrangements are generally cancellable upon reasonable notice and payment of costs incurred . costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to us by our clinical sites and vendors and other information . these costs consist of direct and indirect costs associated with specific projects , as well as fees paid to various entities that perform certain research on our behalf . in certain circumstances , we are required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities . in such circumstances , the advance payments are deferred and are expensed when the activity has been performed or when the goods have been received . clinical trial and pre-clinical study accruals we make estimates of accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time . accrued expenses for pre-clinical studies and clinical trials are based on estimates of costs incurred and fees that may be associated with services provided by cros , clinical trial investigational sites , and other related vendors . payments under certain contracts with such parties depend on factors such as successful enrollment of patients , site initiation and the completion of milestones . in accruing service fees , management estimates the time period over which services will be performed and the level of effort to be expended in each period . if possible , we obtain information regarding unbilled services directly from these service providers . however , we may be required to estimate these services based on other information available to us . if we underestimate or overestimate the activity or fees associated with a study or service at a given point in time , adjustments to research and development expenses may be necessary in future periods . historically , estimated accrued liabilities have approximated actual expense incurred . subsequent changes in estimates may result in a material change in our accruals . stock-based compensation stock-based compensation cost for equity awards to employees , consultants and members of our board of directors is measured at the grant date , based on the calculated fair value of the award using the black-scholes option-pricing model , and is recognized as an 55 expense , under the straight-line method , over the requisite service period ( generally the vesting period of the equity grant ) . stock options issued to non-employees are accounted for at their estimated fair values determined using the black-scholes option-pricing model . the fair value of options granted to non-employees is re-measured as they vest , and the resulting increase in value , if any , is recognized as expense during the period the related services are rendered . restricted stock issued to non-employees is accounted for at its estimated fair value as it vests . investments investments consist of government and government agency obligations , corporate notes and bonds and commercial paper . we classify investments as available-for-sale at the time of purchase . all investments are recorded at estimated fair value . unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income , a component of stockholders ' equity . we evaluate our investments as of each balance sheet date to assess whether those with unrealized loss positions are other-than-temporarily impaired . impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that we will sell the securities before the recovery of our cost basis . realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income ( expense ) , net in the statement of operations . no other-than-temporary impairment charges have been recognized since inception . income taxes deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . income tax expense is the combination of the tax payable for the year and the change during the year in deferred tax assets and liabilities . recently issued accounting pronouncements in january 2016 , the fasb issued an accounting standard update , or asu , which addresses certain aspects of recognition , measurement , presentation and disclosure of certain assets and liabilities in financial statements . this guidance will be effective in the first quarter of fiscal year 2018 and early adoption is not permitted .
| the increase in general and administrative expenses was primarily attributable to increases in personnel costs , including additional stock compensation costs of $ 1.4 million , and additional investor relations , audit , legal and intellectual property costs . other income ( expense ) , net . other expense , net increased by approximately $ 1.7 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. this was due to an increase in the interest expense on our loan obligation to svb . comparison of years ended december 31 , 2014 and 2013 the following table summarizes our results of operations for 2014 and 2013 , together with the changes in those items in dollars and as a percentage ( in thousands , except percentage changes ) : replace_table_token_7_th revenue . we recorded revenue of $ 150,000 for the year ended december 31 , 2014. we did not record any revenue for the year ended december 31 , 2013. the increase was due to a one-time service-fee for research services conducted in 2014. research and development expense . research and development expense increased by approximately $ 20.3 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , an increase of 200 % . the increase in research and development expenses was primarily attributable to the milestone payment of $ 10.0 million to nms as part of the license agreement amendment signed in december 2014 and the payment of the upfront license fee of $ 3.5 million to nms for rights to our rxdx-103 and rxdx-104 product candidates , as well as an increase in activities relating to development of our entrectinib product candidate . we also incurred an increase between periods for personnel expenses related to hiring and engaging additional employees and consultants to help us advance our product candidates and facilities related expenses as a result of the expansion of our leased facilities space . general and administrative expense . general and administrative expenses
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we signed an exclusive distribution agreement with solenis for in-pipe uses . in addition , we continue to work with state , federal and bi-national partners to further develop zequanox in the great lakes/upper mississippi river basin as a habitat restoration tool and potential harmful algal bloom management tool . we believe that zequanox presents a unique opportunity for generating long-term revenue as there are limited water treatment options available to date , most of which are time-consuming , costly or subject to high levels of regulation . our ability to generate significant revenues from zequanox from in-pipe treatments is dependent on our ability to persuade customers to evaluate the costs of our zequanox products compared to the overall cost , and environmental impact , of the chlorine treatment process , the primary current alternative to using zequanox , rather than the cost of purchasing chemicals alone . in the fourth quarter of 2015 , we implemented a new process at our manufacturing plant that reduced the cost of product revenues to be more competitive with other mussel treatment chemicals . sales of zequanox have remained lower than our other products due to our prioritization of crop protection business , the length of the treatment cycle , the longer sales cycle ( the bidding process with utility companies and governmental agencies occurs on a yearly or multi-year basis ) , the unique nature of the treatment approach for each customer based on the extent of the infestation , and the design of their facility . although our initial epa-approved master labels cover our products ' anticipated crop-pest use combinations , we launch early formulations of our pest management and plant health products to targeted customers under commercial labels that list a limited number of crops and applications that our initial efficacy data can best support . we then gather new data from experiments , field trials and demonstrations , gain product knowledge and get feedback to our research and development team from customers , researchers and agricultural agencies . based on this information , we enhance our products , refine our recommendations for their use in optimal ipm programs , expand our commercial labels and submit new product formulations to the epa and other regulatory agencies . for example , we began sales of regalia sc , an earlier formulation of regalia , in the florida fresh tomatoes market in 2008 , while a more effective formulation of regalia with an expanded master label , including listing for use in organic farming , was under review by the epa . in 2011 , we received epa approval of a further expanded regalia master label covering hundreds of crops and various new uses for applications to soil and through irrigation systems , and we recently expanded sales of regalia in large-acre row crops as a plant health product , in addition to its beneficial uses as a fungicide . in january 2016 , we launched a new formulation of regalia that no longer contains a solvent that is difficult to source and may experience future regulatory restrictions . this new formulation of regalia disperses better in water and is easier to mix and rinse from containers and spray equipment . in addition , in june 2016 , we launched a new formulation of grandevo , grandevo wdg , which offers improved handling and better , more convenient packaging . the water dispersible granule mixes easily in spray tanks with no dust or foam , which saves valuable time in the preparation and application processes . similarly , ongoing field development research on the microbe used in venerate , one of our insecticide products , led to our october 2015 registration of majestene as a nematicide . we believe we have opportunities to broaden the commercial applications and expand the use of our existing products lines to help drive significant growth for our company . our total revenues were $ 18.2 million , $ 14.0 million , and $ 9.8 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively , and have risen as growers have adopted our products and have used our products on an expanded number of crops . we generate our revenues primarily from product sales , which are principally attributable to sales of our regalia , grandevo and venerate product lines , but which also included sales of majestene , zequanox , bio-tam 2.0 , haven , stargus/amplitude and jet-ag . product sales have been affected in recent years by various factors , including the tenure of our former chief operating officer and departure of significant members of our sales staff in the third quarter of 2014 , and subsequent turnover in our sales and marketing departments . further , we believe that following the announcement of the matters relating to our restatement , some customers and potential customers were reluctant to do business with us until after we had reached a settlement with the sec , which was achieved in february 2016 , and we believe competitors were able to take advantage of these circumstances . in addition , we believe that prior to our february 2018 financing transactions , concerns and rumors regarding our ability to continue operations have impacted our ability to grow more robustly . going forward , we believe our revenues will largely be impacted by weather , natural disasters and other factors affecting planting and growing seasons and incidence of pests and plant disease , and , accordingly , the decisions by our distributors , direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products . since 2011 , we have also recognized revenues from our strategic collaboration and distribution agreements , which amounted to $ 0.2 million , $ 0.3 million and $ 0.3 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . story_separator_special_tag 54 we currently rely , and expect to continue to rely , on a limited number of distributors for a significant portion of our revenues since we sell through highly concentrated , traditional distribution channels . distributors to which 10 % or more of our total revenues are attributable for any one of the periods presented consist of the following : replace_table_token_3_th while we expect product sales to a limited number of distributors to continue to be our primary source of revenues , as we continue to develop our pipeline and introduce new products to the marketplace , we anticipate that our revenue stream will be diversified over a broader product portfolio and customer base . our cost of product revenues was $ 10.5 million , $ 9.5 million , and $ 9.3 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . cost of product revenues included $ 0.3 million of cost of product revenues to related parties for the year ended december 31 , 2015. there was no cost of product revenues to related parties for the years ended december 31 , 2017 or 2016. cost of product revenues consists principally of the cost of inventory , which includes the cost of raw materials , and third party services and allocation of operating expenses of our manufacturing plant related to procuring , processing , formulating , packaging and shipping our products . cost of product revenues also include charges recorded for write-downs of inventory and idle capacity at our manufacturing plant . we expect our cost of product revenues related to the cost of inventory to increase and cost of product revenues relating to write-downs of inventory and idle capacity of our manufacturing plant to decrease as we expand sales and increase production of our existing commercial products regalia , grandevo , venerate , majestene , zequanox , haven and stargus . we expect to see a gradual increase in gross margin over the life cycle of each of our products as we improve production processes , gain efficiencies and increase product yields . these increases may be offset by additional charges for inventory write-downs and idle capacity at our manufacturing plant until overall volume in the plant increases significantly , however we are expecting these charges to decrease over time . our research , development and patent expenses have historically comprised a significant portion of our operating expenses , amounting to $ 10.8 million , $ 9.7 million , and $ 13.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . we are seeking collaborations with third parties to develop and commercialize more early stage candidates , which we have elected not to expend significant resources on given our reduced budget . selling , general and administrative expenses incurred to establish and build our market presence and business infrastructure have generally comprised the remainder of our operating expenses , amounting to $ 19.8 million , $ 18.5 million , and $ 26.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . we have been building a sales and marketing organization that provides for increased training and a better ability to educate and support customers and for our product development staff to undertake responsibility for technical sales support , field trials and demonstrations to promote sales growth . we expect that our selling , general and administrative expenses to remain approximately flat in all departments with the exception of sales and marketing . in 2018 , we are increasing our marketing communications campaigns and putting more “ boots on the ground ” , which should increase grower demand , or pull-through , and develop new customers , as well as expand business with existing customers . in addition , for the years ended december 31 , 2017 , 2016 and 2015 , we incurred $ 0.1 million , $ 0.1 million , and $ 7.7 million , respectively , in costs related to the audit committee 's independent investigation , which commenced in september 2014 , and the subsequent restatement of our financial statements , net of insurance proceeds . in addition , in february 2016 , we entered into a settlement agreement with the sec with respect to the sec 's investigation , which was principally related to the accounting and other matters that were initially identified by us and that led to the financial restatement completed by us on november 10 , 2015. under the terms of the settlement agreement , we paid a $ 1.75 million civil penalty in march 2016. we had previously recorded expenses of $ 1.75 million in our consolidated statements of operations for the year ended december 31 , 2014 for an accrual of our estimate of the penalties arising from such enforcement action . historically , we have funded our operations from the issuance of shares of common stock , preferred stock , warrants and convertible notes , the issuance of debt and entry into financing arrangements , product sales , payments under strategic collaboration and distribution agreements and government grants , but we have experienced significant losses as we invested heavily in research and development . we expect to incur additional losses related to our investment in the continued development , expansion and marketing of our product portfolio . 55 in february 2018 , we completed a private placement and debt refinancing transactions , which we refer to as the february 2018 financing transactions . following the closing of those transactions , a s of february 28 , 2018 , our cash and cash equivalents were approximately $ 14.9 million .
| accordingly , revenue recognized from sales to the tremont group , inc. subsequent to mr. lyman 's resignation in january 2016 has not been included in related party revenues . cost of product revenues and gross profit replace_table_token_8_th cost of product revenues increased by $ 1.0 million , or 11 % , in 2017 compared to 2016 and increased by $ 0.3 million , or 3 % in 2016 compared to 2015. our gross margins increased to 42 % in 2017 from 32 % in 2016 and increased to 32 % in 2016 from 6 % in 2015. cost of products decreased as a percentage of revenues , and gross margins increased in 2017 compared to 2016 , primarily due to continued acceptance of our product offerings , a favorable mix of higher margin product offerings , and continued improved manufacturing and third party manufacturing efficiencies . cost of product revenues decreased , as a percentage of revenues , and gross margin increased in 2016 compared to 2015 , primarily due to increased plant utilization and other volume efficiencies achieved as a result of the increased revenue , as well as a favorable mix of higher margin product offerings . during 2016 , manufacturing costs associated with plant utilization allocated to cost of product and not allocated to inventory decreased by $ 1.8 million compared to 2015. research , development and patent expenses replace_table_token_9_th research , development and patent expenses increased by $ 1.2 million or 12 % , in 2017 compared to 2016 and decreased by $ 3.8 million , or 28 % , in 2016 compared to 2015. research , development and patent expenses increased in 2017 over 2016 as the company focused on increased field trial activities for new and existing products on a wider range of prospective crops . research , development and patent expenses decreased in 2016 compared to 2015 primarily due to a decrease of $ 1.2 million in employee -related expenses , which consisted primarily of salaries , wages and share-based compensation , $ 2.3 million decrease in direct expenses and outside services due to a reduction in field test costs
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the global price of iron ore is influenced heavily by chinese demand , and the decrease in 2012 of spot market prices reflected economic growth in china , weakened demand from europe , global political uncertainty and supply of new iron ore. iron ore spot prices stabilized in the fourth quarter at a level well above historical averages , indicating that global iron ore demand continues to outpace global iron ore supply . the world market benchmark that is most commonly utilized in our sales contracts is the platts 62 percent fe fines pricing , which has reflected this trend . the platts 62 percent fe fines spot price decreased 23.1 percent to an average price of $ 130 per ton in 2012. the spot price volatility impacts our realized revenue rates , particularly in our eastern canadian iron ore and asia pacific iron ore business segments as the related contracts are correlated heavily to world benchmark spot pricing . however , the impact of this volatility on our u.s. iron ore revenues is muted slightly because the pricing in our long-term contracts is mostly structured to be based on 12-month averages ending august 31 , with some including contracts that established annual price collars . additionally , contracts often are priced partially or completely on other indices instead of world benchmark prices . 62 during 2012 , capacity utilization among north american steelmaking facilities improved to an average annual rate of about 75.2 percent when compared to the average annual rate of 74.4 percent in 2011 , despite diminishing capacity in the latter half of the year . both the automotive industry and the growth of the shale gas industry supported u.s. steel demand in 2012 , providing sources of healthy demand for our products . metallurgical coal prices are influenced heavily by european , japanese and chinese demand , which all declined from levels reached in 2011. the decline in demand resulted in decreased low-volatile hard coking coal spot prices from an average of $ 292 per ton in 2011 to an average of $ 191 per ton in 2012. the spot price volatility impacts our realized revenue rates for our north american coal business segment . our consolidated revenues for the year ended december 31 , 2012 decreased to $ 5.9 billion , with net loss from continuing operations per diluted share of $ 6.57 . this compares with revenues of $ 6.6 billion , with net income from continuing operations per diluted share of $ 11.34 , for the comparable period in 2011. revenues during the year ended december 31 , 2012 were impacted primarily by the decrease in market pricing throughout 2012 in comparison to the historically high prices of 2011. earnings were adversely impacted by impairment charges , establishment of valuation allowances against certain deferred tax assets and higher spending , which were partially offset by total increased iron ore and coal sales volumes at most of our operations around the world . growth strategy through a number of strategic acquisitions executed over recent years , we have increased significantly our portfolio of assets , enhancing our production profile and growth project pipeline . our capital allocation strategy is designed to prioritize among all potential uses of future cash flows in a manner that is most meaningful for shareholders . we plan on using future cash flows to develop organic growth projects and to reduce debt over time . maintaining financial flexibility as commodity pricing changes throughout the business cycle is imperative to our ability to execute our strategic initiatives . as we continue to expand our operating scale and geographic presence as an international mining and natural resources company , we have shifted our strategy from a merger and acquisition-based strategy to one that primarily focuses on organic growth and expansion initiatives . our focus is investing in the expansion of our seaborne iron ore production capabilities driven by our belief in the constructive long-term outlook for the seaborne iron ore market . throughout 2012 , we continued to make investments in bloom lake , our large-scale seaborne iron ore growth project in eastern canada . maximizing bloom lake 's production capabilities represents an opportunity to create significant shareholder value . we expect the phase ii expansion at bloom lake to meaningfully enhance our future earnings and cash flow generation by increasing sales volume and reducing unit operating costs . our production ramp-up has made meaningful progress , despite some of the operational challenges experienced during the year . in 2012 , we also made significant progress in the construction of bloom lake 's phase ii concentrator mill . despite this progress , the year 's volatile pricing environment drove us to delay components of phase ii 's construction activities and planned startup date . we also own additional development properties , known as labrador trough south located in quebec , that potentially could allow us to leverage parts of our existing infrastructure in eastern canada to supply additional iron ore into the seaborne market in future years if developed . our chromite project , located in northern ontario , represents an attractive diversification opportunity for us . we advanced the project to the feasibility study stage of development in may of 2012. we expect to build further on the technical and economic evaluations developed in the prefeasibility study stage and improve the accuracy of cost estimates to assess the economic viability of the project , which work is necessary before we can advance to the execution stage of the project . in addition to this large greenfield project , our global exploration group expects to achieve additional growth through early involvement in exploration and development activities by partnering with junior mining companies in various parts of the world . this potentially provides us with low-cost entry points to increase significantly our reserve base and growth production profile . 63 recent developments maintaining financial flexibility and preserving our investment-grade credit profile are important elements of our strategy to resume the phase ii expansion at bloom lake . story_separator_special_tag our strategic emphasis on financial flexibility and our investment-grade credit ratings is driven by recent volatility in iron ore prices and the capital intensive nature of the phase ii expansion combined with the increased mining development costs we expect during construction . we believe that by reducing debt , lowering our dividend to enable investing the majority of our future cash flows in the phase ii expansion , solidifying access to our primary source of liquidity , disposing of non-core assets and refinancing near-term debt maturities , we will be in a strong position to resume the phase ii expansion and accelerate the realization of bloom lake 's significant earnings potential . our board of directors recently approved a reduction to our quarterly cash dividend rate by 76 percent to $ 0.15 per share . our board of directors took this step in order to improve the future cash flows available for investment in the phase ii expansion at bloom lake , as well as to preserve our investment-grade credit ratings . on february 8 , 2013 , we received unanimous support from our lenders to suspend the total funded debt to ebitda leverage ratio for all quarterly reporting periods in 2013. within the amendment we will add temporarily a total capitalization and minimum tangible net worth covenant during these periods . we believe this proactive measure provides financial flexibility as we invest in the phase ii expansion at bloom lake and reinforces our commitment to maintaining an investment-grade credit rating . it also demonstrates the favorable relationships and transparency we have with our lenders . on december 27 , 2012 , our board of directors authorized the sale of our 30 percent interest in the amapá joint venture located in brazil . during this process , we made a determination that the value of our amapá interest needed to be adjusted to reflect the fair value of our investment . subsequently , we recorded a non-cash impairment charge of $ 365.4 million in our december 31 , 2012 financial statements . by disposing of our interest in amapá , we eliminated the potential for incurring further losses there and enabled us to focus the investment of future cash flows on the phase ii expansion at bloom lake . on december 6 , 2012 , we successfully raised $ 500.0 million dollars in public senior notes with an annual interest rate of 3.95 percent and a maturity date in 2018. we used the net proceeds to pay off $ 325.0 million in private placement notes , which were higher cost and maturing in 2013 and 2015. we used the remainder of the net proceeds to pay down a portion of our revolving credit facility and term loan . on november 12 , 2012 , we announced that we finalized the sale of our 45 percent economic interest in the sonoma coal mine located in queensland , australia to our joint venture partners . we divested our interests in the sonoma mine along with our ownership of the affiliated wash plant . we received approximately aud $ 141.0 million in net cash proceeds upon the close of the transaction . business segments our company 's primary operations are organized and managed according to product category and geographic location : u.s. iron ore , eastern canadian iron ore , asia pacific iron ore , north american coal , latin american iron ore , ferroalloys and our global exploration group . latin american iron ore , ferroalloys and our global exploration group operating segments do not meet the criteria for reportable segments . sonoma , which was sold in the fourth quarter of 2012 , previously was reported through our asia pacific coal operating segment , which did not meet the criteria for a reportable segment . 64 results of operations – consolidated 2012 compared to 2011 the following is a summary of our consolidated results of operations for the years ended december 31 , 2012 and 2011 : replace_table_token_7_th revenues from product sales and services sales revenue for the year ended december 31 , 2012 decreased $ 691.2 million , or 10.5 percent , from the comparable periods in 2011 . the decrease in sales revenue resulted primarily from lower market pricing for our products and the recording of negotiated favorable settlements with certain customers in 2011 that did not recur in 2012. the decrease in revenue was offset partially by higher sales volumes for the majority of our operating segments . world benchmark pricing heavily influences our revenues each year . the platts 62 percent fe fines spot price for iron ore decreased 23.1 percent to an average price of $ 130 in 2012 , which resulted in a decrease of $ 1,250.7 million of consolidated iron ore revenue in 2012 compared to the prior year . our realized sales price for our u.s. iron ore operations was 15.7 percent lower per ton in 2012 compared to 2011 , or a 10.7 percent decrease per ton excluding the impact of 2011 arbitration settlements . the realized sales price for our eastern canadian iron ore operations was on average 29.0 percent lower per metric ton , compared to the prior year period . our realized sales price for our asia pacific iron ore operating segment was on average 32.6 percent and 27.8 percent lower for lump and fines , respectively , over the comparable periods . the decrease in revenue due to pricing was offset partially by higher sales volumes resulting in increased consolidated revenues of $ 601.2 million . our north american coal operating segment sales volumes increased 56.7 percent . the increase was primarily a result of increased inventory availability in 2012 compared to 2011 as we experienced operational issues at pinnacle mine and had extensive tornado damage at oak grove mine . our asia pacific iron ore operating segment sales volumes increased 36.0 percent as a result of the completion of the koolyanobbing expansion project , which provided additional ore processing and rail and port capabilities .
| 2013 capital budget update and other uses of cash we are increasing our 2013 capital expenditures budget to $ 800 - $ 850 million from our previous expectation of $ 700 - $ 800 million due to additional investments in our eastern canadian iron ore business segment . the full-year capital expenditures are comprised of approximately $ 300 million with the remainder comprised of growth , productivity improvement and license to operate capital . 98 recently issued accounting pronouncements refer to note 1 - business summary and significant accounting policies of the consolidated financial statements for a description of recent accounting pronouncements , including the respective dates of adoption and effects on results of operations and financial condition . critical accounting estimates management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with gaap . preparation of financial statements requires management to make assumptions , estimates and judgments that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and the related disclosures of contingencies . management bases its estimates on various assumptions and historical experience , which are believed to be reasonable ; however , due to the inherent nature of estimates , actual results may differ significantly due to changed conditions or assumptions . on a regular basis , management reviews the accounting policies , assumptions , estimates and judgments to ensure that our financial statements are fairly presented in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . management believes that the following critical accounting estimates and judgments have a significant impact on our financial statements . revenue recognition u.s. , eastern canadian and asia pacific iron ore provisional pricing arrangements most of our u.s. iron ore long-term supply agreements are comprised of a base price with annual price adjustment factors , some of which are subject to annual price collars in order to limit the percentage increase or decrease in
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operating expenses . operating expenses were $ 3.0 million higher in the current year . repairs and maintenance expenses were $ 2.2 million higher primarily due to a $ 3.3 million increase in pbh expense , a $ 0.5 million increase related to the timing of repairs in the current year and the recognition of a lease return credit of $ 0.4 million in the prior year , partially offset by a $ 2.1 million net increase in vendor credits . personnel costs were $ 1.7 million higher primarily due to an increase in headcount . leased-in equipment expenses were $ 0.4 million lower due to the end of helicopter leases in the prior year . insurance expense was $ 0.3 million lower primarily due to reductions in operating fleet during and subsequent to the prior year . administrative and general . administrative and general expenses were $ 6.8 million lower in the current year primarily due to a decrease of $ 9.9 million in professional services fees primarily related to litigation that has now been settled . these decreases were partially offset by an increase of $ 2.9 million in personnel costs primarily due to an increase in headcount . depreciation and amortization . depreciation and amortization expense was $ 1.9 million lower in the current year primarily due to the disposition of assets and certain assets becoming fully depreciated subsequent to the prior year . gains on asset dispositions , net . in the current year , we sold three light twin helicopters , two hangar facilities , and two medium helicopters , resulting in net gains of $ 3.7 million . in the prior year , we sold or otherwise disposed of our flightseeing assets in alaska ( which consisted of eight single engine helicopters , two operating facilities , and related property and equipment ) , 13 other helicopters ( including six on sales-type leases ) , and other equipment for net gains of $ 1.6 million . litigation settlement proceeds . we received litigation settlement proceeds of $ 42.0 million in the prior year . 39 loss on impairment . we recorded a non-cash impairment charge of $ 2.6 million in the current year of which $ 1.6 million related to our last remaining h225 helicopter and $ 1.0 million was due to the impairment of an intangible asset related to our subsidiary in colombia . we recorded a non-cash impairment charge of $ 1.0 million in the prior year related to our last remaining h225 helicopter . operating income ( loss ) . operating loss as a percentage of revenues was 1 % in the current year compared to operating income as a percentage of revenues of 13 % in the prior year . the decrease in operating income as a percentage of revenues was primarily due to litigation settlement proceeds received in the prior year . interest income . interest income was $ 1.4 million higher in the current year primarily due to interest earned on our higher cash balances and sales-type leases . interest expense . interest expense was $ 1.3 million lower in the current year primarily due to lower debt balances and the write-off of deferred debt issuance costs related to the amendment of our amended and restated senior secured revolving credit facility in the prior year . loss on sale of investment . during the current year , we disposed of corporate securities resulting in a loss of $ 0.6 million . foreign currency gains ( losses ) , net . foreign currency losses were $ 0.5 million in the current year compared to $ 1.0 million in the prior year primarily due to the strengthening of the u.s. dollar relative to the brazilian real . income tax benefit ( expense ) . income tax benefit was $ 0.7 million in the current year primarily due to pre-tax losses . income tax expense was $ 2.9 million in the prior year primarily due to the recognition of litigation settlement proceeds . equity earnings . equity earnings , net of tax , were $ 7.7 million higher due to the recognition of gains on the sale of the dart holding company ltd. ( “ dart ” ) joint venture in the current year . liquidity and capital resources our ongoing liquidity requirements arise primarily from working capital needs , meeting our capital commitments ( including the purchase of helicopters and other equipment ) and the repayment of debt obligations . in addition , we may use our liquidity to fund acquisitions or to make other investments . our primary sources of liquidity are cash balances , cash flows from operations and borrowings under our revolving credit facility , and , from time to time , we may secure additional liquidity through the issuance of equity or debt , as well as the sale of assets . story_separator_special_tag consisting of : purchases of treasury shares for $ 7.7 million . principal payments on long-term debt were $ 2.1 million . extinguishment of long-term debt was $ 0.7 million . proceeds from share-based award plans were $ 1.1 million . during the year ended december 31 , 2018 , net cash used in financing activities was $ 43.5 million primarily consisting of : principal payments on long-term debt , including our revolving credit facility were $ 41.9 million . issuance costs related to the amendment to our revolving credit facility were $ 1.3 million . extinguishment of long-term debt was $ 1.2 million . proceeds from share-based award plans were $ 0.9 million . during the year ended december 31 , 2017 , net cash used in financing activities was $ 27.5 million primarily consisting of : net principal payments on short and long-term debt were $ 45.3 million . borrowings under our revolving credit facility were $ 17.0 million . proceeds from share-based award plans were $ 0.8 million . future cash requirements debt obligations total debt ( excluding unamortized discounts story_separator_special_tag operating expenses . operating expenses were $ 3.0 million higher in the current year . repairs and maintenance expenses were $ 2.2 million higher primarily due to a $ 3.3 million increase in pbh expense , a $ 0.5 million increase related to the timing of repairs in the current year and the recognition of a lease return credit of $ 0.4 million in the prior year , partially offset by a $ 2.1 million net increase in vendor credits . personnel costs were $ 1.7 million higher primarily due to an increase in headcount . leased-in equipment expenses were $ 0.4 million lower due to the end of helicopter leases in the prior year . insurance expense was $ 0.3 million lower primarily due to reductions in operating fleet during and subsequent to the prior year . administrative and general . administrative and general expenses were $ 6.8 million lower in the current year primarily due to a decrease of $ 9.9 million in professional services fees primarily related to litigation that has now been settled . these decreases were partially offset by an increase of $ 2.9 million in personnel costs primarily due to an increase in headcount . depreciation and amortization . depreciation and amortization expense was $ 1.9 million lower in the current year primarily due to the disposition of assets and certain assets becoming fully depreciated subsequent to the prior year . gains on asset dispositions , net . in the current year , we sold three light twin helicopters , two hangar facilities , and two medium helicopters , resulting in net gains of $ 3.7 million . in the prior year , we sold or otherwise disposed of our flightseeing assets in alaska ( which consisted of eight single engine helicopters , two operating facilities , and related property and equipment ) , 13 other helicopters ( including six on sales-type leases ) , and other equipment for net gains of $ 1.6 million . litigation settlement proceeds . we received litigation settlement proceeds of $ 42.0 million in the prior year . 39 loss on impairment . we recorded a non-cash impairment charge of $ 2.6 million in the current year of which $ 1.6 million related to our last remaining h225 helicopter and $ 1.0 million was due to the impairment of an intangible asset related to our subsidiary in colombia . we recorded a non-cash impairment charge of $ 1.0 million in the prior year related to our last remaining h225 helicopter . operating income ( loss ) . operating loss as a percentage of revenues was 1 % in the current year compared to operating income as a percentage of revenues of 13 % in the prior year . the decrease in operating income as a percentage of revenues was primarily due to litigation settlement proceeds received in the prior year . interest income . interest income was $ 1.4 million higher in the current year primarily due to interest earned on our higher cash balances and sales-type leases . interest expense . interest expense was $ 1.3 million lower in the current year primarily due to lower debt balances and the write-off of deferred debt issuance costs related to the amendment of our amended and restated senior secured revolving credit facility in the prior year . loss on sale of investment . during the current year , we disposed of corporate securities resulting in a loss of $ 0.6 million . foreign currency gains ( losses ) , net . foreign currency losses were $ 0.5 million in the current year compared to $ 1.0 million in the prior year primarily due to the strengthening of the u.s. dollar relative to the brazilian real . income tax benefit ( expense ) . income tax benefit was $ 0.7 million in the current year primarily due to pre-tax losses . income tax expense was $ 2.9 million in the prior year primarily due to the recognition of litigation settlement proceeds . equity earnings . equity earnings , net of tax , were $ 7.7 million higher due to the recognition of gains on the sale of the dart holding company ltd. ( “ dart ” ) joint venture in the current year . liquidity and capital resources our ongoing liquidity requirements arise primarily from working capital needs , meeting our capital commitments ( including the purchase of helicopters and other equipment ) and the repayment of debt obligations . in addition , we may use our liquidity to fund acquisitions or to make other investments . our primary sources of liquidity are cash balances , cash flows from operations and borrowings under our revolving credit facility , and , from time to time , we may secure additional liquidity through the issuance of equity or debt , as well as the sale of assets . story_separator_special_tag consisting of : purchases of treasury shares for $ 7.7 million . principal payments on long-term debt were $ 2.1 million . extinguishment of long-term debt was $ 0.7 million . proceeds from share-based award plans were $ 1.1 million . during the year ended december 31 , 2018 , net cash used in financing activities was $ 43.5 million primarily consisting of : principal payments on long-term debt , including our revolving credit facility were $ 41.9 million . issuance costs related to the amendment to our revolving credit facility were $ 1.3 million . extinguishment of long-term debt was $ 1.2 million . proceeds from share-based award plans were $ 0.9 million . during the year ended december 31 , 2017 , net cash used in financing activities was $ 27.5 million primarily consisting of : net principal payments on short and long-term debt were $ 45.3 million . borrowings under our revolving credit facility were $ 17.0 million . proceeds from share-based award plans were $ 0.8 million . future cash requirements debt obligations total debt ( excluding unamortized discounts
| million for the year ended december 31 , 2018 compared to inflows of $ 8.8 million for the year ended december 31 , 2017 , primarily due to a decrease in payables . interest paid , excluding capitalized interest , was $ 0.9 million lower for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to lower debt balances in the current year . interest paid , excluding capitalized interest , was $ 1.7 million lower for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to lower debt balances for the year ended december 31 , 2018. interest received was $ 2.3 million higher for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to higher cash balances and interest earned on our sales-type leases . interest received was $ 0.3 million higher for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to interest earned on higher cash balances . income taxes paid were $ 1.0 million higher for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , due to higher pre-tax income . income taxes paid were consistent for the year ended december 31 , 2018 and the year ended december 31 , 2017. investing activities during the year ended december 31 , 2019 , net cash provided by investing activities was $ 48.6 million primarily consisting of : net proceeds from the sale of equity investees were $ 34.7 million . proceeds from the disposition of property and equipment were $ 13.3 million . net principal payments on notes due from third-parties and equity investees were $ 7.8 million . 41 capital expenditures were $ 6.6 million , which consisted
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in parallel to these transformational forces within society and the community at large , the accelerating adoption of internet and intranet “ cloud ” solutions within business enterprises is enabling organizations to offer greater business scalability to improve efficiency and through more effective operations , improve profitability . in order to realize the benefits of these developments , customers require additional bandwidth and high performance from their network infrastructure at affordable prices . we are seeing the initial indications that the ethernet segment of the networking equipment market will return to growth as enterprise , data center and carrier customers continue to recognize the performance and operating cost benefits of ethernet technology . expanding product portfolio we believe that continued success in our marketplace is dependent upon a variety of factors that includes , but is not limited to , our ability to design , develop and distribute new and enhanced products employing leading-edge technology . new software and hardware introductions during the current year included a summit x770 switch supporting industry 's highest density performing top of rack switching , purview - a network-powered application analytics and optimization solution , identifi 38xx wifi access points supporting 802.11ac , sdn 2.0 - an open , standards-based ( based on opendaylight ) and comprehensive sdn solution , 100gbe support for the bdx8 and netsight 6.0 a consolidated management across the expanded portfolio . during fiscal 2014 , we also introduced key software functionality that will drive differentiation . over the past few years , we further extended our product portfolio through the summit family of stackable switches for the intelligent edge , continued evolutions of our blackdiamond bdx8 , a highly-scalable core switch for it and cloud data centers , the s-series flow-based switching for campus and data center , the identifi wi-fi product portfolio with both indoor and outdoor 802.11a/b/g/n/ac access points , the e4g cell site router family for mobile backhaul , and a revamp of our software and network management solutions that include : netsight for centralized network management and nac/mobile-iam that provides byod management and network access control solution for wired and wireless lan and vpn users. industry developments the market for network infrastructure equipment is highly competitive and dominated by a few large companies . the current economic climate has further driven consolidation of vendors within the ethernet networking market and with vendors from adjacent markets , including storage , security , wireless and voice applications . we believe that the underpinning technology for all of these adjacent markets is ethernet . as a result , independent ethernet switch vendors are being acquired or merged with larger , adjacent market vendors to enable them to deliver complete and broad solutions . as an independent ethernet switch vendor , we must provide products that , when combined with the products of our large strategic partners , create compelling solutions for end-user customers . our acquisition of enterasys gives us a larger market share and presence and an opportunity to create complementary solutions for our customers . our approach is to focus on the intelligence and automation layer that spans our hardware products and that facilitates end-to-end solutions , as opposed to positioning extreme networks as a low-cost-vendor with point products . lower overall market growth has also created an environment of declining margins due to increased competition between the remaining vendors in this space . during the last year , overall ethernet port counts have grown , while industry revenues have decreased , signaling a decline in average selling price per port . our product life cycle and operational cost reduction efforts are therefore even more critical for margin preservation . amendment to rights agreement on november 27 , 2012 , our board of directors adopted an amended and restated rights agreement between the company and computershare shareholder services llc as the rights agent ( the “ restated rights plan ” ) . the restated rights plan governs the terms of each right ( “ right ” ) that has been issued with respect to each share of common stock of extreme networks . each right initially represents the right to purchase one one-thousandth of a share of our series a preferred stock . the restated rights plan replaces in its entirety the rights agreement , dated as of april 27 , 2001 , as amended on june 30 , 2010 ; april 26 , 2011 , between us and mellon investor services llc ( the “ prior rights plan ” ) . the board reviewed the necessity of the provisions of the prior rights plan . the prior rights plan was adopted to preserve the value of our deferred tax assets , including our net operating loss carry forwards , with respect to our ability to fully use its tax benefits to offset future income which may be limited if we experience an “ ownership change ” for purposes of section 382 of the internal revenue code of 1986 as a result of ordinary buying and selling of our common stock . following its review , the board decided it was necessary and in the best interests of us and our stockholders to enter into the restated rights plan . the restated rights plan incorporates the prior rights plan and the amendments thereto into a single agreement and extended the term of the prior rights plan to april 30 , 2013. our stockholders voted to extend the term of the restated rights plan from april 30 , 2013 to april 30 , 2014 at our 2012 annual meeting of stockholders , and the restated rights plan was amended effective april 30 , 2013 to reflect the extension of the term . the board of directors unanimously approved an amendment to the rights plan effective may 14 , 2015 to extend the rights plan through may 31 , 2016 , subject to ratification by a majority of the stockholders at the next annual meeting , expected to be held on november 12 , 2015 . story_separator_special_tag 32 story_separator_special_tag assurance , development of test plans , and document control . we outsource substantially all of our manufacturing and supply chain management operations , and we conduct quality assurance , manufacturing engineering , document control and distribution at our facilities in san jose , california , salem , new hampshire , china , and taiwan . product gross profit decreased to $ 193.0 million for the year-ended june 30 , 2015 , from $ 198.1 million in the corresponding period of fiscal 2014 . product gross profit for the year-ended june 30 , 2015 , was favorably impacted by an increase in product revenue of $ 6.3 million , offset by higher material costs and increases of $ 5.8 million in excess and obsolete inventory charges , $ 6.1 million for amortization of the developed technology intangibles from the acquisition of enterasys , $ 3.4 million for distribution costs due to higher utilization of air freight and $ 3.3 million of warranty charges . gross profit for fiscal 2014 , was negatively 34 impacted by $ 11.1 million related to the sale of inventory which had been adjusted to fair value upon the enterasys acquisition due to purchase accounting . product gross profit increased for fiscal 2014 to $ 198.1 million as compared to $ 124.1 million primarily due to significant increase in product revenues due to our acquisition of enterasys in the second quarter of fiscal 2014 . however , product gross margin in fiscal 2014 decreased as compared to fiscal 2013 primarily due to a $ 11.1 million charge related to the utilization of the net increase in cost basis of the inventory acquired in connection with the purchase of enterasys , $ 11.0 million for the amortization of developed technology intangibles from the acquisition of enterasys during the second quarter of fiscal 2014 and increased stock compensation expenses offset by higher economic benefits realized in our manufacturing costs as compared to fiscal 2013 . our cost of service revenue consists primarily of labor , overhead , repair and freight costs and the cost of spare parts used in providing support under customer service contracts . service gross profit increased to $ 86.7 million for the year-ended june 30 , 2015 , from $ 69.2 million in the corresponding period of fiscal 2014 , primarily due to increase in service revenue of $ 27.1 million partially offset by increased personnel , overhead and travel costs as a result of the acquisition of enterasys . additionally , purchase accounting charges related to deferred service revenues decreased $ 2.2 million in fiscal 2015 to $ 3.1 million from $ 5.3 million as compared to fiscal 2014 . service gross profit in fiscal 2014 increased as compared to fiscal 2013 primarily due to increased service revenue as a result of acquisition of enterasys and cost reduction initiatives offset by higher personnel , overhead and travel cost as a result of our acquisition of enterasys during the second quarter of fiscal 2014 . 35 operating expenses the following table presents operating expenses and operating income ( dollars in thousands ) : replace_table_token_7_th the following table highlights our operating expenses and operating income ( loss ) as a percentage of net revenues : replace_table_token_8_th research and development expenses research and development expenses consist primarily of salaries and related personnel expenses , consultant fees and prototype expenses related to the design , development , and testing of our products . research and development increased by $ 16.3 million or 21.1 % for fiscal 2015 as compared to fiscal 2014 . the increase in research and development expenses were primarily due to increased spending as a result of our acquisition of enterasys . the increase in spending related to $ 13.4 million of personnel costs , which includes compensation , benefits and non-cash stock based compensation , including $ 0.4 million of expense related to our executive transition activity , $ 1.3 million in depreciation and $ 0.8 million for supplies and equipment . research and development expenses increased in fiscal 2014 as compared to fiscal 2013 primarily due to increased personnel and occupancy costs as a result of our acquisition of enterasys in the second quarter of fiscal 2014 . sales and marketing expenses sales and marketing expenses consist of salaries , commissions and related expenses for personnel engaged in marketing and sales functions , as well as trade shows and promotional expenses . sales and marketing increased by $ 12.6 million or 8.1 % for the year-ended june 30 , 2015 as compared to the corresponding period of fiscal 2014 . the increase in sales and marketing expenses during fiscal 2015 was primarily due to $ 6.7 million of higher compensation , benefits and non-cash stock compensation , including $ 0.5 million of expense related to our executive transition 36 activity , $ 2.7 million in marketing expense , $ 1.8 million in facilities and $ 0.8 million in depreciation . all of these factors were primarily driven by the acquisition of enterasys . sales and marketing expenses increased in fiscal 2014 as compared to fiscal 2013 primarily due to increased personnel costs as well as additional spending on additional sales and marketing programs , as a result of our acquisition of enterasys in the second quarter of fiscal 2014 . general and administrative expenses general and administrative expense consists primarily of personnel costs , legal and professional service costs , share-based compensation , travel and facilities and information technology costs . general and administrative expenses increased by $ 1.2 million or 2.9 % for the year-ended june 30 , 2015 as compared to the corresponding period of fiscal 2014. the increase in general and administrative expenses was primarily due to $ 1.1 million in higher personnel costs related to our executive transition activity , higher occupancy costs due to additional facilities in salem , new hampshire and shannon , ireland as a result of our acquisition of enterasys , a $ 0.8 million increase in bad debt expense and $ 0.2 million in professional service fees .
| the fiscal 2015 period reflects increased product shipments and customers as a result of our acquisition of enterasys , whereas the fiscal 2014 period only reflects eight months of sales subsequent to the october 31 , 2013 acquisition date . however , the increase in sales was partially offset by declines of customer spending across each geographical region and an increase in customer discounts . the decline in customer spending was partially due to the significant strengthening of the united states dollar in all geographical areas and the entrance of competitors in regions where we have a strong presence , specifically in asia pacific and emea regions . product revenue increased in fiscal 2014 as compared to fiscal 2013 primarily due to significant increase in the number of customers and products sold due to our acquisition of enterasys in the second quarter of fiscal 2014. this resulted in a significant increase in our product revenue in all regions . service revenue increased $ 27.1 million or 25.1 % for the year-ended june 30 , 2015 compared to the corresponding period of fiscal 2014 due to an increase in service maintenance contracts and professional service and training revenues due to our acquisition of enterasys . purchase accounting charges related to deferred service revenues decreased $ 2.2 million for the year-ended june 30 , 2015 , to $ 3.1 million from $ 5.3 million in the corresponding period of fiscal 2014 . service revenue increased in fiscal 2014 as compared to fiscal 2013 primarily due to an increase in service maintenance contracts and professional service and training revenues due to our acquisition of enterasys in the second quarter of fiscal 2014 . 33 we operate in three regions : americas , which includes the united states , canada , mexico , central america and south america ; emea , which includes europe , russia , middle east , and africa ; and apac which includes asia pacific , south asia , japan and australia . the following table presents the total net revenue geographically for the fiscal years
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currently , we believe general economic and other uncertainties still exist in select markets in which we do business and we continue to monitor global economic uncertainties and other risks that may affect our business . our reported net sales are impacted by changes in foreign currency exchange rates . a weak u.s. dollar has a positive impact on our net sales . however , earnings are negatively affected by a weak dollar because approximately 40 % of net sales of our european operations are denominated in u.s. dollars , while all costs of our european operations are incurred in euro . our company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments . we primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates . recent important events burberry in december 2011 , the company and burberry began discussions regarding the potential establishment of a new operating structure for the burberry fragrance and beauty business . on july 16 , 2012 , while discussions were still underway , burberry exercised its option to buy out the license rights effective december 31 , 2012. on july 26 , 2012 , discussions with burberry on the creation of a new operating model were discontinued as we were unable to agree on final terms . on october 11 , 2012 , the company and burberry entered into a transition agreement that provides for certain license rights and obligations through march 31 , 2013. the company will continue to operate certain aspects of the business for the brand including product development , testing , and distribution . the transition agreement provides for non-exclusivity for manufacturing , a cap on sales of burberry products , a reduced advertising requirement and no minimum royalty amounts . 37 accounts receivables and accounts payables will be collected and paid in the ordinary course of business . the transition agreement provides that inventories at march 31 , 2013 should be less than $ 20.0 million in the aggregate . burberry also agreed to purchase , at cost , burberry beauty finished goods subject to a $ 4.0 million maximum , and all or part of burberry fragrance and burberry beauty raw materials and components subject to a $ 6.5 million maximum . the company has until june 30 , 2013 to sell-off any remaining inventory not purchased by burberry as of march 31 , 2013. taxes on the gain at approximately 36 % will be paid by the company in april 2013. we have determined that the transaction was substantially completed as of december 31 , 2012 , as the transition agreement was signed in the fourth quarter of 2012 , the exit payment of 181 million ( approximately $ 239 million ) was received on december 21 , 2012 , and the 2013 relationship , per the terms of the transition agreement , as indicated above , is significantly different from the original license agreement . accordingly , the gain was recognized as of december 31 , 2012. the following table sets forth a summary of the gain on termination of license which is included in income from operations on the accompanying statement of income for the year ended december 31 , 2012 : replace_table_token_7_th see information regarding regulation g on page iv of this form 10-k. on an after tax basis ( tax rate of interparfums sa is 36.1 % ) and after allocation to the noncontrolling interest ( 26.77 % ) , the gain on termination of license attributable to inter parfums , inc. common shareholders ' aggregated $ 93.0 million . therefore , had this transaction not occurred , net income attributable to inter parfums , inc. common shareholders ' for the year ended december 31 , 2012 , would have been $ 38.1 million or $ 1.24 per diluted share as compared to the amounts reported in u.s. gaap of $ 131.1 million or $ 4.26 per diluted share . future sales and earnings will be significantly affected as a result of this buy-out . however , we are confident in our future . with strong sales momentum continuing in 2013 , our preliminary full-year sales target for 2013 is expected to exceed $ 400 million at current exchange rates excluding any potential contribution from sales of burberry products during the transition period . with only limited reorganization measures needed , our business model is expected to continue to demonstrate its effectiveness . a significant portion of the expenses associated with the burberry brand are variable in nature . we currently plan to absorb substantially all of the fixed costs through increased sales of other brands in our european prestige fragrance portfolio as well as new brands we recently licensed . 38 this new situation will allow us to strengthen investments supporting all portfolio brands and to accelerate their development . in addition , the company will benefit from its substantial resources to potentially acquire one or more brands , either on a proprietary basis or as a licensee . opportunities for external growth will be examined without urgency , with the priority of maintaining the quality and homogeneous nature of our portfolio . however , we can not assure you that any new license or acquisition agreements will be consummated . alfred dunhill in december 2012 , we entered into a 10-year exclusive worldwide license to create , produce and distribute perfumes and fragrance-related products under the alfred dunhill limited ( “ alfred dunhill ” ) brand . our rights under the agreement will commence on april 3 , 2013 when we take over production and distribution of the existing alfred dunhill fragrance collections . the agreement is subject to certain minimum sales , advertising expenditures and royalty payments as are customary in our industry . we have agreed to pay an upfront entry fee of $ 0.9 million for this license which will be paid before the commencement date . story_separator_special_tag karl lagerfeld in october 2012 , we entered into a 20-year exclusive worldwide license to create , produce and distribute perfumes under the karl lagerfeld brand . our rights under such license agreement are subject to certain minimum sales , advertising expenditures and royalty payments as are customary in our industry . in connection with our entry into this license , the company paid a license entry fee to the licensor of 9.6 million , ( approximately $ 12.5 million ) . in addition , the company has made an advance royalty payment to the licensor of 9.6 million , ( approximately $ 12.5 million ) . this advance royalty payment is to be credited against future royalty payments as follows : every year in which the royalties due are higher than 0.5 million , the amount of royalties exceeding 0.5 million will be credited up to 0.5 million in each such year . the advance royalty has been discounted to its net present value which is included in other assets on the accompanying balance sheet and the resulting discount of approximately $ 4.4 million has been added to intangible assets and will be amortized together with the license entry fee , over the initial term of the license . u.s. distribution of prestige products beginning january 1 , 2011 , interparfums luxury brands , inc. , a u.s. subsidiary of our french subsidiary interparfums sa , assumed all u.s. prestige fragrance distribution responsibilities . in addition , under the terms of a four-year agreement , interparfums luxury brands , inc. and clarins fragrance group usa ( a division of clarins group in the u.s. responsible for the thierry mugler , azzaro , porsche design , david yurman and swarovski brands ) share and manage an expanded sales force . logistical and administrative support is provided by clarins group usa from its park avenue offices in new york and its warehouse in orangeburg , new york . 39 discussion of critical accounting policies we make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the united states of america . actual results could differ significantly from those estimates under different assumptions and conditions . we believe the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations . these accounting policies generally require our management 's most difficult and subjective judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . management of the company has discussed the selection of significant accounting policies and the effect of estimates with the audit committee of the board of directors . revenue recognition we sell our products to department stores , perfumeries , specialty retailers , mass-market retailers , supermarkets and domestic and international wholesalers and distributors . sales of such products by our domestic subsidiaries are denominated in u.s. dollars and sales of such products by our foreign subsidiaries are primarily denominated in either euro or u.s. dollars . we recognize revenues when merchandise is shipped and the risk of loss passes to the customer . net sales are comprised of gross revenues less returns , trade discounts and allowances . accounts receivable accounts receivable represent payments due to the company for previously recognized net sales , reduced by allowances for sales returns and doubtful accounts . accounts receivable balances are written-off against the allowance for doubtful accounts when they become uncollectible . recoveries of accounts receivable previously recorded against the allowance are recorded in the consolidated statement of income when received . we generally grant credit based upon our analysis of the customer 's financial position as well as previously established buying patterns . sales returns generally , we do not permit customers to return their unsold products . however , commencing in january 2011 we took over u.s. distribution of our european based prestige products , and for u.s. based customers we allow customer returns if properly requested , authorized and approved . we regularly review and revise , as deemed necessary , our estimate of reserves for future sales returns based primarily upon historic trends and relevant current data , including information provided by retailers regarding their inventory levels . in addition , as necessary , specific accruals may be established for significant future known or anticipated events . the types of known or anticipated events that we have considered , and will continue to consider , include , but are not limited to , the financial condition of our customers , store closings by retailers , changes in the retail environment and our decision to continue to support new and existing products . we record estimated reserves for sales returns as a reduction of sales , cost of sales and accounts receivable . returned products are recorded as inventories and are valued based upon estimated realizable value . the physical condition and marketability of returned products are the major factors we consider in estimating realizable value . actual returns , as well as estimated realizable values of returned products , may differ significantly , either favorably or unfavorably , from our estimates , if factors such as economic conditions , inventory levels or competitive conditions differ from our expectations . 40 promotional allowances we have various performance-based arrangements with certain retailers . these arrangements primarily allow customers to take deductions against amounts owed to us for product purchases . the costs that we incur for performance-based arrangements , shelf replacement costs and slotting fees are netted against revenues on our company 's consolidated statement of income . estimated accruals for promotions and advertising programs are recorded in the period in which the related revenue is recognized . we review and revise the estimated accruals for the projected costs for these promotions .
| the jimmy choo signature fragrance was first introduced in 2011 and product sales aggregated $ 40.8 million . montblanc product sales aggregated $ 42.5 million in 2011 , as compared to $ 9.3 million in 2010. in addition , 2011 sales results reflect the commencement in january 2011 of european based product distribution in the u.s. by interparfums luxury brands , inc. , a subsidiary of interparfums sa . future sales within our european operations will be significantly affected as a result of the buy-out of the burberry license . however , we are confident in our future . with strong sales momentum continuing in 2013 , our preliminary full-year sales target for 2013 is expected to exceed $ 400 million at current exchange rates excluding any potential contribution from sales of burberry products during the transition period . this new situation will allow us to strengthen investments supporting all portfolio brands and to accelerate their development . our expectations reflect our plans to continue to build upon the strength of our brands and worldwide distribution network . while we are not expecting any contribution in 2013 from our newest brand , karl lagerfeld , as we are just beginning the product development process , we do expect strong performances from the lanvin , jimmy choo , montblanc and boucheron brands as well as initial sales from the launch of fragrances under the repetto brand . in addition , the company will benefit from its substantial resources to potentially acquire one or more brands , either on a proprietary basis or as a licensee . with respect to our united states prestige brand and specialty retail products , after increasing 13 % in 2011 , our u.s. based product sales increased 31 % in 2012. the initial launch of our first nine west fragrance and the commencement of sales pursuant to our anna sui license were the primary contributors to 2012 sales growth . in 2011 , we entered into a 10-year exclusive worldwide fragrance license
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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. part ii 31 index to financial statements reconciliation of non-gaap financial measures generally accepted accounting principles ( gaap ) does not define free cash flow , segment 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 , segment 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 analyses and 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 . we use free cash flow , segment 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 deducting purchases of property , plant & equipment from net cash provided by operating activities . replace_table_token_7_th segment cash gross profit segment cash gross profit adds back noncash charges for depreciation , depletion , accretion and amortization to gross profit . replace_table_token_8_th part ii 32 index to financial statements ebitda and adjusted ebitda ebitda is an acronym for earnings before interest , taxes , depreciation and amortization . replace_table_token_9_th eps and adjusted eps eps is an acronym for earnings per share , a gaap measure of performance . the table below adjusts this gaap measure for the same items as noted in the adjusted ebitda table above . replace_table_token_10_th part ii 33 index to financial statements 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 consists of our former chemicals business . the following table shows net earnings in relationship to net sales , cost of goods sold , operating earnings , ebitda and adjusted ebitda . consolidated operating results replace_table_token_11_th operating leverage embedded in our business the strong recovery in 2012 's gross profit demonstrates the operating leverage embedded in our business as demand recovers . we expect this momentum to continue in 2013 due primarily to an improving demand environment , continued improvement in pricing and our continued focus on : § reducing overhead costs through streamlined management structure § reducing debt § improving our liquidity position and earnings through divestitures of non-strategic assets or other strategic alternatives since 2007 , we have invested $ 63.5 million to implement our new erp and shared services platforms . we initiated the project to create a common platform for all systems that support our business , and have completed all of the major milestones for the project . these platforms are helping to streamline processes enterprise-wide and standardize administrative and support functions while providing enhanced flexibility to monitor and control costs . these new platforms enabled us to consolidate our eight divisions into four regions , streamline our support functions , and reduce related positions and overhead costs resulting in annualized overhead cost savings of over $ 55 million . as a part ii 34 index to financial statements result of these restructuring initiatives , we incurred severance and other related charges of $ 10.0 million during 2012 and $ 13.0 million during 2011. to position vulcan for significant earnings growth , we remain focused on taking prudent steps to control costs . when prudent , we adjust our geographic footprint so as to focus on building leading aggregates positions in markets with above-average long-term demand growth . we completed several transactions in 2012 that provided $ 173.6 million in gross cash proceeds . and , we continue to work on additional asset sales . however , the ultimate timing of such transactions is difficult to predict . we 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 . results for 2012 were a net loss of $ 52.6 million , or $ 0.41 per diluted share , compared to a net loss of $ 70.8 million , or $ 0.55 per diluted share in 2011. higher unit costs for diesel fuel and liquid asphalt resulted in higher pretax costs of $ 3.9 million and $ 10.7 million , respectively . additionally , each year 's results were impacted by discrete items as follows : § 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 settlement ( 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 story_separator_special_tag unsolicited exchange offer § the 2010 results include a $ 39.5 million pretax gain on sale of real estate and businesses and a $ 40.0 million charge for legal settlement year-over-year changes in earnings from continuing operations before income taxes are summarized below : replace_table_token_12_th operating results by segment we present our results of operations by segment at the gross profit level . we have four reporting 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 . part ii 35 index to financial statements 1. aggregates our year-over-year aggregates shipments : § declined 1 % in 2012 § declined 3 % in 2011 § declined 2 % in 2010 several key states , including florida and texas , reported volume growth versus the prior year . other markets in key states such as virginia , north carolina and georgia were down modestly in 2012. shipments in california were relatively flat versus the prior year . less large-scale project work contributed to lower shipments in certain markets . our year-over-year freight-adjusted selling price for aggregates : § increased 2 % in 2012 § increased 1 % in 2011 § declined 2 % in 2010 nearly all of our markets realized increased pricing in 2012. aggregates revenues in millions aggregates gross profit and cash gross profit 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 total sales units part ii 36 index to financial statements aggregates segment gross profit increased $ 45.9 million from the prior year and gross profit margin as a percentage of segment revenues increased 2.7 percentage points ( 270 basis points ) . as shown on the chart on page 35 , the increase in aggregates segment gross profit resulted from lower costs and higher selling prices slightly offset by lower shipments . most key labor productivity and energy efficiency metrics improved from the prior year , more than offsetting a 3 % increase in the unit cost of diesel fuel . aggregates segment cash gross profit per ton increased 5 % to $ 4.21 in 2012. this measure continues to improve from a cyclical low in the third quarter of 2011 , reflecting the cumulative effect of our cost-control efforts and a disciplined approach to pricing during the downturn . these efforts are establishing unit profitability higher than in 2005 , which was a peak year for volume , adding to the attractiveness of the earnings potential of our aggregates business . 2. concrete our year-over-year ready-mixed concrete shipments : § increased 9 % in 2012 § declined 6 % in 2011 § declined 5 % in 2010 the concrete segment reported a loss of $ 38.2 million in 2012 compared to a loss of $ 43.4 million in 2011. ready-mixed concrete shipments were up 9 % benefitting from increased private construction activity while the average sales price was essentially flat , contributing to a $ 5.2 million improvement . concrete revenues in millions concrete gross profit and cash gross profit in millions 3. asphalt mix our year-over-year asphalt mix shipments : § declined 7 % in 2012 § increased 1 % in 2011 § declined 3 % in 2010 asphalt mix segment gross profit of $ 22.9 million was down $ 2.7 million from the prior year . the average sales price for asphalt mix increased 1 % from the prior year , offsetting some of the earnings effect of the 7 % decline in shipments . the decline in shipments was due in part to less large project work in california in the second half of 2012 and the divestiture of our new mexico asphalt mix business in the fourth quarter of 2011 , partially offset by a 15 % increase in our asphalt mix shipments in texas . materials margin remained steady despite lower volumes , finishing the year 3 % higher than the prior year . part ii 37 index to financial statements asphalt mix revenues in millions asphalt mix gross profit and cash gross profit in millions 4. cement the $ 1.7 million improvement in the cement segment 's profitability resulted from an 18 % increase in shipments and a 6 % increase in pricing . cement revenues in millions cement gross profit and cash gross profit in millions selling , administrative and general expenses in millions sag expenses decreased $ 30.9 million , or 11 % , from 2011. this 2012 decrease resulted from lower spending in most major overhead categories , including savings from reduced employment levels . in 2011 , we substantially completed the implementation of a multi-year project to replace our legacy information technology systems with new erp and shared services platforms . these platforms are helping us streamline processes enterprise-wide and standardize administrative and support functions while providing enhanced flexibility to monitor and control costs . during 2012 , we consolidated our eight divisions into four regions as part of an ongoing effort to reduce overhead costs , and we initiated a profit enhancement part ii 38 index to financial statements plan that further leverages our streamlined management structure and substantially completed erp and shared services platforms . these actions allowed us to achieve cost reductions and reduce overhead and administrative staff . our comparative total company employment levels at year end : § declined 9 % in 2012 § declined 7 % in 2011 § declined 4 % in 2010 severance charges included in sag expenses were as follows : 2012 $ 0.9 million , 2011 $ 4.1 million and 2010 $ 6.9 million .
| 6 the above table excludes unrecognized income tax benefits in the amount of $ 13.6 million at december 31 , 2012 , as we can not make a reasonably reliable estimate of the amount and period of related future payment of these uncertain tax positions ( for more details , see note 9 income taxes in item 8 financial statements and supplementary data ) . critical accounting policies we follow certain significant accounting policies when we prepare our consolidated financial statements . a summary of these policies is included in note 1 summary of significant accounting policies in item 8 financial statements and supplementary data. we prepare these financial statements to conform with accounting principles generally accepted in the united states of america . these principles require us to make estimates and judgments that affect reported amounts of assets , liabilities , revenues and expenses , and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements . we base our estimates on historical experience , current conditions and various other assumptions we believe reasonable under existing circumstances and evaluate these estimates and judgments on an ongoing basis . the results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies . our actual results may materially differ from these estimates . part ii 46 index to financial statements we believe the following seven critical accounting policies require the most significant judgments and estimates used in the preparation of our consolidated financial statements : 1. goodwill and goodwill impairment 2. impairment of long-lived assets excluding goodwill 3. reclamation costs 4. pension and other postretirement benefits 5. environmental compliance 6. claims and litigation including self-insurance 7. income taxes 1. goodwill and goodwill impairment goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination . goodwill impairment exists when the fair value of a reporting unit is
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this most likely would result in marginal returns on mbs improving versus where they were at the beginning of 2018. the transition , however , is not guaranteed and is likely to take a long time . the transition period is also likely to be marked by periods of high volatility such as what was experienced in the beginning of 2018. further , there are significant risks to actually moving to a higher interest rate environment . the continued rapid growth in global debt creates a drag on global economic growth and could exacerbate any sudden drop in aggregate demand . additionally , sudden or large increases in interest rates could have a negative impact on equity valuations and economic activity , especially given the absolute amount of global debt outstanding . these factors could negatively impact economic growth which could eventually cause interest rates to decline . and lastly , market sentiment is very bearish on interest rates and short positions in u.s. treasury notes are at an all-time high which could serve as a headwind , at least temporarily , for interest rates to rise . given our view , subsequent to december 31 , 2017 , we have added hedges to reduce our duration risk , and we will continue to actively manage our duration and our leverage as the market environment shifts . we expect to invest principally in agency mbs and cmbs io in order to maintain a highly liquid investment portfolio and give us the flexibility to increase or reduce leverage quickly . 33 on a longer-term basis , we continue to believe that favorable secular trends should support our business model . global demand for yield should continue as populations age and seek the safety of yield versus capital appreciation . in addition , investment opportunities in u.s. housing finance should improve as the gse and federal reserve footprints wane . and finally , reduced regulations should have a more favorable impact on our ability to finance our portfolios . critical accounting policies the discussion and analysis of our financial condition and results of operations are based in large part upon our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of our consolidated financial statements requires management to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and disclosure of contingent assets and liabilities . we base these estimates and judgments on historical experience and assumptions believed to be reasonable under current facts and circumstances . actual results , however , may differ from the estimated amounts we have recorded . critical accounting policies are defined as those that require management 's most difficult , subjective or complex judgments , and which may result in materially different results under different assumptions and conditions . the following discussion provides information on our accounting policies that require the most significant management estimates , judgments , or assumptions , or that management believes includes the most significant uncertainties , and are considered most critical to our results of operations or financial position . fair value measurements . our agency mbs , as well a majority of our non-agency mbs , are substantially similar to securities that either are actively traded or have been recently traded in their respective market . pricing services and brokers have access to observable market information through trading desks and various information services . we receive a price evaluation for each of our mbs from a primary pricing service selected by the company . to determine each security 's valuation , the primary pricing service uses either a market approach or income approach , both of which rely on observable market data . the market approach uses prices and other relevant information that is generated by market transactions of identical or similar securities , while the income approach uses valuation techniques to convert estimated future cash flows to a discounted present value . management reviews the assumptions and inputs utilized in the valuation techniques . examples of these observable inputs and assumptions include market interest rates , credit spreads , and projected prepayment speeds , among other things . the company compares the price received from its primary pricing service to other prices received from additional third party pricing services and multiple broker quotes for reasonableness . we typically receive a total of three to six bid-side prices from pricing services and brokers for each of our securities ; prices obtained from brokers are not binding on either the broker or us . management does not adjust the prices received , but , for securities on which we receive five or more prices , the high and low prices are excluded from the calculation of the average price . in addition , management reviews the prices received for each security by comparing those prices to actual purchase and sale transactions , our internally modeled prices that are calculated based on observable market rates and credit spreads , and the prices that our borrowing counterparties use in financing our securities . management reviews prices which vary significantly from the pricing service and may exclude such prices from its calculation of fair value . the decision to exclude any price from use in the calculation of the fair values used in our consolidated financial statements is reviewed and approved by management independent of the pricing process . the average of the remaining prices received is used for the fair values included in our consolidated financial statements . if the price of a security is obtained from quoted prices for similar instruments or model-derived valuations whose inputs are observable , the security is classified as a level 2 security . the security is classified as a level 3 security if the inputs are unobservable , resulting in an estimate of fair value based primarily on management 's judgment . as of december 31 , 2017 , less than 0.3 % of our mbs are level 3 securities . story_separator_special_tag please refer to note 5 of the notes to our consolidated financial statements contained within part ii , item 8 of this annual report on form 10-k for additional information on fair value measurements . amortization of investment premiums . we amortize premiums and accrete discounts associated with the purchase of our adjustable-rate agency rmbs into interest income over the projected lives of our securities , including contractual payments and estimated prepayments , using the effective yield method . if prepayments increase ( or are expected to increase ) , we will accelerate the rate of amortization ( accretion ) on the premiums ( discounts ) . conversely , if prepayments decrease ( or are expected to decrease ) , we will decelerate the rate of amortization ( accretion ) on the premiums ( discounts ) . estimates and judgments related to future levels of prepayments are critical to the determination of how much premium or discount to amortize or accrete , and 34 the determination of the rate of amortization or accretion and future levels of prepayment are difficult for management to predict . with respect to both rmbs and cmbs , mortgage prepayment expectations can change based on how changes in current and projected interest rates impact a borrower 's likelihood of refinancing as well as other factors , including but not limited to real estate prices , borrowers ' credit quality , changes in the stringency of loan underwriting practices , and lending industry capacity constraints . with respect to rmbs , modifications to existing government refinance programs , or the implementation of new programs can have a significant impact on the rate of prepayments . further , gse buyouts of loans in imminent risk of default , loans that have been modified , or loans that have defaulted will generally be reflected as prepayments on our securities and increase the uncertainty around management 's estimates . we utilize various third party services to assist in estimating projected prepayments on our mbs . we review these estimates monthly and compare the results to any available market consensus prepayment speeds . we also consider historical prepayment rates and current market conditions to assess the reasonableness of the prepayment rates estimated by the third party service . actual and anticipated prepayment experience is reviewed monthly and effective yields are adjusted for differences between the previously estimated future prepayments and the amounts actually received as well as changes in estimated future prepayments . other-than-temporary impairments . when the fair value of an available-for-sale security is less than its amortized cost as of the reporting date , the security is considered impaired . we assess our securities for impairment on at least a quarterly basis and determine if the impairments are either temporary or other-than-temporary . we assess our ability to hold any agency mbs or non-agency mbs with an unrealized loss until the recovery in its value . our ability to hold any such mbs is based on our current investment strategy and significance of the related investment as well as our current leverage and anticipated liquidity . although fannie mae and freddie mac are not explicitly backed by the full faith and credit of the united states , given their guarantee and commitments for support received from the treasury as well as the credit quality inherent in agency mbs , we do not typically consider any of the unrealized losses on our agency mbs to be credit-related . for our non-agency mbs , we review the credit ratings of these mbs and the seasoning of the mortgage loans collateralizing these securities as well as the estimated future cash flows , which include any projected losses , in order to evaluate whether we believe any portion of the unrealized loss at the reporting date is related to credit losses . the determination as to whether an other-than-temporary impairment ( `` otti '' ) exists , as well as its amount , is subjective , as such determinations are based not only on factual information available at the time of assessment but also on management 's estimates of future performance and cash flow projections . as a result , the timing and amount of any otti may constitute a material estimate that is susceptible to significant change . our expectations with respect to our securities in an unrealized loss position may change over time , given , among other things , the dynamic nature of markets and other variables . for example , although we believe that the conservatorship of fannie mae and freddie mac has further strengthened their creditworthiness , there can be no assurance that these actions will be adequate for their needs . accordingly , if these government actions are inadequate and the gses suffer losses or cease to exist , our view of the credit worthiness of our agency mbs could materially change , which may affect our assessment of otti for agency mbs in future periods . future sales or changes in our expectations with respect to agency or non-agency securities in an unrealized loss position could result in us recognizing other-than-temporary impairment charges or realizing losses on sales of mbs in the future . financial condition during 2017 , we shifted away from adjustable-rate agency rmbs in favor of fixed-rate agency rmbs and also continued to invest in agency cmbs . fixed-rate agency mbs had more attractive yields and a better return profile relative to adjustable-rate agency mbs . in addition , prepayments on fixed-rate agency rmbs are more predictable than adjustable-rate agency rmbs , which have a higher risk of prepayment in a flatter yield curve environment . we also began investing in u.s. treasury securities during the fourth quarter of 2017 as these highly liquid securities allow us to earn a return on available cash at low financing costs while reducing credit spread risk . the following charts compare our investment portfolio as of december 31 , 2017 to december 31 , 2016 : 35 ( 1 ) includes securities pending settlement as of december 31 , 2017 .
| interest income from rmbs for the year ended december 31 , 2017 decreased $ ( 5.9 ) million compared to the year ended december 31 , 2016 primarily as a result of a lower average interest earning balance from rmbs . although the majority of our 44 lower yielding adjustable-rate rmbs sold during the first nine months of 2017 were replaced with purchases of higher yielding fixed-rate rmbs as of december 31 , 2017 , the majority of this reinvestment did not occur until the last fourth months of 2017. the following table presents the estimated impact of changes in average balances , yields , and prepayment adjustments on interest income by type of rmbs for the periods indicated : replace_table_token_19_th ( 1 ) prepayment adjustments represent effective interest amortization adjustments related to changes in actual and projected prepayment speeds for rmbs and prepayment compensation , net of amortization for cmbs and cmbs io . interest income from cmbs for the year ended december 31 , 2017 increased $ 6.5 million compared to the year ended december 31 , 2016 primarily due to the increase in the average interest earning balance of cmbs . although our investment in cmbs decreased to $ 1.1 billion as of december 31 , 2017 compared to $ 1.2 billion as of december 31 , 2016 , our average balance outstanding increased 25 % during the year ended december 31 , 2017 as compared to 2016 because the majority of our purchases of higher yielding agency cmbs occurred during the first six months of 2017 whereas the majority of our sales of agency cmbs did not occur until the fourth quarter of 2017. interest income from cmbs also increased due to an increase of approximately $ 1.4 million in prepayment penalty income primarily from our legacy non-agency cmbs . effective yield from cmbs for the year ended december 31 , 2017 declined compared to the year ended december 31 , 2016 because
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% from 2016. lower sales of olysio ® ( simeprevir ) , vaccines and prezista ® ( darunavir/cobicistat ) were partially offset by sales growth of edurant ® /rilpivirine , prezcobix ® /rezolsta ® and the launch of symtuza ® . neuroscience products sales were $ 6.0 billion , a decrease of 1.6 % from 2016. lower sales of risperdal consta ® ( risperidone ) and concerta ® /methylphenidate as well as the impact of divestitures were partially offset by strong sales of invega sustenna ® /xeplion ® / trinza ® /trevicta ® ( paliperidone palmitate ) long-acting injectables . oncology products achieved sales of $ 7.3 billion in 2017 , representing an increase of 25.0 % as compared to the prior year . contributors to the growth of oncology products were strong sales of darzalex ® ( daratumumab ) and imbruvica ® ( ibrutinib ) driven by market share and market growth and sales of zytiga ® ( abiraterone acetate ) driven by market growth . several generic companies are challenging the remaining patent for zytiga ® in the uspto and in the united states district court for the district of new jersey . the company is appealing a decision by the uspto invalidating this patent , and the parties are awaiting a decision on a motion for summary judgment of non-infringement filed by the generic companies . in the event that the rulings are unfavorable to the company , a generic launch is expected to follow . if there is a launch of a generic version of zytiga ® following fda approval , it will result in a reduction in u.s. sales , and such reduction could occur in a short period of time . in 2017 , the company reported u.s. sales of $ 1.2 billion for zytiga ® . see note 21 to the consolidated financial statements for a description of legal matters regarding zytiga ® . pulmonary hypertension is a new therapeutic area which was established with the acquisition of actelion ltd on june 16 , 2017. see note 20 to the consolidated financial statements for additional details regarding the acquisition . cardiovascular/metabolism/other products sales were $ 6.3 billion , a decline of 1.7 % as compared to the prior year attributable to lower sales of invokana ® /invokamet ® ( canagliflozin ) in the u.s. primarily due to an increase in price discounts and market share decline driven by competitive pressure . this was partially offset by sales growth of xarelto ® ( rivaroxaban ) due to increased market growth and market share , as well as sales of non-pah ( pulmonary arterial hypertension ) products from the actelion acquisition . 19 during 2017 , the company advanced its pipeline with several regulatory submissions and approvals for new drugs and additional indications for existing drugs as follows : product name ( chemical name ) indication us approv eu approv us filing eu filing apalutamide an oral androgen receptor inhibitor for men with non-metastatic castration-resistant prostate cancer ü darzalex ® ( daratumumab ) in combination with lenalidomide and dexamethasone , or bortezomib and dexamethasone , for the treatment of patients with multiple myeloma who have received at least one prior therapy ü in combination with pomalidomide and dexamethasone , or bortezomib and dexamethasone , for the treatment of patients with multiple myeloma who have received at least two prior therapies ü frontline multiple myeloma transplant ineligible patients in combination with bortezomib , melphalan , and prednisone ü ü imbruvica ® ( ibrutinib ) treatment for adult patients with chronic graft-versus-host-disease after failure of one or more lines of systemic therapy ü marginal zone lymphoma ü invokana ® ( canagliflozin ) reduce the risk of death in type 2 diabetes with established , or risk for , cardiovascular disease . ( canvas/canvas-r ) ü ü juluca ® ( rilpivirine and dolutegravir ) single-tablet , two-drug regimen of dolutegravir and rilpivirine for the maintenance treatment of hiv-1 infection ü ü simponi aria ® ( golimumab ) treatment of adults living with active psoriatic arthritis and the treatment of adults living with active ankylosing spondylitis ü stelara ® ( ustekinumab ) treatment of adolescents ( 12 to 17 years of age ) with moderate to severe plaque psoriasis ü symtuza ® ( darunavir/cobicistat/ emtricitabine/tenofovir alafenamide ) single tablet regimen for hiv in treatment naïve patients and treatment experienced patients ü ü tremfya ® ( guselkumab ) treatment of adults living with moderate to severe plaque psoriasis ü ü xarelto ® ( rivaroxaban ) a 10 mg once-daily dose for reducing the continued risk for recurrent venous thromboembolism after completing at least six months of initial anticoagulation therapy ü for two new vascular indications : reducing the risk of major cardiovascular events and reducing the risk of acute limb ischemia in patients with pad ü zytiga ® ( abiraterone acetate ) prostate cancer newly diagnosed hormone naïve metastatic ü ü pharmaceutical segment sales in 2016 were $ 33.5 billion , an increase of 6.5 % from 2015 , which included operational growth of 7.4 % partially offset by a negative currency impact of 0.9 % . u.s. sales were $ 20.1 billion , an increase of 9.8 % . international sales were $ 13.3 billion , an increase of 1.8 % , which included 4.0 % operational growth partially offset by a negative currency impact of 2.2 % . in 2016 , acquisitions , divestitures and competitive products to the company 's hepatitis c products , olysio ® /sovriad ® ( simeprevir ) and incivo ® ( telaprevir ) , had a negative impact of 2.5 % on the operational growth of the pharmaceutical segment . story_separator_special_tag in 2016 , the pharmaceutical segment operational growth was negatively impacted by 1.5 % due to additional shipping days in 2015. the pharmaceutical segment operational growth for 2016 , as compared to the prior year , was not impacted by adjustments to previous reserve estimates as both periods included approximately $ 0.5 billion of adjustments . 20 medical devices segment the medical devices segment sales in 2017 were $ 26.6 billion , an increase of 5.9 % from 2016 , which included an operational increase of 5.7 % and a positive currency impact of 0.2 % . u.s. sales were $ 12.8 billion , an increase of 4.5 % as compared to the prior year . international sales were $ 13.8 billion , an increase of 7.1 % as compared to the prior year , with an operational increase of 6.7 % and a positive currency impact of 0.4 % . in 2017 , acquisitions and divestitures had a net positive impact of 4.2 % on the worldwide operational sales growth of the medical devices segment as compared to 2016. major medical devices franchise sales : replace_table_token_6_th * products acquired from abbott medical optics ( amo ) on february 27 , 2017 * * on june 30 , 2014 , the company divested the ortho-clinical diagnostics business ( the diagnostics franchise ) the surgery franchise sales were $ 9.6 billion in 2017 , an increase of 2.8 % from 2016. growth in advanced surgery was primarily driven by endocutter , energy , including the acquisition of megadyne medical products , inc. , and biosurgery products . growth in general surgery was primarily driven by sutures and sales from the acquisition of torax medical , inc. the sales decline in specialty surgery was primarily due to lower sales of aesthetic , advanced sterilization and sterilmed products . the orthopaedics franchise sales were $ 9.3 billion in 2017 , a decrease of 0.8 % from 2016. the decline in spine & other was primarily due to the codman neurosurgery divestiture , share loss in u.s. spine , pricing and competitive pressures . this was partially offset by sales growth of trauma , sports medicine products and u.s. hips . the vision care franchise achieved sales of $ 4.1 billion in 2017 , an increase of 45.9 % from 2016. growth was driven by sales from the acquisition of amo , with the majority of amo sales in the surgical category , and new product launches in the contact lenses category . the cardiovascular franchise sales were $ 2.1 billion , an increase of 13.4 % from 2016. strong growth in the electrophysiology business was driven by market growth and continued uptake of the thermocool smarttouch ® contact force sensing catheter . the diabetes care franchise sales were $ 1.6 billion , a decrease of 9.7 % from 2016. the decline was primarily due to price declines and competitive pressures . additionally , in the fourth quarter of 2017 , the company announced its decision to exit the animas insulin pump business . animas has selected medtronic plc to facilitate a seamless transition for patients , caregivers and healthcare providers . the company is continuing to evaluate potential strategic options for lifescan , inc. and determine the best opportunity to drive future growth and maximize shareholder value . the medical devices segment sales in 2016 were $ 25.1 billion , a decrease of 0.1 % from 2015 , which included an operational increase of 0.9 % and a negative currency impact of 1.0 % . u.s. sales were $ 12.3 billion , an increase of 1.1 % as compared to the prior year . international sales were $ 12.9 billion , a decrease of 1.2 % as compared to the prior year , with an operational increase of 0.7 % and a negative currency impact of 1.9 % . in 2016 , acquisitions and divestitures had a negative 21 impact of 1.8 % on the worldwide operational growth of the medical devices segment as compared to 2015. in 2016 , the medical devices segment operational growth was negatively impacted by 0.9 % due to additional shipping days in 2015. analysis of consolidated earnings before provision for taxes on income consolidated earnings before provision for taxes on income decreased to $ 17.7 billion in 2017 , as compared to $ 19.8 billion in 2016 , a decrease of 10.8 % . the decrease was primarily attributable to higher amortization expense and other charges related to recent acquisitions , higher selling , marketing and administrative costs due to investments in new product launches and higher research and development costs due to general portfolio progression and collaborations . consolidated earnings before provision for taxes on income increased to $ 19.8 billion in 2016 , as compared to $ 19.2 billion in 2015 , an increase of 3.2 % . the increase was primarily attributable to higher sales volume , favorable mix in the business and lower selling , marketing and administrative costs . this was partially offset by higher net litigation expense of $ 0.7 billion and a higher restructuring charge of $ 0.1 billion as compared to 2015. additionally , the fiscal year 2015 included higher gains on the sale of assets/businesses as compared to 2016. as a percent to sales , consolidated earnings before provision for taxes on income in 2017 was 23.1 % versus 27.5 % in 2016. cost of products sold and selling , marketing and administrative expenses : cost of products sold and selling , marketing and administrative expenses as a percent to sales were as follows : replace_table_token_7_th in 2017 , cost of products sold as a percent to sales increased to33.2 % from 30.2 % as compared to the same period a year ago .
| in 2017 , sales by companies in europe achieved growth of 8.6 % as compared to the prior year , including operational growth of 7.2 % and a positive currency impact of 1.4 % . sales by companies in the western hemisphere ( excluding the u.s. ) achieved growth of 5.4 % as compared to the prior year , including operational growth of 2.8 % and a positive currency impact of 2.6 % . sales by companies in the asia-pacific , africa region achieved growth of 6.7 % as compared to the prior year , including operational growth of 7.5 % partially offset by a negative currency impact of 0.8 % . the 2016 sales growth percentage as compared to the prior year was negatively impacted by approximately 1.3 % from additional shipping days in 2015 . ( see note 1 to the consolidated financial statements for annual closing date details ) . while the additional week in 2015 added a few days to sales , it also added a full week 's worth of operating costs ; therefore , the net earnings impact was negligible . in 2017 , the company had two wholesalers distributing products for all three segments that represented approximately 14.0 % and 10.0 % of the total consolidated revenues . in 2016 , the company had two wholesalers distributing products for all three segments that represented approximately 13.5 % and 10.7 % of the total consolidated revenues . in 2015 , the company had one wholesaler distributing products for all three segments that represented approximately 12.5 % of the total consolidated revenues . 16 analysis of sales by business segments consumer segment consumer segment sales in 2017 were $ 13.6 billion , an increase of 2.2 % from 2016 , which included 1.3 % operational growth and a positive currency impact of 0.9 % . u.s. consumer segment sales were $ 5.6 billion , an increase of 2.7 % . international sales were $ 8.0 billion , an increase of 1.9 % , which included 0.4 % operational growth and a positive currency impact of 1.5 % . in 2017 , acquisitions and divestitures had a net positive impact of 1.8 % on the operational sales growth of the worldwide consumer segment . major consumer franchise sales : replace_table_token_4_th the
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the drivetrain segment charges primarily represent a continuation of expenses associated with the first quarter 2014 finalization of severance agreements with three labor unions at separate facilities in western europe for approximately 350 employees . the engine segment charges primarily relate to the restructuring of the wahler acquisition . these expenses included $ 57.9 million related to employee termination benefits and $ 20.9 million of other expenses . additionally , the company also recorded restructuring charges of $ 12.0 million related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the company 's business strategy . both the drivetrain and engine restructuring actions are designed to improve the future profitability and competitiveness of each segment . the company incurred intangible asset impairment losses of $ 10.3 million related to the engine segment , primarily driven by the decision to discontinue the use of an unamortized trade name . the company incurred a settlement loss of $ 3.1 million related to lump-sum payments made to former employees of the company to discharge its obligation under the u.s pension plan . 31 the company recorded tax benefits of $ 15.3 million , $ 0.4 million and $ 1.1 million related to restructuring expense , intangible asset impairment losses and the pension settlement loss , respectively . net sales net sales for the year ended december 31 , 2016 totaled $ 9,071.0 million , a 13.1 % increase from the year ended december 31 , 2015. excluding the impact of weakening foreign currencies , and the 2015 remy acquisition , net sales increased 5.2 % . net sales for the year ended december 31 , 2015 totaled $ 8,023.2 million , a 3.4 % decrease from the year ended december 31 , 2014. excluding the impact of weakening foreign currencies , primarily the euro , the 2014 wahler acquisition , the 2015 beru diesel acquisition and the 2015 remy acquisition , net sales increased 4.3 % . the following table details our results of operations as a percentage of net sales : replace_table_token_10_th cost of sales as a percentage of net sales was 78.7 % , 78.8 % and 78.9 % in the years ended december 31 , 2016 , 2015 and 2014 , respectively . the company 's material cost of sales was approximately 55 % of net sales in the years ended december 31 , 2016 , 2015 and 2014. the company 's remaining cost to convert raw material to finished product , which includes direct labor and manufacturing overhead , had continued to improve during the years ended december 31 , 2016 and 2015 compared to 2014. gross profit as a percentage of net sales was 21.3 % , 21.2 % and 21.1 % in the years ended december 31 , 2016 , 2015 and 2014 , respectively . included in the 2016 gross profit and gross margin is a $ 6.2 million gain associated with the release of certain remy light vehicle aftermarket liabilities related to the expiration of a customer contract . selling , general and administrative expenses ( “ sg & a ” ) was $ 817.5 million , $ 662.0 million and $ 698.9 million or 9.0 % , 8.3 % and 8.4 % of net sales for the years ended december 31 , 2016 , 2015 and 2014 , respectively . excluding the impact of the 2015 acquisition of remy , sg & a and sg & a as a percentage of net sales were $ 696.0 million and 8.5 % for the year ended december 31 , 2016. research and development ( `` r & d '' ) costs , net of customer reimbursements , was $ 343.2 million , or 3.8 % of net sales , in the year ended december 31 , 2016 , compared to $ 307.4 million , or 3.8 % of net sales , and $ 336.2 million , or 4.0 % of net sales , in the years ended december 31 , 2015 and 2014 , respectively . we will continue to invest in a number of cross-business r & d programs , as well as a number of other key 32 programs , all of which are necessary for short- and long-term growth . our current long-term expectation for r & d spending is approximately 4 % of net sales . other expense , net was $ 889.7 million , $ 101.4 million and $ 93.8 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . this line item is primarily comprised of items discussed within the subtitle `` non-comparable items impacting the company 's earnings per diluted share and net earnings '' above . equity in affiliates ' earnings , net of tax was $ 42.9 million , $ 40.0 million and $ 47.3 million in the years ended december 31 , 2016 , 2015 and 2014 , respectively . this line item is driven by the results of our 50 % -owned japanese joint venture , nsk-warner , and our 32.6 % -owned indian joint venture , turbo energy private limited ( “ tel ” ) . the increase in the year ended december 31 , 2016 compared to 2015 and 2014 is primarily driven by higher earnings from nsk-warner as a result of improved business conditions in asia . refer to note 5 , `` balance sheet information , '' to the consolidated financial statements in item 8 of this report for further discussion of nsk-warner . interest expense and finance charges were $ 84.6 million , $ 60.4 million and $ 36.4 million in the years ended december 31 , 2016 , 2015 and 2014 , respectively . the increase in interest expense for the year ended december 31 , 2016 compared with the years ended december 31 , 2015 and 2014 was primarily due to the company 's march and november 2015 issuances of senior notes . story_separator_special_tag provision for income taxes the provision for income taxes resulted in an effective tax rate of 15.9 % for the year ended december 31 , 2016 , compared with rates of 30.3 % and 29.9 % for the years ended december 31 , 2015 and 2014 , respectively . the effective tax rate of 15.9 % for the year ended december 31 , 2016 includes tax benefits of $ 263.0 million , $ 22.7 million , $ 8.6 million , $ 6.0 million and $ 4.4 million associated with an asbestos-related charge , loss on divestiture , other one-time tax adjustments , restructuring expense and intangible asset impairment loss , respectively , as well as a tax expense of $ 2.2 million related to a gain associated with the release of certain remy light vehicle aftermarket liabilities due to the expiration of a customer contract . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2016 was 30.9 % . the effective tax rate of 30.3 % for the year ended december 31 , 2015 includes tax benefits of $ 9.0 million , $ 3.8 million and $ 3.7 million related to the pension settlement loss , merger and acquisition expense and restructuring expense discussed in note 3 , `` other expense , net , '' to the consolidated financial statements in item 8 of the report . additionally , the effective tax rate includes a tax benefit of $ 9.9 million primarily related to foreign tax incentives and tax settlements . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2015 was 29.8 % . the effective tax rate of 29.9 % for the year ended december 31 , 2014 includes tax benefits of $ 15.3 million , $ 0.4 million and $ 1.1 million related to restructuring expense , intangible asset impairment losses and the pension settlement loss discussed in note 3 , `` other expense , net , '' to the consolidated financial statements in item 8 of this report . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2014 was 28.5 % . net earnings attributable to the noncontrolling interest , net of tax of $ 41.7 million for the year ended december 31 , 2016 increased by $ 5.0 million and $ 10.0 million compared to the years ended december 31 , 2015 and 2014 , respectively . the increase during the year ended december 31 , 2016 compared to the years ended december 31 , 2015 and 2014 was primarily related to higher sales and earnings by the company 's joint ventures . 33 story_separator_special_tag debt . the total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program can not exceed $ 1 billion . in addition to the credit facility , the company 's universal shelf registration has an unlimited amount of various debt and equity instruments that could be issued . on february 10 , 2016 , april 27 , 2016 and july 26 , 2016 , the company 's board of directors declared quarterly cash dividends of $ 0.13 per share of common stock . on november 9 , 2016 , the company 's board of directors declared quarterly cash dividends of $ 0.14 per share of common stock . these dividends were paid in the 12 months ended december 31 , 2016. the company 's net debt to net capital ratio was 35.0 % at december 31 , 2016 versus 35.2 % at december 31 , 2015. from a credit quality perspective , the company has a credit rating of bbb+ from both standard & poor 's and fitch ratings and baa1 from moody 's . the current outlook from standard & poor 's and fitch ratings is stable . during the first quarter of 2016 , moody 's revised its outlook from stable to negative . none of the company 's debt agreements require accelerated repayment in the event of a downgrade in credit ratings . 36 capitalization replace_table_token_13_th balance sheet debt decreased by $ 330.8 million and cash decreased by $ 134.0 million compared with december 31 , 2015. the $ 196.8 million decrease in balance sheet debt ( net of cash ) was primarily due to the repayment of the company 's $ 150 million 5.75 % senior notes and other short term borrowings . total equity decreased by $ 329.6 million in the year ended december 31 , 2016 as follows : replace_table_token_14_th operating activities net cash provided by operating activities was $ 1,035.7 million , $ 867.9 million and $ 801.8 million in the years ended december 31 , 2016 , 2015 and 2014 , respectively . the increase for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 primarily reflects higher net earnings adjusted for non-cash charges to operations and improved working capital resulting from inventory management initiatives and product mix change . the increase for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 primarily reflects improved working capital , partially offset by lower net earnings adjusted for non-cash charges to operations . 37 investing activities net cash used in investing activities was $ 404.2 million , $ 1,759.1 million and $ 665.1 million in the years ended december 31 , 2016 , 2015 and 2014 , respectively . the decrease in the year ended december 31 , 2016 compared with the year ended december 31 , 2015 is primarily due to lower capital expenditures , including tooling outlays , the 2016 sale of divgi-warner and remy light vehicle aftermarket business and the 2015 acquisition of remy and beru diesel .
| the segment adjusted ebit margin was 16.7 % for the year ended december 31 , 2016 , up from 16.4 % in the year ended december 31 , 2015. the engine segment 's net sales for the year ended december 31 , 2015 decreased $ 205.9 million , or 3.6 % , and segment adjusted ebit decreased $ 23.3 million , or 2.5 % , from the year ended december 31 , 2014. excluding the impact of weakening foreign currencies , primarily the euro , the 2014 wahler acquisition and the 2015 beru diesel acquisition , net sales increased 6.7 % from the year ended december 31 , 2014 primarily due to higher sales of turbochargers , partially offset by weak commercial vehicle markets around the world . the segment adjusted ebit margin was 16.4 % for the year ended december 31 , 2015 , up from 16.2 % in the year ended december 31 , 2014. the drivetrain segment 's net sales for the year ended december 31 , 2016 increased $ 967.0 million , or 37.8 % , and segment adjusted ebit increased $ 59.9 million , or 20.3 % , from the year ended december 31 , 2015. excluding the impact of weakening foreign currencies , primarily the euro , chinese renminbi and korean won , and the 2015 remy acquisition , net sales increased 9.9 % from the year ended december 31 , 2015 primarily due to higher sales of all-wheel drive systems . the segment adjusted ebit margin was 10.1 % in the year ended december 31 , 2016 , compared to 11.5 % in the year ended december 31 , 2015. the adjusted ebit margin decrease was primarily due to the 2015 acquisition of remy . the drivetrain segment 's net sales for the year ended december 31 , 2015 decreased $ 74.7 million , or 2.8 % , and segment adjusted ebit decreased $ 8.7 million , or 2.9 % , from the year ended december 31 , 2014. excluding the impact of weakening foreign currencies , primarily the euro , and the 2015 remy acquisition , net sales decreased 0.8 % from the year ended december 31 , 2014 primarily due to lower sales of transmission components in europe . the segment adjusted ebit
| 12,776 |
enrollment is expected to begin in the second half of 2013. in june 2012 , we were notified by the odjfs that buckeye was selected to be awarded a new and expanded contract to serve medicaid members in ohio . under the new state contract , buckeye will operate statewide through ohio 's three newly aligned regions ( west , central/southeast , and northeast ) . enrollment is expected to begin in july 2013. in may 2012 , we announced that the governor and executive council of new hampshire had given approval for the department of health and human services to contract with our subsidiary , granite state health plan , to serve medicaid beneficiaries in new hampshire . operations are currently expected to commence in the second half of 2013 . 39 in october 2012 , we announced that our subsidiary , kentucky spirit health plan ( kentucky spirit ) , notified the cabinet for health and family services that it is exercising a contractual right that it believes allows kentucky spirit to terminate its medicaid managed care contract with the commonwealth of kentucky effective july 5 , 2013. kentucky spirit has also filed a formal dispute with the cabinet for damages incurred under the contract . that dispute is currently on appeal to the finance and administration cabinet . in addition , we have filed a lawsuit in franklin circuit court against the commonwealth of kentucky seeking declaratory relief as a result of the commonwealth 's failure to completely and accurately disclose material information . on january 23 , 2013 , the franklin circuit court denied the commonwealth 's motion to dismiss and retained jurisdiction of the lawsuit , but stayed the proceedings pending a formal , written determination by the finance and administration cabinet . membership from december 31 , 2010 to december 31 , 2012 , we increased our at-risk managed care membership by 1,026,800 , or 67.0 % . the following table sets forth our membership by state for our managed care organizations : replace_table_token_6_th the following table sets forth our membership by line of business : replace_table_token_7_th the following table identifies the company 's dual eligible membership by line of business . the membership tables above include these members . 40 replace_table_token_8_th the following table provides supplemental information of other membership categories : december 31 , 2012 2011 2010 cenpatico behavioral health : arizona 157,900 168,900 174,600 kansas ( 1 ) 49,800 46,200 39,200 ( 1 ) effective january 1 , 2013 , cenpatico behavioral health 's contract in kansas was discontinued and members began receiving benefits under the statewide kancare program . from december 31 , 2011 to december 31 , 2012 our membership increased as a result of : operations commenced in louisiana , missouri and washington contract awards and geographic expansion in texas from december 31 , 2010 to december 31 , 2011 our membership increased as a result of : operations commenced in illinois , kentucky and mississippi contract awards and geographic expansion in texas expanded contract awards in arizona results of operations the following discussion and analysis is based on our consolidated statements of operations , which reflect our results of operations for the years ended december 31 , 2012 , 2011 and 2010 , prepared in accordance with generally accepted accounting principles in the united states . 41 summarized comparative financial data for the years ended december 31 , 2012 , 2011 and 2010 is as follows ( $ in millions ) : replace_table_token_9_th revenues and revenue recognition our health plans generate revenues primarily from premiums we receive from the states in which we operate . we generally receive a fixed premium per member per month pursuant to our state contracts . we generally receive premium payments and recognize premium revenue during the month in which we are obligated to provide services to our members . in some instances , our base premiums are subject to an adjustment , or risk score , based on the acuity of our membership . generally , the risk score is determined by the state analyzing submissions of processed claims data to determine the acuity of our membership relative to the entire state 's membership . some contracts allow for additional premiums associated with certain supplemental services provided such as maternity deliveries . for performance-based contracts , we do not recognize revenue subject to refund until data is sufficient to measure performance . revenues are recorded based on membership and eligibility data provided by the states , which is adjusted on a monthly basis by the states for retroactive additions or deletions to membership data . these eligibility adjustments are estimated monthly and subsequently adjusted in the period known . we continuously review and update those estimates as new information becomes available . it is possible that new information could require us to make additional adjustments , which could be significant , to these estimates . 42 our specialty services generate revenues under contracts with state programs , healthcare organizations , and other commercial organizations , as well as from our own subsidiaries . revenues are recognized when the related services are provided or as ratably earned over the covered period of services . premium and service revenues collected in advance are recorded as unearned revenue . premium and service revenues due to us are recorded as premium and related receivables and are recorded net of an allowance based on historical trends and our management 's judgment on the collectibility of these accounts . as we generally receive payments during the month in which services are provided , the allowance is typically not significant in comparison to total revenues and does not have a material impact on the presentation of our financial condition or results of operations . some states enact premium taxes , similar assessments and provider and hospital pass-through payments , collectively , premium taxes , and these taxes are recorded as a component of revenues as well as operating expenses . story_separator_special_tag we exclude premium taxes from our key ratios as we believe the premium tax is a pass-through of costs and not indicative of our operating performance . the centers for medicare and medicaid services ( cms ) deploys a risk adjustment model that retroactively apportions medicare premiums paid according to health severity and certain demographic factors . the model pays more for members whose medical history indicates they have certain medical conditions . under this risk adjustment methodology , cms calculates the risk adjusted premium payment using diagnosis data from hospital inpatient , hospital outpatient , physician treatment settings as well as prescription drug events . the company estimates the amount of risk adjustment based upon the diagnosis and pharmacy data submitted and expected to be submitted to cms and records revenues on a risk adjusted basis . operating expenses medical costs medical costs include payments to physicians , hospitals , and other providers for healthcare and specialty services claims . medical costs also include estimates of medical expenses incurred but not yet reported , or ibnr , and estimates of the cost to process unpaid claims . we use our judgment to determine the assumptions to be used in the calculation of the required ibnr estimate . the assumptions we consider include , without limitation , claims receipt and payment experience ( and variations in that experience ) , changes in membership , provider billing practices , healthcare service utilization trends , cost trends , product mix , seasonality , prior authorization of medical services , benefit changes , known outbreaks of disease or increased incidence of illness such as influenza , provider contract changes , changes to medicaid fee schedules , and the incidence of high dollar or catastrophic claims . our development of the ibnr estimate is a continuous process which we monitor and refine on a monthly basis as claims receipts and payment information becomes available . as more complete information becomes available , we adjust the amount of the estimate , and include the changes in estimates in medical expense in the period in which the changes are identified . additionally , we contract with independent actuaries to review our estimates on a quarterly basis . the independent actuaries provide us with a review letter that includes the results of their analysis of our medical claims liability . we do not solely rely on their report to adjust our claims liability . we utilize their calculation of our claims liability only as additional information , together with management 's judgment , to determine the assumptions to be used in the calculation of our liability for medical costs . while we believe our ibnr estimate is appropriate , it is possible future events could require us to make significant adjustments for revisions to these estimates . accordingly , we can not assure you that medical costs will not materially differ from our estimates . results of operations depend on our ability to manage expenses associated with health benefits and to accurately predict costs incurred . the health benefits ratio , or hbr , represents medical costs as a percentage of premium revenues ( excluding premium taxes ) and reflects the direct relationship between the premium received and the medical services provided . cost of services cost of services expense includes the pharmaceutical costs associated with our pharmacy benefit manager 's external revenues and certain direct costs to support the functions responsible for generation of our service revenues . these expenses consist of the salaries and wages of the professionals who provide the services and associated expenses . 43 general and administrative expenses general and administrative expenses , or g & a , primarily reflect wages and benefits , including stock compensation expense , and other administrative costs associated with our health plans , specialty companies and centralized functions that support all of our business units . our major centralized functions are finance , information systems and claims processing . g & a expenses also include business expansion costs , such as wages and benefits for administrative personnel , contracting costs , and information technology buildouts , incurred prior to the commencement of a new contract or health plan . the g & a expense ratio represents g & a expenses as a percentage of premium and service revenues , and reflects the relationship between revenues earned and the costs necessary to earn those revenues . other income ( expense ) other income ( expense ) consists principally of investment income from cash and investments , earnings in equity method investments , and interest expense on debt . discontinued operations in november 2008 , we announced our intention to sell certain assets of uhp , our new jersey health plan . accordingly , the results of operations for uhp are reported as discontinued operations for all periods presented . we completed the sale in the first quarter of 2010. year ended december 31 , 2012 compared to year ended december 31 , 2011 premium and service revenues premium and service revenues increased 59.0 % in the year ended december 31 , 2012 over the corresponding period in 2011 as a result of the additional revenue from our illinois , kentucky , louisiana , mississippi , missouri and washington contracts , texas and arizona expansions , pharmacy carve-ins in texas and ohio , and organic membership growth . during the year ended december 31 , 2012 , we received premium rate adjustments which yielded a net 2.5 % composite increase across all of our markets . the state of georgia maintains a reconciliation process associated with membership eligibility and has continued to reconcile membership from previous periods as far back as 2006. the amount of any reduction to revenue related to this review is subject to consideration of rate adequacy calculations , as part of actuarially sound standards , for the appropriate periods . we have estimated the revenue impact related to reconciliation adjustments to the retroactive eligibility reductions due to the state and have adjusted our accrual in our consolidated financial statements .
| we typically receive capitation payments monthly , however the states in which we operate may decide to adjust their payment schedules which could positively or negatively impact our reported cash flows from operating activities in any given period . the table below details the impact to cash flows from operations from the timing of payments from our states ( $ in millions ) . replace_table_token_17_th the cash provided by operations in 2012 was primarily related to an increase in medical claims liabilities related to the start up of our louisiana , missouri and washington plans and the expansion of our texas health plan as well as pre-payment of premiums in one of our states at december 31 , 2012 , partially offset by increases in premium and related receivables resulting from our health plan growth in 2012. net cash provided by operating activities in 2011 was negatively impacted by the timing of payments from our states by $ 120.4 million . as of december 31 , 2011 , we had received all december 2011 capitation payments from our states and had not received any prepayments of january 2012 capitation . this was offset by an increase in medical claims liabilities related to the start up of our mississippi , illinois and kentucky health plans , as well as expansion of our texas health plan in 2011. net cash provided by operating activities benefited in 2010 as a result of prepayments from several of our states . cash flows from operations in 2010 also reflected an increase in premium and related receivables and medical claims liability primarily due to increased business in florida , massachusetts and south carolina . cash flows used in investing activities investing activities used cash of $ 187.9 million in 2012 , $ 129.1 million in 2011 and $ 210.6 million in 2010 . cash flows from investing activities in 2012 and 2011 primarily consisted of additions to the investment portfolio of our regulated subsidiaries , including transfers from cash and cash equivalents to long-term investments , and capital expenditures . our investment policies are designed to provide liquidity , preserve capital and maximize
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other operating income includes banquet related guarantee and services revenue and other incidental guest fees as well as other licensing fees and income associated with the sale of gift cards . while we always honor gift cards , even beyond any stated expiration dates on the card , our historical experience has shown that very few cards are redeemed after 18 months following the date of last activity . as such , we record in other operating income the full remaining value ( original issue less any partial redemption ) of any gift cards unredeemed after 18 months from the date of last activity . food and beverage costs . food and beverage costs include all restaurant-level food and beverage costs of company-owned restaurants . we measure food and beverage costs by tracking cost of sales as a percentage of restaurant sales and cost per entrée . food and beverage costs are generally influenced by the cost of food and beverage items , distribution costs and menu mix . restaurant operating expenses . we measure restaurant-operating expenses for company-owned restaurants as a percentage of restaurant sales . restaurant operating expenses include the following : labor costs , consisting of restaurant management salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . we measure our labor cost efficiency by tracking hourly and total labor costs as a percentage of restaurant sales ; operating costs , consisting of maintenance , utilities , bank and credit card charges , and any other restaurant-level expenses ; and occupancy costs , consisting of both fixed and variable portions of rent , common area maintenance charges , insurance premiums and real property taxes . marketing and advertising . marketing and advertising includes all media , production and related costs for both local restaurant advertising and national marketing . we measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues . we have historically spent approximately 2.5 % to 4.0 % of total revenues on marketing and advertising and expect to maintain this level in the near term . all franchise agreements executed based on our new form of franchise agreement include up to a 1.0 % advertising fee in addition to the 5.0 % royalty fee . we spend this designated advertising fee on national advertising and record these fees as liabilities against which specified advertising and marketing costs will be charged . general and administrative . general and administrative costs include costs relating to all corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company and franchisee growth . general and administrative costs are comprised of management , supervisory and staff salaries and employee benefits , travel , information systems , training , corporate rent , professional and consulting fees , technology and market research . we measure our general and administrative expense efficiency by tracking these costs as a percentage of total revenues . depreciation and amortization . depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . pre-opening costs . pre-opening costs consist of costs incurred prior to opening a company-owned restaurant , which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees , including practice and rehearsal of service activities as well as lease costs incurred prior to opening . 24 index to financial statements story_separator_special_tag year 2010 from 29.3 % in fiscal year 2009. this increase in food and beverage costs as a percentage of restaurant sales was primarily due to an increase in beef prices . restaurant operating expenses . restaurant operating expenses increased $ 4.0 million , or 2.3 % , to $ 177.5 million in fiscal year 2010 from fiscal year 2009. restaurant operating expenses , as a percentage of restaurant sales , decreased to 52.6 % in fiscal year 2010 from 53.2 % in fiscal year 2009 due to leveraging higher comparable restaurant sales . general and administrative costs . general and administrative costs decreased $ 1.0 million , or 4.1 % , to $ 22.8 million in fiscal year 2010 from fiscal year 2009 primarily due to a reduction in third party professional fees . depreciation and amortization expenses . depreciation and amortization expense decreased $ 0.9 million , or 5.6 % to $ 15.4 million in fiscal year 2010 from fiscal year 2009. the decrease in depreciation and amortization is primarily due to the home office sale in 2009 and certain assets being fully depreciated . pre-opening costs . pre-opening costs were $ 0.4 million in fiscal year 2010. the 2010 pre-opening costs were related to the one new company-owned restaurant in fiscal 2010. there were no new company-owned restaurant openings in fiscal year 2009. loss on impairment . we recognized a loss on the impairment of long-lived assets of $ 0.8 million in fiscal year 2010 compared to a loss on the impairment of long-lived and intangible assets of $ 8.0 million in fiscal year 2009. the loss on impairment recognized in fiscal year 2010 was related to the impairment of long-lived assets at two ruth 's chris restaurants . restructuring expense ( benefit ) . in fiscal year 2010 , we recognized $ 1.7 million of restructuring expense benefit , which included a release from liability by a developer where lease exit costs had been previously accrued and the correction of an immaterial prior year error in estimating lease exit costs . in fiscal year 2009 , we recognized $ 40 thousand of restructuring expenses which consisted of a $ 417 thousand charge related to the settlement of lease obligations of undeveloped restaurant properties in thousand oaks , california , and dedham , massachusetts , offset by a $ 377 thousand reduction of the lease obligation for our corporate headquarters . loss on the disposal of property and equipment , net . story_separator_special_tag loss on the disposal of property and equipment was not significant in fiscal year 2010 compared to loss on disposal of property and equipment of $ 2.0 million in fiscal year 2009. loss on disposal in fiscal year 2009 was primarily due to the sale of our former home office land and building in metairie , louisiana , and the sale of the home office land and building in heathrow , florida . 27 index to financial statements interest expense . interest expense , net of interest income , decreased $ 3.6 million to $ 4.2 million in fiscal year 2010 from fiscal year 2009. the decrease in expense was primarily due to the decrease in the average amount outstanding of our revolving credit loan . income tax expense . income tax expense in fiscal year 2010 was $ 4.8 million . in fiscal year 2009 the company recognized a net benefit of $ 1.4 million . the change from an income tax benefit to income tax expense was primarily due to the $ 19.5 million increase in income from continuing operations before income tax in fiscal year 2010 compared to fiscal year 2009. income from continuing operations . income from continuing operations increased $ 13.2 million , or 373 % , to $ 16.8 million in fiscal year 2010 from income of $ 3.6 million in fiscal year 2009. discontinued operations , net of income tax benefit . discontinued operations resulted in a $ 0.9 million loss in fiscal year 2010 compared to $ 1.1 million of loss in fiscal year 2009. the 2010 discontinued operations loss primarily relates to a change in estimate related to lease exit costs of our former operations at one location in new york , new york , and one location in naples , florida . net income available to preferred and common shareholders . net income available to preferred and common shareholders increased $ 11.1 million to $ 13.5 million in fiscal year 2010 from $ 2.4 million in fiscal year 2009. net income available to preferred and common shareholders in fiscal year 2010 included charges for preferred stock dividends of $ 2.2 million and accretion of preferred stock redemption value of $ 0.3 million . potential fluctuations in quarterly results and seasonality our quarterly operating results may fluctuate significantly as a result of a variety of factors . see risk factors , which discloses certain material risks that could affect our quarterly operating results . our business is also subject to seasonal fluctuations . historically , the percentages of our annual total revenues during the first and fourth fiscal quarters have been higher due , in part , to the year-end holiday season . accordingly , results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year , and comparable restaurant sales for any particular period may decrease . liquidity and capital resources our principal source of cash during fiscal year 2011 was net cash provided by operating activities . our principal use of cash during fiscal year 2011 was the reduction of debt . we expect that in fiscal year 2012 our financial resources will be used primarily to : invest in new restaurants and restaurant remodels ; pay down debt ; as well as take advantage of other opportunities which management believes will enhance shareholder value . we believe that our borrowing ability under our senior credit agreement coupled with our anticipated cash flow from operations should provide us with adequate liquidity in fiscal year 2012. senior credit facility as of december 25 , 2011 , the company had an aggregate of $ 22.0 million of outstanding indebtedness under its senior credit facility at an interest rate of 5.99 % with approximately $ 103.4 million of borrowings available , net of outstanding letters of credit of approximately $ 4.2 million . the 5.99 % includes a 3.56 % interest rate on outstanding indebtedness , plus fees on the company 's unused borrowing capacity and outstanding letters of credit . as of december 25 , 2011 , the company is in compliance with all the covenants under its credit facility . as of february 29 , 2012 , the company had an aggregate of $ 17.5 million of outstanding indebtedness under the senior credit agreement with approximately $ 78.3 million of borrowings available , net of outstanding letters of credit of approximately $ 4.2 million . 28 index to financial statements on february 14 , 2012 , we entered into a second amended and restated credit agreement with wells fargo bank , as administrative agent , and certain other lenders . the amended and restated credit agreement , among other things : decreases the overall revolving loan facility from $ 129.6 million to $ 100.0 million ; extends the maturity of borrowings to february 14 , 2017 ; decreases the interest rates applicable to borrowings based on our leverage ratio , ranging ( a ) from 2.00 % to 2.75 % ( from 3.25 % to 5.00 % ) above the applicable libor rate or ( b ) at our option , from 1.00 % to 1.75 % ( from 2.00 % to 3.75 % ) above the applicable base rate ; reduces the commitment fees charged to any undrawn availability under the revolving loan facility , with such commitment fees based on our leverage ratio ranging from 0.20 % to 0.35 % ; increases our ability to incur capital leases and other general liens , in both cases , to $ 10.0 million from $ 2.5 million ; reduces the fixed charge coverage ratio to 1.25:1.00 ( from 1.35:1.00 ) and the maximum leverage ratio to 2.50:1.00 ( from 3.75 to 1.00 ) ; and increases our ability to make capital expenditures to ( a ) an amount not to exceed 75 % of ebitda if our leverage ratio is equal to or greater than 1.50:1.00 or ( b ) an unlimited amount if our leverage ratio is less than 1.50:1.00. the amended and restated credit agreement contains customary covenants
| restaurant operating expenses were also adversely impacted by a 28.1 % increase in employee health care costs . despite the increase in total expense , restaurant operating expenses , as a percentage of restaurant sales , decreased to 51.8 % in fiscal year 2011 from 52.6 % in fiscal year 2010 due to leveraging higher comparable restaurant sales . general and administrative costs . general and administrative costs were relatively unchanged from the prior year level . depreciation and amortization expenses . depreciation and amortization expense decreased $ 0.5 million , or 3.3 % , to $ 14.9 million in fiscal year 2011 from fiscal year 2010. the decrease in depreciation and amortization is primarily attributable to certain restaurant assets becoming fully depreciated . loss on impairment . we recognized a loss on the impairment of long-lived assets of $ 3.0 million in fiscal year 2011 compared to a loss of $ 0.8 million in fiscal year 2010. the fiscal year 2011 loss on impairment was attributable to a reduction in the estimated fair value of the mitchell 's fish market trademark . the fiscal year 2010 loss recognized was related to the impairment of long-lived assets at two ruth 's chris restaurants . restructuring expense ( benefit ) . in fiscal year 2011 , we recognized $ 0.5 million benefit attributable to favorable lease resolutions on closed/unopened restaurant sites . in fiscal year 2010 , we recognized $ 1.7 million of restructuring expense recoveries , which included a release from liability by a developer where lease exit costs were previously accrued and the correction of an immaterial prior year error in estimating lease exit costs . loss on the disposal of property and equipment , net . the fiscal year 2011 $ 0.4 million loss on disposal of property and equipment pertains primarily to property and equipment replaced during restaurant renovations . interest expense . interest expense , net of interest income , decreased $ 1.4 million , or 31.9 % , to $ 2.9 million in fiscal year 2011 from fiscal year 2010. the decrease in expense
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she has been named an inventor on 17 u.s. and 11 european patents and has authored or coauthored story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together in conjunction with our financial statements and the related notes included elsewhere in this report . some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business and expected financial results , includes forward-looking statements that involve risks and uncertainties . you should review the “ risk factors ” discussed in section 1a of part i of this form 10-k. overview we are a cellular analysis company that is discovering new cancer sub-types and commercializing diagnostic tests designed to significantly improve the clinical outcomes of cancer patients treated with targeted therapies . our proprietary celx diagnostic platform is the only commercially ready technology we are aware of that uses a patient 's living tumor cells to identify the specific abnormal cellular process driving a patient 's cancer and the targeted therapy that best treats it . we believe our celx platform provides two important improvements over traditional molecular diagnostics . first , molecular diagnostics can only provide a snapshot of the genetic mutations present in a patient 's tumor because they analyze dead cells . using dead cells prevents molecular diagnostics from analyzing in real-time the dynamic cellular activities , known as cell signaling , that regulate cell proliferation or survival . cancer can develop when certain cell signaling activity becomes abnormal . since genetic mutations are often only weakly correlated to the cell signaling activity driving a patient 's cancer , a molecular diagnostic is prone to providing an incomplete diagnosis . celx tests overcome this limitation by measuring real-time cell signaling activity in a patient 's living tumor cells . when a celx test detects abnormal signaling activity , a more accurate diagnosis of the patient 's cancer driver is obtained . second , molecular diagnostics can only estimate the probability of a patient 's potential drug response based on a statistical analysis of the drug 's clinical trial results . instead of this indirect estimate of drug response , celx tests directly measure the effectiveness of a targeted therapy in a patient 's living tumor cells . this enables physicians to confirm that the therapeutic matching the patient 's cancer driver is functional in the patient 's tumor cells before prescribing it , which significantly increases the likelihood of a positive clinical outcome . our first analytically validated and commercially ready test using our celx platform , the celx hsf test , diagnoses two new sub-types of her2-negative breast cancer that traditional molecular diagnostics can not detect . our internal studies show that approximately 20 % of her2-negative breast cancer patients have abnormal her2 signaling activity similar to levels found in her2+ breast cancer cells . as a result , these her2-negative patients have undiagnosed her2-driven breast cancer and would be likely to respond to the same anti-her2 targeted therapies only her2+ patients receive today . our celx hsf test is targeting her2-negative breast cancer patients receiving drug treatment . we are fielding a prospective clinical trial in collaboration with genentech and the nsabp to evaluate the efficacy of genentech 's her2 targeted therapies in patients with these newly identified cancer sub-types . we expect interim results from this trial in late 2018 and final results six to nine months later . in addition to our celx tests for her2-negative breast cancer , we are developing celx tests to diagnose 14 new potential cancer sub-types we have discovered in breast , lung , colon , ovarian , kidney , bladder and hematological cancers . approved or investigational drugs are currently available to treat these new potential cancer sub-types . we expect to launch these additional tests on a staggered basis over the next few years while continuing our research to identify additional new cancer sub-types . on september 22 , 2017 , we completed our underwritten initial public offering , or ipo , of 2,760,000 shares of our common stock at a price to the public of $ 9.50 per share . the aggregate net proceeds received by the company from the offering were approximately $ 23.3 million , net of underwriting discounts and commissions and offering expenses . shares of our common stock began trading on september 20 , 2017 on the nasdaq capital market under the symbol “ celc ” . 49 following the ipo , we entered into a lease agreement for building space to accommodate expansion in research and development and general corporate office needs . the new lease commences and we will be moving to the space in may 2018 , in conjunction with the termination of our existing lease . the lease agreement extends through april 2021 and provides for monthly rent , real estate taxes and operating expenses . we have not generated any revenue from sales to date , and we continue to incur significant research and development and other expenses related to our ongoing operations . as a result , we are not and have never been profitable and have incurred losses in each period since we began operations in 2012. for the year ended december 31 , 2017 and 2016 , we reported a net loss of approximately $ 6.3 million and $ 3.3 million , respectively . story_separator_special_tag as of december 31 , 2017 , we had a combined accumulated deficit of approximately $ 12.6 million under celcuity llc and $ 2.0 million under celcuity inc. as of december 31 , 2017 , we had cash , cash equivalents , and investments of approximately $ 31.4 million . story_separator_special_tag activities net cash used in operating activities was approximately $ 4.9 million for the year ended december 31 , 2017 and consisted primarily of a net loss of approximately $ 6.3 million and approximately $ 0.1 million in working capital changes , adjusted for non-cash items of approximately $ 1.5 million . the approximately $ 0.1 million of working capital change was primarily due to approximately $ 0.2 million increase in prepaid insurance and deposits , offset by approximately $ 0.1 million increase in accounts payable and accrued expenses . non-cash expense items of approximately $ 1.5 million consisted of depreciation of approximately $ 0.1 million , stock-based compensation expense of approximately $ 0.9 million and interest expense of approximately $ 0.5 million primarily related to amortization of debt discount and debt financing costs . the net cash used in operating activities was approximately $ 2.9 million for the year ended december 31 , 2016 and consisted primarily of a net loss of approximately $ 3.3 million , adjusted for approximately $ 0.3 million of non-cash items , including depreciation of approximately $ 0.07 million and stock-based compensation expense of approximately $ 0.2 million . investing activities net cash used in investing activities for the year ended december 31 , 2017 was approximately $ 29.0 million and consisted of approximately $ 28.75 million of investments in certificates of deposit , government securities ( u.s. treasury notes and u.s. government agency securities ) and approximately $ 0.25 million in purchases of property and equipment . net cash used in investing activities for the year ended december 31 , 2016 was approximately $ 0.04 million and consisted of purchases of property and equipment . 53 financing activities net cash provided by financing activities for the year ended december 31 , 2017 was approximately $ 30.7 million and reflects the net proceeds of approximately $ 7.5 million from the sale of unsecured convertible promissory notes and warrants to certain investors through a private placement , as well as the net proceeds of approximately $ 23.3 million from the sale of common stock in our initial public offering . net cash provided by financing activities for the year ended december 31 , 2016 was approximately $ 3.7 million and reflects the net proceeds from the sale of membership units of celcuity llc to certain investors . off-balance sheet arrangements we do not currently have any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) of regulation s-k. recent accounting pronouncements from time to time new accounting pronouncements are issued by the financial accounting standards board , or fasb , or other standard setting bodies and adopted by us as of the specified effective date . unless otherwise discussed in note 2 to our financial statements included elsewhere in this report , we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption . critical accounting policies and use of estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or generally accepted accounted principles ( “ u.s . gaap ” ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses during the reporting periods . these items are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances ; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ materially from these estimates . our significant accounting policies are more fully described in note 2 to our financial statements included in this report . of our significant accounting policies , we believe that the following is the most critical : stock-based compensation the company recognizes compensation expense for employees based on an estimated grant date fair value using the black-scholes option-pricing method . the company has elected to account for forfeitures as they occur . the fair value of options granted to nonemployees is determined using the fair value of the service provided or the fair value of the option granted , whichever is more reliable . the fair value is measured at the value of the company 's common shares at the earlier of the date that the commitment for performance by the counterparty has been reached or the counterparty 's performance is complete . awards granted to nonemployees are remeasured to fair value at each period end date until vested and expensed on a straight-line basis over the vesting period . the inputs for the black-scholes valuation model require management 's significant assumptions . prior to the company 's ipo , the common share price was determined by the company 's board based on recent prices of common shares sold in private offerings prior to the ipo . subsequent to the ipo , the common share price was determined by using the quoted price on the grant date . the risk-free interest
| other general and administrative expenses include professional fees for auditing , tax , and legal services , insurance and travel expenses . we may incur additional fees for legal , accounting , insurance and other professional service fees associated with being a public company , which may increase further when we are no longer able to rely on the “ emerging growth company ” exemption we were afforded under the jobs act . 50 sales and marketing selling and marketing expenses consist primarily of professional and consulting fees related to these functions . to date , we have incurred immaterial sales and marketing expenses as we continue to focus primarily on the development of our celx platform and corresponding celx tests . we expect to begin to incur increased selling and marketing expenses in anticipation of the commercialization of our celx hsf test . these increased expenses are expected to include payroll-related costs as we add employees in the commercial departments , costs related to the initiation and operation of our sales and distribution network and marketing related costs . interest expense interest expense primarily consists of the amortization of debt discount and debt financing costs related to the issuance of our unsecured convertible promissory notes that were converted to common stock upon our ipo . interest income interest income consists of interest income earned on our cash , cash equivalents , and investment balances . results of operations comparison of the years ended december 31 , 2017 and 2016 replace_table_token_8_th research and development for the year ended december 31 , 2017 , our total research and development expenses increased $ 1.9 million , or 63 % , to $ 4.98 million from $ 3.07 million for the prior year . the increase primarily resulted from a $ 1.32 million increase in compensation related expenses , including approximately $ 0.4 million of non-cash stock-based compensation , to support development of our celx platform and validation studies of our celx hsf test . in addition , other research and development expenses increased $ 0.58 million due to legal expenses related to
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