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refinancing : on june 16 , 2005 , natc refinanced its existing $ 35.0 million amended and restated loan agreement , dated as of february 17 , 2004 , by entering into a financing agreement ( the financing agreement ) , as described in the liquidity and capital requirements discussion below . sales and marketing realignment : in december 2005 , the company restructured and realigned its sales and marketing functions and established a unified organization structure . this action included the remapping of sales territories to better align the company 's sales force with the relative market development of its products , customers and consumers . results of operations for financial reporting purposes , the company has three reporting segments : smokeless tobacco , which principally includes the sale of loose leaf chewing tobacco ; myo , which includes sales of premium cigarette papers and myo tobacco and related products ; and premium manufactured cigarettes . the company launched its premium manufactured cigarette business late in the third quarter of 2003. to date , this business is in a developmental phase and its net sales results have not been significant while operating losses have been material . as a result of the stoker acquisition , the company also operates a catalog business which sells tobacco and non-tobacco products . the stoker acquisition was completed on november 17 , 2003. story_separator_special_tag in aggregate gross case sales to 428,205 from 399,087 or 6.8 % . the aggregate case volume increase was due principally the continuing recovery from counterfeiting activity coupled with increases in prices and taxes of manufactured cigarettes . the average aggregate list price per case was $ 217.82 and $ 203.13 as of december 31 , 2005 and 2004 , respectively . gross profit . for 2005 , gross profit increased 6.3 % to $ 60.3 million from $ 56.7 million for the prior year and gross margins increased to 51.6 % from 49.2 % . gross profit of the smokeless tobacco segment decreased to $ 20.4 million in 2005 from $ 20.8 million for the prior year , or 1.8 % . gross margin of this segment increased to 46.4 % of net sales in 2005 from 45.0 % of net sales for the prior year . this increase is attributed primarily to the aggregate average price increase of 5.3 % instituted during the second quarter of 2005. gross profit of the myo segment increased 12.8 % to $ 37.0 million from $ 32.8 million in 2004. the gross margin of the myo segment increased to 54.8 % of net sales for the current period from 50.9 % in the prior year . this increase in gross margin was due principally to an aggregate average price increase of approximately 7.1 % , a reduction in manufacturing costs , principally due to an aggregate average exchange rate lower than the prior year and an increase in aggregate gross case sales . currency . currency movements and suppliers ' price increases relating to premium cigarette papers , cigarette tubes and cigarette injector machines are the primary factors affecting cost of sales . those products are purchased from bolloré on terms of net 45 days and are payable in euros . thus , naoc bears certain foreign exchange risks for its inventory purchases . to minimize this risk , naoc may choose to utilize short-term forward currency contracts , through which naoc secures euros in order to provide payment for its monthly purchases of inventory . in july 2005 , the board of the company approved the company 's foreign exchange risk management policy and procedures . during 2005 , the company executed various forward contracts for the purchase of 6.7 million euros with maturity dates from october 20 , 2005 to july 28 , 2006. as of december 31 , 2005 , the company recognized a loss of approximately $ 0.06 million . on december 31 , 2005 , contracts with a total euro commitment of $ 3.9 million with maturity dates from march 3 , 2006 to july 28 , 2006 were outstanding . selling , general and administrative expenses . selling , general and administrative expenses for 2005 increased 40.7 % to $ 46.0 million from the prior year 's $ 32.7 million . this increase was due primarily to restructuring costs of approximately $ 5.9 million , $ 2.1 million related primarily to legal expenses incurred to combat counterfeiting , $ 0.5 million compensation expense and shipping costs of $ 0.5 million . in 2004 , the company received $ 4.5 million associated with the reduction in the judgment rendered against the company in connection with the litigation with republic tobacco , inc. amortization expense . amortization of goodwill was eliminated effective january 1 , 2002. amortization expense totaling $ 0.4 million for the year ending december 31 , 2005 related to the intangible assets acquired from stoker . 36 interest expense and financing costs . interest expense and deferred financing costs increased to $ 31.9 million in 2005 from $ 31.3 million for the prior year . this increase was the result of a full year of amortization expense relating to the senior discount notes . other expense ( income ) . other income of $ 28.4 million in 2005 is related to the gain on the repurchase of the senior discount notes during 2005. there was no other expense ( income ) in 2004. income tax expense . income tax expense was $ 0.2 million for 2005. income tax expense was $ 27.2 million for 2004 , reflecting the net loss of the company and the recording of the valuation reserve relating to the realization of the net deferred taxes of $ 26.5 million . the valuation reserve as of december 31 , 2005 is $ 29.6 million . net income ( loss ) . story_separator_special_tag due to the factors described above , the company recorded net income of $ 10.1 million for 2005 compared to a net loss of $ 34.9 million for 2004. liquidity and capital requirements the company 's principal uses for cash are working capital , debt service , its annual msa escrow account deposit and capital expenditures . the company 's principal sources of cash are from operating cash flows and from borrowings under its revolving credit facility . as described below , natc consummated the refinancing of its existing amended and restated loan agreement on june 16 , 2005. the company believes that its operating cash flows , together with borrowings under the financing agreement , subject to its ability to be in compliance with the covenants thereunder or to obtain waivers or amendments of such covenants or its ability to refinance the financing agreement , should be adequate to satisfy its reasonably foreseeable operating capital requirements . working capital was $ 16.2 million at december 31 , 2006 compared to $ 19.5 million at december 31 , 2005. this decrease was the result of an increase in the revolving credit facility of $ 3.6 million and a decrease in inventory and other current assets of $ 2.9 million , partially offset by a decrease in accounts payable and accrued expenses of $ 2.2 million and a higher cash balance of $ 1.3 million . during 2006 , the company had $ 1.7 million in capital expenditures . the company believes that its capital expenditure requirements for 2007 will be between $ 2.0 million and $ 3.0 million . for the year ended december 31 , 2006 , net cash used in operating activities was $ 0.7 million compared with net cash provided by operating activities of $ 2.0 million for the year ended december 31 , 2005. this change was due primarily to the reduction in accounts payables partially offset by a reduction in accrued expenses . for the year ended december 31 , 2006 , net cash used in investing activities was $ 1.7 million compared with $ 4.8 million for the year ended december 31 , 2005. this change was due to investing in capital expenditures . for the year ended december 31 , 2006 , net cash provided by financing activities was $ 3.7 million compared with $ 1.0 million for the year ended december 31 , 2005. this change was due primarily to borrowings related to the revolving credit facilities in 2006. on february 17 , 2004 , natc consummated the refinancing of its existing debt and preferred stock . the refinancing consisted principally of ( 1 ) the offering and sale of $ 200.0 million principal amount of the senior notes ( the senior notes ) by natc , ( 2 ) natc entering into of an amended and restated loan agreement that provides a $ 50.0 million senior secured revolving credit facility to natc and ( 3 ) the concurrent sale of $ 97.0 million aggregate principal amount at maturity of senior discount notes of the company . the senior notes are senior unsecured obligations of natc , mature on march 1 , 2012 and are guaranteed on a senior unsecured basis by all of natc 's existing and certain of its future subsidiaries . the senior notes bear interest at the rate of 9 1 /4 % per annum from the date of issuance , or from the most recent date to which interest has been paid or provided for , and interest is payable semiannually on march 1 and september 1 of each year . natc is not required to make mandatory redemptions or sinking fund payments prior to the maturity of the notes . natc or the company may from time to time seek to retire all or a portion of the senior notes through cash purchases and or exchanges for other securities in open market purchases , privately negotiated transactions or otherwise . on and after march 1 , 2008 , the senior notes are redeemable , at natc 's option , in whole at any time or in part from time to time , upon not less than 30 nor more than 60 days prior notice at the following redemption prices ( expressed in 37 percentages of principal amount ) , if redeemed during the 12-month period commencing march 1 of the years set forth below , plus accrued and unpaid interest to the redemption date ( subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date ) : replace_table_token_4_th in addition , prior to march 1 , 2008 , natc may redeem the senior notes , at its option , in whole at any time or in part from time to time , upon not less than 30 nor more than 60 days prior notice at a redemption price equal to 100 % of the principal amount of the senior notes redeemed plus a make-whole premium based on u.s. treasury rates as of , and accrued and unpaid interest to , the applicable redemption date . the senior notes limit the incurrence of additional indebtedness , the payment of dividends , entering into transactions with affiliates , asset sales , engaging in mergers or acquisitions , creating liens or other encumbrances on assets , and other matters . see the discussion of the proposed exchange transaction under item 1 . business evolution of the company. on june 16 , 2005 , natc refinanced the 2004 credit agreement by entering into the financing agreement with various financial institutions ( lenders ) and fortress credit corp. , as agent for the lenders ( agent ) . the financing agreement consists of a $ 30.0 million term loan facility and a $ 55.0 million revolving credit facility , and includes a letter of credit sublimit of $ 10.0 million ( collectively , the credit facility ) . as of december 31 , 2006 , natc had an outstanding balance of $ 3.6 million on the revolving credit facility .
| gross profit of the smokeless tobacco segment increased to $ 24.9 million in 2006 from $ 20.7 million for the prior year , or 22.2 % . gross margin for this segment increased to 51.1 % of net sales for the current period from 46.4 % in the prior year due primarily to the aggregate average price increase of approximately 10.7 % and a reduction in manufacturing costs , partially offset by an increase in case sales of lower margin products . gross profit of the myo segment decreased 1.9 % to $ 36.3 million from $ 37.0 million in 2006. the gross margin of the myo segment increased to 57.4 % for net sales for the current period from 54.8 % in the prior year . this increase in gross margin was due principally to an aggregate average price increase of approximately 3.4 % and a reduction in manufacturing costs , principally due to an aggregate average exchange rate lower than the prior year , partially offset by a reduction in total case sales volume with a higher case sales reduction in lower margin products . currency . currency movements and suppliers ' price increases relating to premium cigarette papers , cigarette tubes and cigarette injector machines are the primary factors affecting cost of sales . those products are purchased from bolloré on terms of net 45 days and are payable in euros . thus , naoc bears certain foreign exchange risks for its inventory purchases . to minimize this risk , naoc may choose to utilize short-term forward currency contracts , through which naoc secures euros in order to provide payment for its monthly purchases of inventory . in july 2005 , the board of the company approved the company 's foreign exchange risk management policy and procedures . during 2006 , the company executed various forward contracts for the purchase of 14.0 million euros with maturity dates from march 6 , 2006 to april 20 , 2007. as of december 31 ,
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revenue recognition : revenues from the sale of the company 's products are recognized when persuasive evidence of an arrangement exists , delivery has occurred ( or services have been rendered ) , the price is fixed or determinable , and collectability is reasonably assured . the company generally ships products f.o.b . shipping point . there is no conditional evaluation on any product sold and recognized as revenue . all foreign sales are denominated in u.s. dollars . amounts billed in excess of revenue recognized are recorded as deferred revenue on the balance sheet . the company 's sales are generally through distributors . there is no right of return provided for distributors . for sales of products made to distributors , the company considers a number of factors in determining whether revenue is recognized upon transfer of title to the distributor , or when payment is received . these factors include , but are not limited to , whether the payment terms offered to the distributor are considered to be non-standard , the distributor history of adhering to the terms of its contractual arrangements with the company , the level of inventories maintained by the distributor , whether the company has a pattern of granting concessions for the benefit of the distributor , and whether there are other conditions that may indicate that the sale to the distributor is not substantive . the company currently recognizes revenue primarily on the sell-in method with its distributors . revenue arrangements with multiple deliverables are divided into units of accounting if certain criteria are met , including whether the deliverable item ( s ) has value to the customer on a stand-alone basis . revenue for each unit of accounting is recognized as the unit of accounting is delivered . arrangement consideration is allocated to each unit of accounting based upon the relative estimated selling prices of the separate units of accounting contained within an arrangement containing multiple deliverables . estimated selling prices are determined using vendor specific objective evidence of value ( vsoe ) , when available , or an estimate of selling price when vsoe is not available for a given unit of accounting . significant inputs for the estimates of the selling price of separate units of accounting include market and pricing trends and a customer 's geographic location . we account for training and installation , and service agreements as separate units of accounting . 31 service revenue generated from contracts for providing maintenance of equipment is amortized over the life of the agreement . all other service revenue is recognized at the time the service is completed . for licensing agreements pursuant to which the company receives up-front licensing fees for products or technologies that will be provided by the company over the term of the arrangements , the company defers the up-front fees and recognizes the fees as revenue on a straight-line method over the term of the respective license . for license agreements that require no continuing performance on the company 's part , license fee revenue is recognized immediately upon grant of the license . shipping and handling fees billed to customers are included in net revenues , while the related costs are included in cost of revenues . stock-based compensation : the company calculates stock-based compensation on the date of the grant using the black scholes-merton option-pricing formula . the compensation expense is then amortized over the vesting period . the company uses the black-scholes-merton option-pricing formula in determining the fair value of the company 's options at the grant date and applies judgment in estimating the key assumptions that are critical to the model such as the expected term , volatility and forfeiture rate of an option . the company 's estimate of these key assumptions is based on historical information and judgment regarding market factors and trends . if actual results are not consistent with the company 's assumptions and judgments used in estimating the key assumptions , the company may be required to record additional compensation , which could have a material impact on the company 's financial position and results of operations . warranty : the company provides for the estimated cost of product warranties at the time revenue is recognized . while the company engages in extensive product quality programs and processes , including actively monitoring and evaluating the quality of its component suppliers , the company 's warranty obligation is affected by product failure rates , material usage and service delivery costs incurred in correcting a product failure . should actual product failure rates , material usage or service delivery costs differ from the company 's estimates , revisions to the estimated warranty liability could have a material impact on the company 's financial position , cash flows or results of operations . inventory reserve : the company states inventories at lower of cost or market value determined on a first-in , first-out basis . the company provides inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration , obsolescence , changes in price levels , or other causes , which it includes as a component of cost of product and other revenues . additionally , the company provides reserves for excess and slow-moving inventory on hand that are not expected to be sold to reduce the carrying amount of slow-moving inventory to its estimated net realizable value . the reserves are based upon estimates about future demand from our customers and distributors and market conditions . because some of the company 's products are highly dependent on government and third-party funding , current customer use and validation , and completion of regulatory and field trials , there is a risk that we will forecast incorrectly and purchase or produce excess inventories . story_separator_special_tag as a result , actual demand may differ from forecasts and the company may be required to record additional inventory reserves that could adversely impact our gross margins . conversely , favorable changes in demand could result in higher gross margins when products previously reserved are sold . 32 ( b ) story_separator_special_tag margin-left : 0pt ; margin-right : 0pt '' > 34 results of operations for the year ended june 30 , 2010 as compared to the year ended june 30 , 2009 net revenues : net revenues for the year ended june 30 , 2010 were $ 23,088,000 compared to $ 19,799,000 for the year ended june 30 , 2009 , an increase of $ 3,289,000 or 17 % . our increase in revenues is primarily due to an increase in disposable revenues across all product lines of $ 3,713,000. this increase in disposable revenue was partially offset by a decrease in thermoline revenues of $ 745,000. sales analysis for the year ending june 30 : replace_table_token_8_th the following represents the company 's cumulative bioarchive system placements in the following geographies : replace_table_token_9_th gross profit : the company 's gross profit was $ 7,445,000 or 32 % of net revenues for the year ended june 30 , 2010 , as compared to $ 5,693,000 or 29 % for the year ended june 30 , 2009. the higher gross profit was primarily due to increases in inventory reserves and write-offs of obsolete inventory in fiscal 2009. there was a net release of inventory reserves in fiscal 2010 of $ 270,000 as cryoseal device and disposable sales were higher than previously estimated . this was offset by higher warranty costs associated with the bioarchive device and axp disposable . selling , general and administrative expenses : selling , general and administrative expenses were $ 7,686,000 for the year ended june 30 , 2010 , compared to $ 9,249,000 for the year ended june 30 , 2009 , a decrease of $ 1,563,000 or 17 % . the decrease is primarily due to a decrease in severance expense of $ 550,000 which related to the severance accruals in fiscal 2009 for the company 's former chief executive officer and vice presidents of sales and marketing , lower salaries and benefits of $ 315,000 , lower labeling/translation costs of $ 300,000 and lower board of director and committee fees of $ 150,000 . 35 research and development expenses : included in this line item are engineering , regulatory , scientific and clinical affairs . research and development expenses for the year ended june 30 , 2010 were $ 5,013,000 compared to $ 5,222,000 for fiscal 2009 , a decrease of $ 209,000 or 4 % . the decrease is primarily due to a reduction of costs associated with the vantus subsidiary during the six months ended december 31 , 2008 of $ 290,000. management believes that product development and refinement are essential to maintaining the company 's market position . therefore , the company considers these costs as continuing costs of doing business . no assurances can be given that the products or markets recently developed or under development will be successful . ( c ) liquidity and capital resour ces at june 30 , 2011 , the company had a cash , cash equivalents , and short-term investments balance of $ 12,309,000 and working capital of $ 18,976,000. this compares to a cash balance of $ 10,731,000 and working capital of $ 16,587,000 at june 30 , 2010. the company raised net proceeds of $ 3,914,000 through a public offering of common stock during the year ended june 30 , 2011. we expect to use the net proceeds from this offering for general working capital purposes . these purposes include new product development initiatives , support of our asian channel development efforts and acceleration of our product cost enhancements as well as novel product designs according to their potential for near term , high margin , revenue generation . in addition to revenues , the company has primarily financed operations through the private and public placement of equity securities and has raised approximately $ 112 million , net of expenses , through common and preferred stock financings and option and warrant exercises . net cash used in operating activities for the year ended june 30 , 2011 was $ 2,092,000 , primarily due to the net loss of $ 2,567,000 , offset by depreciation and stock-based compensation expense of $ 466,000 and $ 960,000 , respectively . inventories utilized cash of $ 1,338,000 in part due to placing high volume orders to secure lower costs . we believe our currently available cash and cash equivalents and cash generated from operations will be sufficient to satisfy our operating and working capital requirements for at least the next twelve months . our ability to fund our longer-term cash needs is subject to various risks , many of which are beyond our control . see part i item 1a – risk factors . further , with current performance trends , we intend to focus on potential new business opportunities , which may include possible product line acquisitions , technology or strategic partner arrangements , any of which may require investment of capital to facilitate the potential for greater revenue growth . should we require additional funding , such as additional capital investments , we may need to raise the required additional funds through bank borrowings or public or private sales of debt or equity securities . we can not assure that such funding will be available in needed quantities or on terms favorable to us , if at all . the company generally does not require extensive capital equipment to produce or sell its current products . in fiscal 2009 , the company spent $ 1,008,000 for quality system software , centrifuges to be placed at mxp customer sites , tooling for new products or additional vendors and computer equipment . in fiscal 2010
| selling , general and administrative expenses : selling , general and administrative expenses were $ 8,669,000 for the year ended june 30 , 2011 , compared to $ 7,686,000 for the year ended june 30 , 2010 , an increase of $ 983,000 or 13 % . the increase is primarily due to an increase in stock compensation expense of $ 390,000 attributable to options granted to the independent members of our board of directors in the quarter ended december 31 , 2010 and the amortization of the initial grant of restricted stock to nanshan upon signing their distributor agreement . also , professional fees increased $ 345,000 due to retaining strategic consultants and investment bankers and bonuses and commissions increased for commissions to sales personnel and retention bonuses paid to two key officers . these increases were offset by a reduction of $ 160,000 in recruiting costs for the year ended june 30 , 2011. research and development expenses : included in this line item are engineering , regulatory , scientific and clinical affairs . research and development expenses for the year ended june 30 , 2011 were $ 3,003,000 compared to $ 5,013,000 for fiscal 2010 , a decrease of $ 2,010,000 or 40 % . the decrease is primarily due to a decrease in salary and benefits of $ 970,000 due to lower headcount and the costs incurred in the second quarter of fiscal 2010 associated with the hiring of a new vice president , chief quality and regulatory affairs officer , $ 340,000 of expense in the year ended june 30 , 2010 for the consulting fees and termination of the consulting agreement with the company 's former chief technology architect and a $ 440,000 decrease in costs due to completion of development of the res-q and other projects during fiscal 2010. we expect this line item to increase in fiscal 2012 as we increase our engineering , clinical and regulatory funding and enhance our scientific and regulatory management team . management believes that product development and refinement
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with encryption enabled these new secure paging devices enhance our service offerings to the healthcare community by adding health insurance portability and accountability act ( `` hipaa '' ) security capabilities to the low cost , highly reliable and availability benefits of paging . ( see item 1 . “ business ” for more details . ) software revenue software revenue consists of two primary components : operations revenue and maintenance revenue . operations revenue consists primarily of license revenues for our healthcare communications solutions , equipment revenues that facilitate the use of our software solutions , and professional services revenue related to the implementation of our solutions . maintenance revenue is for ongoing support of our software solutions or related equipment ( typically for one year ) . 25 beginning in 2018 with the adoption of asc 606 our software licenses and hardware are generally recognized at a point in time when we have transferred control to the customer . for software licenses , revenue is not recognized until the related license ( s ) has been made available to the customer and the customer can begin to benefit from its right to use the license ( s ) . our software licenses represent a right to use spok 's intellectual property ( `` ip '' ) as it exists at a point in time at which the license is granted . many of our software licenses have significant standalone functionality due to their ability to process a transaction or perform a function or task , and we do not need to maintain those products , once provided to the customer , for value to exist . while the functionality of ip that we license may substantively change during the license period , customers are not contractually or practically required to update their license as a result of those changes . our wireless , professional and maintenance services are generally recognized over time due to a customer 's simultaneous receipt and consumption of the benefit as we perform the work . as we transfer control over time , we recognize revenue based on the extent of progress towards completion of the performance obligation . the selection of the method to measure progress towards completion requires significant judgment and is based on the nature of the products or services to be provided . generally , we use the time-elapsed measure of progress for performance obligations which include wireless or maintenance services . we believe this method best depicts the simultaneous transfer and consumption of the benefit based on our performance as these services are generally considered standby services . for professional services , we leverage an input methodology based on the number of hours worked on a project versus the total expected hours necessary to complete the project . revenues are recognized proportionally as hours are incurred . operating expenses 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 . research and development . these expenses relate primarily to the development of new software products and the ongoing maintenance and enhancement of existing products . this classification consists primarily of employee payroll and related expenses , outside services related to the design , development , testing and enhancement of our solutions and to a lesser extent hardware equipment . technology operations . these are expenses associated with the operation of our paging networks . 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 and pager repair functions . we actively pursue opportunities to consolidate transmitters and other service , rental and maintenance expenses in order to maintain an efficient network while simultaneously ensuring adequate service for our customers . we believe continued reductions in these expenses will occur as our networks continue to be consolidated for the foreseeable future . technology operations was formally referred to as service , rental and maintenance . selling and marketing . the sales and marketing staff are involved in selling our communication solutions primarily in the united states . these expenses support our efforts to maintain gross placements of units in service , which mitigated the impact of disconnects on our wireless revenue base , and to identify business opportunities for additional or future software sales . we have a centralized marketing function , which is focused on supporting our products and vertical sales efforts by strengthening our brand , generating sales leads and facilitating the sales process . these marketing functions are accomplished through targeted email campaigns , webinars , regional and national user conferences , monthly newsletters and participation at industry trade shows . expenses consist largely of payroll and related expenses , commissions and other costs such as travel and advertising costs . general and administrative . these are expenses associated with information technology and administrative functions which includes finance and accounting , human resources and executive management . this classification consists primarily of payroll and related expenses , outside service expenses , taxes , licenses and permit expenses , and facility rent expenses . 26 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > replace_table_token_12_th technology operations expense has decreased during each of the periods presented primarily due to reductions in site rent and telecommunications expense . the number of active transmitters declined 2.4 % from december 31 , 2017 to december 31 , 2018 and 3.1 % from december 31 , 2016 to december 31 , 2017. the number of active transmitters directly relates to the amount of site rent and telecommunications expenses we generally incur on an annual basis . we expect savings in site rent and telecommunications expenses to begin slowing in 2019 as compared to historical cost savings . story_separator_special_tag as we reach certain minimum frequency commitments , as outlined by the united states federal communications commission , we will be unable to continue our efforts to rationalize and consolidate our networks . 31 selling and marketing . selling and marketing consisted primarily of the following items : replace_table_token_13_th selling and marketing expense increased for the year ended december 31 , 2018 compared to december 31 , 2017 primarily due to an increase in benefits expenses due to higher medical benefit costs incurred across our employee base . the increase in commissions expenses for the year ended december 31 , 2018 primarily relates to the increase in operations revenue and the adoption of asc 606. selling and marketing expense decreased for the year ended december 31 , 2017 compared to december 31 , 2016 primarily due to the reduction in payroll and benefits and commissions expense partially offset by increases in stock based compensation , conferences and trade show expenses . general and administrative . general and administrative consisted primarily of the following items : replace_table_token_14_th general and administrative expense increased for the year ended december 31 , 2018 compared to december 31 , 2017 primarily due to an increase in benefits expenses due to higher medical benefit costs incurred across our employee base , stock compensation , outside services and bad debt . the increase in stock based compensation is largely related to additional grants made during the year ended december 31 , 2018 which replace awards that vested on december 31 , 2017 but were amortized at 50 % of the original award due to anticipated forfeitures related to unmet performance obligations . the increase in outside services primarily resulted from the reclassification of expense from facility rent and related costs ( which were not made for the same periods in 2017 or 2016 ) and incremental costs due to the implementation of project management software . the increase in bad debt is related to providing for our estimated exposure to potentially uncollectible accounts receivable . general and administrative expense increased for the year ended december 31 , 2017 compared to december 31 , 2016 primarily due to an increase in stock based compensation , outside services and other expenses . the increase in stock based compensation was largely due to additional grants made during the year ended december 31 , 2017 and a reduction in stock based compensation during the year ended december 31 , 2016 due to the estimated outcome of the 2015 and 2016 grants being reduced to 50 % of the original awards . the increase in outside services was largely due to the use of consultants related to the implementation of a new accounting system as well as general staff augmentation throughout 2017. the increase in other was primarily related to increased placement fees for recruiting new hires , computer refresh costs and various other immaterial expenses . depreciation , amortization and accretion . for the year ended december 31 , 2018 compared to the same period in 2017 depreciation , amortization and accretion expenses decreased by $ 0.9 million due primarily to various assets becoming fully depreciated during 2018.the decrease of $ 1.3 million in depreciation , amortization and accretion expenses for the year ended december 31 , 2017 compared to the same period in 2016 was primarily due to the full amortization of trademark costs during the first quarter of 2017 and other various intangible costs that were fully amortized during 2016 . 32 interest income , other income , and income tax expense ( benefit ) interest income . interest income increased for the year ended december 31 , 2018 , compared to the same periods in 2017 and 2016 , respectively , primarily due to higher interest rates earned on the company 's cash balances and short term investments . other ( expense ) income . for the year ended december 31 , 2018 compared to the same period in 2017 other ( expense ) income , decreased by $ 0.8 million primarily as a result of legal and other expenses related to the lawsuit previously reported in the 2017 annual report and our quarterly report on form 10-q for the quarterly period ended march 31 , 2018. the decrease of $ 0.4 million in other ( expense ) income , net for the year ended december 31 , 2017 compared to the same period in 2016 was due primarily to a variety of immaterial transactions . income tax ( benefit ) expense . the effects of foreign taxes are immaterial for all periods presented . the following is the effective tax rate reconciliation for the years ended december 31 , 2018 , 2017 and 2016 , respectively ( see note 8 , `` income taxes '' , for further discussion on our income taxes ) : replace_table_token_15_th income tax expense decreased by $ 27.6 million for the year ended december 31 , 2018 compared to the same period in 2017 due primarily to the write-off of deferred tax assets ( `` dta 's '' ) as a result of the 2017 tax act partially offset by research and development and other tax credits . our investment in research and development qualifies for the research and development income tax credit under section 41 of the internal revenue code . unused research and development tax credits have a 20-year carryover and will provide future tax benefits once spok 's net operating losses are fully utilized . liquidity and capital resources cash and cash equivalents at december 31 , 2018 , we had cash and cash equivalents of $ 83.3 million . the available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of invested cash and cash in our operating accounts . the invested cash is invested in interest bearing funds managed by third-party financial institutions . these funds invest in direct obligations of the government of the united states .
| as our wireless products and services are replaced with other competing technologies , such as the shift from narrow band wireless service offerings to broad band technology services , our wireless revenue will continue to decrease . the following reflects the impact of subscribers and arpu on the change in wireless revenue : replace_table_token_7_th replace_table_token_8_th as demand for one-way and two-way messaging has declined , we have developed or added service offerings such as encrypted paging and spok mobile with a pager number in order to increase our revenue potential and mitigate the decline in our wireless revenue . we will continue to explore ways to innovate and provide customers the highest value possible . the increase in software operations revenue during 2018 when compared to 2017 primarily reflects an increase in the size and value of projects being worked during 2018 as compared to the same period in 2017 as well as the acceleration of license revenue due to a change in revenue rules resulting from the adoption of asc 606. the decrease in operations revenue during 2017 when compared to 2016 primarily reflects a decrease in the number and size of projects completed during 2017 as compared to the same period in 2016 . 29 the continued increase in maintenance revenue for each of the periods stated reflects our continuing success in renewals of our maintenance support for existing software solutions and in maintenance support for sales of new solutions . the renewal rates for maintenance revenue , including the annual uplifts , for the years ended december 31 , 2018 , 2017 and 2016 were in excess of 99 % . we achieve very high maintenance revenue renewal rates compared to many companies that have software offerings , and we may experience a downward trend in maintenance renewals as communications technology and services continue to advance , and customers have more choices and opportunities to shift to newer solutions for their communication and work
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our agreement with psivida provides us with a worldwide exclusive license to develop and sell iluvien , which consists of a tiny polyimide tube with membrane caps that is filled with fac in a polyvinyl alcohol matrix for delivery to the back of the eye for the treatment and prevention of eye diseases in humans ( other than uveitis ) . this agreement also provides us with a worldwide non-exclusive license to develop and sell psivida 's proprietary delivery device to deliver other corticosteroids to the back of the eye for the treatment and prevention of eye diseases in humans ( other than uveitis ) or to treat dme by delivering a compound to the back of the eye through a direct delivery method through an incision required for a 25-gauge or larger needle . we do not have the right to develop and sell psivida 's proprietary delivery device in connection with indications for diseases outside of the eye or for the treatment of uveitis . further , our agreement with psivida permits psivida to grant to any other party the right to use its intellectual property ( i ) to treat dme through an incision smaller than that required for a 25-gauge needle , unless using a corticosteroid delivered to the back of the eye , ( ii ) to deliver any compound outside the back of the eye unless it is to treat dme through an incision required for a 25-gauge or larger needle , or ( iii ) to deliver non-corticosteroids to the back of the eye , unless it is to treat dme through an incision required for a 25-gauge or larger needle . the agreement provides that after commercialization of iluvien , psivida will be entitled to 20 % of the net profits , as defined in the amended and restated agreement . in connection with this arrangement we are entitled to recover 20 % of commercialization costs of iluvien , as defined in the agreement , incurred prior to product profitability out of psivida 's share of net profits . as of december 31 , 2014 and 2013 , psivida owed us $ 15.1 million and $ 12.2 million , respectively , in commercialization costs . due to the uncertainty of future profits from iluvien , we have fully reserved these amounts in the accompanying consolidated financial statements . as a result of the fda approval of iluvien in september 2014 , we paid psivida a milestone payment of $ 25.0 million ( the psivida milestone payment ) in october 2014. our credit facility 44 2010 term loan we entered into a loan and security agreement with silicon valley bank ( svb ) and midcap financial llp ( midcap and together with svb , the lenders ) in october 2010 , which was subsequently amended in may 2011 ( as amended , the 2010 term loan agreement ) . pursuant to the 2010 term loan agreement , in october 2010 we borrowed an aggregate of $ 6.25 million from the lenders ( the 2010 term loan ) . the 2010 term loan agreement also provided for the ability to drawdown an additional $ 11.0 million subject to fda approval of the nda for iluvien by december 31 , 2011 , which was not obtained . in august 2011 , we began repaying the outstanding principal under the 2010 term loan in 33 equal monthly installments plus interest at a rate of 11.5 % . at maturity , we were also required to make an additional interest payment equal to 4 % of the total amount borrowed . we paid to the lenders an upfront fee of $ 62,500 upon execution of the 2010 term loan agreement and an additional fee of $ 50,000 in connection with the may 2011 amendment . in accordance with the financial accounting standards board ( fasb ) accounting standard codification ( asc ) 470-50-40-17 , debt - modifications and extinguishments ( asc 470-50-40-17 ) , we were amortizing the deferred financing costs on the 2010 term loan and the $ 50,000 modification fee over the remaining term of the 2010 term loan , as modified . in october 2010 , in connection with entering into the 2010 term loan , we issued svb a warrant to purchase up to 15,909 shares of our common stock and midcap a warrant to purchase up to 23,864 shares of our common stock . each of the warrants were exercisable upon issuance , had a per-share exercise price of $ 11.00 and a term of 10 years . we estimated the fair value of warrants granted using the black-scholes option pricing model to be $ 389,000. we allocated a portion of the proceeds from the 2010 term loan to the warrants in accordance with asc 470-20-25-2 , debt instruments with detachable warrants . as a result , we recorded a discount of $ 366,000 which was amortized to interest expense using the effective interest method . the lenders were also issued warrants to purchase up to an aggregate of 69,999 additional shares of our common stock , which were exercisable only upon the drawdown of the additional $ 11.0 million subject to fda approval of the nda for iluvien by december 31 , 2011 , which was not obtained . in may 2013 , we repaid all amounts owed to the lenders under the 2010 term loan , including the final interest payment equal to 4 % of the total amount borrowed , and a 1.0 % prepayment penalty on the then outstanding principal owed to midcap . in connection with the repayment of the 2010 term loan , we recognized a loss on early extinguishment of debt of $ 153,000 associated with the remaining unamortized deferred financing costs , unamortized discount associated with the lenders ' warrants , the final interest payment , the prepayment penalty and a lender fee and warrants associated with a new term loan . story_separator_special_tag 2010 revolving loan agreement in october 2010 , we entered into a loan and security agreement with svb , which was subsequently amended in may 2011 ( as amended , the 2010 revolving loan agreement ) , pursuant to which we obtained a secured revolving line of credit from svb against eligible u.s. domestic accounts receivable with borrowing availability up to $ 20.0 million . upon entering into the 2010 revolving loan agreement , we paid to svb an upfront fee of $ 100,000. as of december 31 , 2012 , no amounts under the 2010 revolving loan agreement were outstanding or available to us . in may 2013 , we terminated the 2010 revolving loan agreement . 2013 loan agreement in may 2013 , alimera sciences limited ( limited ) , our subsidiary , entered into a loan and security agreement ( 2013 loan agreement ) with silicon valley bank ( svb ) to provide limited with additional working capital for general corporate purposes . under the 2013 loan agreement , svb has made a term loan ( 2013 term loan ) in the principal amount of $ 5.0 million to limited and agreed to provide up to an additional $ 15.0 million to limited under a working capital line of credit ( 2013 line of credit ) . in connection with the 2013 loan agreement , a previous term loan was repaid in full and terminated . in accordance with asc 470-50-40-17 , we recognized a loss on early extinguishment of debt of $ 153,000 during the nine months ended september 30 , 2013 , associated with the remaining unamortized deferred financing costs , unamortized discount associated with the warrants issued to the lenders , a final interest payment , a prepayment penalty and a lender fee and warrants associated with the 2013 loan agreement . no advances were made at closing under the 2013 line of credit and no amounts were outstanding as of december 31 , 2013 , respectively . in april 2014 , the 2013 term loan was repaid and the 2013 line of credit was terminated in connection with the 2014 loan agreement described below . the 2013 term loan provided for interest only payments for six months followed by 36 monthly payments of interest , plus principal . we made our first amortization payment on the 2013 term loan in december 2013. interest on outstanding borrowings under the 2013 term loan were payable at the rate of 7.50 % . borrowings under the 2013 line of credit would have been advanced at 80 % of eligible accounts receivable as defined in the 2013 loan agreement . interest was payable on the balance of eligible accounts financed at the rate of 2.75 % above svb 's most recently announced “ prime rate. ” limited was also required to pay svb on a monthly basis an unused line fee equal to 0.25 % per annum of the average unused portion of the 45 2013 line of credit during the preceding month . the maturity dates were june 30 , 2015 with respect to the 2013 line of credit and october 31 , 2016 with respect to the 2013 term loan . in connection with entering into the 2013 loan agreement , limited paid svb a facility fee of $ 25,000. additionally , we re-priced warrants to purchase an aggregate of up to 31,818 shares of our common stock previously issued to svb in connection with an earlier term loan . upon re-pricing , each of the warrants was exercisable immediately at a per-share exercise price of $ 2.86 and had a remaining term of 7.4 years . we estimated the incremental fair value received by svb using the black-scholes option pricing model to be $ 46,000. in accordance with asc 470-50-40-17 , we expensed the facility fee and incremental value of the warrants associated with the 2013 term loan as part of a loss on early extinguishment of the earlier term loan . in connection with the 2013 line of credit , limited paid a commitment fee of $ 100,000. in accordance with asc 470-50-40-17 , we capitalized the commitment fee and $ 49,000 of deferred financing costs remaining on an earlier line of credit as deferred financing costs , which were being amortized over the remaining term of the 2013 line of credit . upon repayment of the 2013 term loan in april 2014 , limited paid svb an outstanding loan balance prepayment penalty of $ 133,000 , and an early termination fee of $ 113,000 in connection with the termination of the 2013 line of credit in april 2014 . 2014 loan agreement in april 2014 , limited entered into the 2014 loan agreement with hercules . under the 2014 loan agreement , hercules made a term loan advance in the initial principal amount of $ 10.0 million to limited at closing to provide limited with additional working capital for general corporate purposes and to repay the 2013 term loan . hercules made an additional advance of $ 25.0 million to limited in september 2014 as a result of the approval of iluvien by the fda in september 2014 to fund the psivida milestone payment . the 2014 term loan provides for interest only payments through november 2015. the interest only period may be extended until june 1 , 2017 if we realize certain revenue thresholds and no event of default has occurred under the 2014 loan agreement . interest on the 2014 term loan accrues at a floating per annum rate equal to the greater of ( i ) 10.90 % , or ( ii ) the sum of ( a ) 7.65 % , plus ( b ) the prime rate .
| this write-off amounted to $ 1.4 million . additionally , we reserved approximately $ 400,000 for potential united kingdom inventory expiration . for the year ended december 31 , 2014 , we reserved approximately $ 430,000 for potential german inventory expiration , as a result of lower than expected sales in germany . research and development expenses . research and development expenses increased by approximately $ 3.0 million , or 36 % , to approximately $ 11.4 million for the year ended december 31 , 2014 , compared to approximately $ 8.4 million for the year ended december 31 , 2013. the increase was primarily attributable to increases of $ 980,000 in additional payroll and related costs associated with additional medical and clinical personnel hired during 2013 to support the commercialization of iluvien in the eu being employed for the full year ended 2014 , $ 780,000 related to a consultant that was engaged to assist with the pursuit of approval of iluvien in the u.s. , $ 480,000 in stock based compensation incurred in connection with the additional hires and stock option grants made in late 2013 , $ 450,000 in payroll and related costs for medical science liaisons 52 hired in the fourth quarter of 2014 to support the u.s. launch of iluvien in the first quarter of 2015 and $ 410,000 related to scientific communications in preparation for the commercial launch in the u.s. general and administrative expenses . general and administrative expenses increased by approximately $ 2.9 million , or 31 % , to approximately $ 12.4 million for the year ended december 31 , 2014 , compared to approximately $ 9.5 million for the year ended december 31 , 2013. the increase was primarily attributable to an increase of approximately $ 1.0 million in european payroll and related costs primarily attributable to transitioning our british and german country managers from quintiles commercial to alimera in early 2014 and hired a portuguese country
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actual and potential impact of ongoing coronavirus ( covid-19 ) in china on our business beginning in late 2019 , an outbreak of a novel strain of coronavirus and related respiratory illness ( which we refer to as covid-19 ) was first identified in china and has since spread rapidly globally . the covid-19 pandemic has resulted in quarantines , travel restrictions , and the temporary closure of stores and business facilities in china and globally . in march 2020 , the who declared covid-19 a pandemic . given the rapidly expanding nature of the covid-19 pandemic , and because all of our business operations and our workforce are concentrated in china ( where the virus first originated ) , our business , results of operations and financial condition have been and will continue to be adversely affected . the extent of the potential going forward impact to our results of operations will also depend on future developments and new information that may emerge regarding the duration and severity of the covid-19 pandemic ( or any recurrences of the pandemic , as have been experienced in china and elsewhere ) and the actions taken by government authorities and other entities to contain covid-19 or mitigate its impact , almost all of which are beyond our control . the impacts of covid-19 on our business , financial condition , and results of operations include , but are not limited to , the following ( for more background information on our business generally , see “ business - our automobile transaction and related services ” ) : temporary closure of offices and travel restrictions we temporally closed our corporate headquarters and other offices to adhere to the lockdown policy in china from january 19 to february 23 , 2020 , as required by relevant prc regulatory authorities . a large number of our employees was in mandatory self-quarantine and our entire business operations were restricted during such period . we reopened our offices in both chengdu and changsha on february 24 , 2020 , but only resumed full operations beginning near the end of march 2020 . 76 adverse impact on our financial conditions due to the lockdown policy and travel restrictions , the demand for ride-hailing services has been materially and adversely impacted in our areas of operation in china , which reduced the demand of our automobile transaction and related services . as a result , our revenue and income for the three months ended march 31 , 2020 has been negatively impacted to a significant extent . our ability to collect the monthly installment payments we receive from ride-hailing drivers during february and march 2020 was adversely impacted . approximately 1,500 drivers delayed their monthly installments of february and march 2020 , which resulted in a decrease in our monthly installment collection by $ 732,000 during february and march 2020. as of march 31 , 2020 , approximately 840 drivers exited the online ride-hailing business and tendered their automobiles to us for sublease or sale while approximately 380 drivers postponed their monthly installment payments from one to three months . as a result , we recorded bad debt expenses of $ 3,406,215. this situation may worsen if the covid-19 pandemic reoccurs in the second half of 2020. we will continue to closely monitor our collections throughout 2020. our daily cash flow has also been adversely impacted as a result of the unsatisfied collection from the online ride-hailing drivers and our potential guarantee expenditure pursuant to the financing agreements we guaranteed . our cash flow will continue to be adversely impacted if the online ride-hailing market in china recovers slower than anticipated . this compromised cash flow situation is likely to continue during our first and second fiscal quarters of 2020-21 and may worsen if the covid-19 pandemic reoccurs . in an effort to assist with our automobile purchasers , we have been negotiating with the financial institutions we cooperate with to extend the due dates for monthly payments that may be affected by the epidemic . certain financial institutions have agreed to grant a grace period of up to four months from february to may for qualified drivers . since april 2020 , the covid-19 epidemic in china has been effectively controlled and the online ride-hailing markets in chengdu and changsha have been in the progress of recovering . however , if the epidemic in china deteriorates during the year ending march 31 , 2021 , our automobile purchasers and leasees may be unable to generate sufficient income to pay their monthly installment payments and the financial institutions may not agree to further extend the due dates , which may create a significant risk of continuing default form our automobile purchasers . as a result , we may have to repay the defaulted amount as a guarantor . meanwhile , the collection of our receivables due from those automobile purchasers may also be further adversely affected , which may result in additional credit risk . if we experience a widespread default by our automobile purchasers , our cash flow and results of operations will be materially and adversely affected . as a consequence , we could face shortfalls in liquidity without extra financing resources for the foreseeable future and we will be unable to grow our business and may be required to reduce or refocus our operations , which may raise substantial doubts about our ability to continue as a going concern . any of these factors related to covid-19 and other similar or currently unforeseen factors beyond our control could have an adverse effect on our overall business environment , cause uncertainties in the regions in china where we conduct business , cause our business to suffer in ways that we can not predict and materially and adversely impact our business , financial condition and results of operations . ability to compete effectively our business and results of operations depend on our ability to compete effectively . story_separator_special_tag overall , our competitive position may be affected by , among other things , our service quality and our ability to price our solutions and services competitively . we will set up and continuously optimize our own business system to improve our service quality and user experience . our competitors may have more resources than we do , including financial , technological , marketing and others and may be able to devote greater resources to the development and promotion of their services . we will need to continue to introduce new or enhance existing solutions and services to continue to attract automobile dealers , financial institutions , car buyers and other industry participants . whether and how quickly we can do so will have a significant impact on the growth of our business . market opportunity and government regulations in china the demand for our services depends on overall market conditions of the ride-hailing industry in china . the continuous growth of the urban population places increasing pressure on the urban transportation and the improvement of living standards has increased the market demand for quality travel in china . traditional taxi service is limited , and the emerging online ride-hailing platforms have created good opportunities for the development of the online ride-hailing service market . based on the monitoring of china e-commerce research center , the number of online ride-hailing service users had reached 333 million by the end of 2018 , representing an increase of 16 % from 2017. according to bain & company , the transaction value of china 's online ride-hailing market in 2017 was larger than the total of the rest of the world . it is estimated that by 2021 , the total transaction value of china 's online ride-hailing market will reach $ 60 billion . the ride-hailing industry is facing increasing competition in china and is attracting more capital investment . in 2019 , in addition to the traditional online ride-hailing platform , automobile manufacturers , offline operation service companies and financial and map service providers have built cooperation relationships with each other to make the online ride-hailing industry a more aggregated industry . in march 2019 , t3 , a new travel service platform , was established in nanjing and subsequently in other cities , including wuhan and chongqing , and has accumulated over 1 million registered users since march 2019. t3 is jointly invested by three large automobile manufacturers , faw , dongfeng and chang'an , and leading internet , retail and finance companies such as suning , tencent and alibaba and intends to compete with didi and capitalize on the great potential of the ride-hailing market . as of december 2019 , alibaba , together with its affiliate , has invested in or acquired more than 30 enterprises in the fields related to ride-hailing , including hello travel , yongan travel , didi , gaode software , xiaopeng automobile and others within the ride-hailing industry . 77 the online ride-hailing industry may also be affected by , among other factors , the general economic conditions in china . the interest rates and unemployment rates may affect the demand of ride-hailing services and automobile purchasers ' willingness to seek credit from financial institutions . adverse economic conditions could also reduce the number of qualified automobile purchasers and online ride-hailing drivers seeking credit from the financial institutions , as well as their ability to make payments . should any of those negative situations occur , the volume and value of the automobile transactions we service will decline , and our revenue and financial condition will be negatively impacted . in order to manage the rapidly growing ride-hailing service market and control relevant risks , on july 27 , 2016 , seven ministries and commissions in china , including the ministry of transport , jointly promulgated the “ interim measures for the administration of online taxi booking business operations and services ” , which legalizes online ride-hailing services such as didi and requires the ride-hailing services to meet the requirements set out by the measures and obtain taxi-booking service licenses . on november 5 , 2016 , the municipal communications commission of chengdu city and a number of municipal departments jointly issued the “ implementation rules for the administration of online booking taxi management services for chengdu. ” on august 10 , 2017 , the transportation commission of chengdu further issued the detailed guidance “ working process for the online booking taxi drivers qualification examination and issuance ” and the “ online booking taxi transportation certificate issuance process. ” according to these regulations and guidelines , three licenses /certificates are required for operating the online ride-hailing business in chengdu : ( 1 ) the ride-hailing service platform such as didi should obtain the online booking taxi operating license ; ( 2 ) the automobiles used for online ride-hailing should obtain the online booking taxi transportation certificate ( “ automobile certificate ” ) ; ( 3 ) the drivers should obtain the online booking taxi driver 's license ( “ driver 's license ” ) . on july 23 , 2018 , the general office of changsha municipal people 's government issued the “ detailed rules for the administration of online booking taxi management services for changsha. ” according to those regulations and guidelines , licenses , which are online reservation taxi operating license , automobile certificate and driver 's licenses , are required to operate a ride-hailing business in changsha , and automobiles used for online ride-hailing services are required to meet certain standards , including that the sales price ( including taxes ) of the qualified automobile is over rmb120,000 . in practice , hunan ruixi is also required to employ a safety administrator for every 50 automobiles used for online ride-hailing services and submit daily operation information of these automobiles , such as traffic violation , to the transport management office of the municipal communications commission of changsha city every month .
| we started our facilitation services in november 2018 , the sale of automobiles in january 2019 , and financial and operating leasing in march 2019. as of march 31 , 2020 , we facilitated financing for an aggregate of 1,626 automobiles with a total value of approximately $ 23.2 million , sold an aggregate of 1,388 automobiles with a total value of approximately $ 13.4 million and delivered 557 automobiles under operating leases and 97 automobiles under financing leases , respectively , to customers , the vast majority of whom are ride-hailing drivers . during the year ended march 31 , 2020 , we facilitated financing for 1,315 automobiles with a total value of approximately $ 19.2 million , sold an aggregate of 1,176 automobiles with a total value of approximately $ 11.5 million , delivered 557 automobiles under operating leases with a total value of approximately $ 5.0 million and 97 automobiles with a total value of approximately $ 1.5 million under financing leases to the customers . our auto financing and transaction facilitation business , auto sales business and operating leases accounted for 12.3 % , 73.7 % and 8.3 % of our total revenue from our automobile transaction and related services , respectively , for the year ended march 31 , 2020 while our auto financial leasing business generated about 1.1 % of our revenue from our automobile transaction and related services . key factors and risks affecting results of operations of our automobile transactions and related services ability to increase the automobile purchaser and leasee base our revenue growth has been largely driven by the expansion of ( i ) our automobile purchaser base and the corresponding increase in the amount of automobile transactions facilitated through us , and ( ii ) our automobile leasee base and the corresponding revenue generated from operating and financial leasing . we acquire customers for our automobile transaction and related services through the network of third-party sales teams , referral from didi and our own efforts including online advertising and billboard advertising . we also send out flyers and participate in trade shows to advertise our services . we plan to strengthen our partnerships with existing sales teams by improving the quality and variety of our services . we will also strengthen our marketing efforts through our own team by employing more experienced staffs and setting up new service centers in the cities of chengdu and changsha in 2020. as
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for example , an increase in our marketing and promotional budget in an effort to accelerate the contract enrollment process , lower than expected enrollment rates or higher than expected costs to build our provider networks , provide services to enrolled members , and such similar expenses could adversely impact the break-even projections . there is no assurance that we will ever generate enough fees to generate a positive cash flow . see “ risks related to our business ” under the “ risk factors ” section for more information . reporting we manage and report our operations through two business segments : healthcare services and license and management services . the healthcare services segment includes on trak and its integrated substance dependence solutions marketed to health plans and other third party payors through a network of licensed and company managed healthcare providers . the license and management segment primarily represents our managed treatment office , which offers a range of addiction treatment and mental health services . we evaluate segment performance based on total assets , revenue and income or loss before provision for income taxes . our assets are included within each discrete reporting segment . in the event that any services are provided to one reporting segment by the other , the transactions are valued at the market price . no such services were provided during the years ended december 31 , 2013 and 2012 , respectively . summary financial information for our two reportable segments is as follows : results of operations the table below and the discussion that follows summarize our results of operations and certain selected operating statistics for the last two fiscal years : 21 catasys , inc. and subsidiaries consolidated statements of operations audited replace_table_token_3_th story_separator_special_tag style= '' text-align : left ; line-height : 1.25 ; text-indent : 19.8pt ; margin : 0pt '' > cost of license and management services consists of costs incurred by our consolidated managed treatment center for direct labor costs for physicians and nursing staff , continuing care expense , medical supplies and treatment program medicine costs . the costs of license and management services remained consistent between 2013 and 2012. general and administrative expenses general and administrative expense was $ 689,000 for the year ended december 31 , 2013 , compared with $ 875,000 for the same period in 2012. the decrease was primarily due to a reduction in share-based compensation expense as a result of a majority of our stock options becoming fully vested at the end of 2012. impairment losses for the period ended december 31 , 2013 , we determined that the carrying value of certain intangible assets was not recoverable and exceeded the fair value based upon an eight-year revenue projection and other assumptions . we recorded impairment charges totaling $ 795,000 related to intellectual property related to the proprietary treatment program that is currently non-revenue generating . there were $ 656,000 in impairment charges related to intellectual property recorded for the year ended december 31 , 2012. at december 31 , 2013 and 2012 , respectively , there were no impairment charges related to property , plant , and equipment . interest expense there was no interest expense for the years ended december 31 , 2013 and 2012 , respectively . 25 liquidity and capital resources liquidity and going concern as of march 28 , 2014 , we had a balance of approximately $ 725,000 million cash on hand . we had working capital deficit of approximately $ 2.4 million at december 31 , 2013 and have continued to deplete our cash position subsequent to december 31 , 2013. we have incurred significant net losses and negative operating cash flows since our inception . we could continue to incur negative cash flows and net losses for the next twelve months . our current cash burn rate is approximately $ 500,000 per month , excluding non-current accrued liability payments . we expect our current cash resources to cover expenses into june 2014 , however delays in cash collections , revenue , or unforeseen expenditures could impact this estimate . we are in need of additional capital and while we are currently in discussions with our existing stockholders regarding additional financing there is no assurance that additional capital can be raised in an amount which is sufficient for us or on terms favorable to us and our stockholders , if at all . if we do not obtain additional capital , there is a significant doubt as to whether we can continue to operate as a going concern and we will need to curtail or cease operations or seek bankruptcy relief . if we discontinue operations , we may not have sufficient funds to pay any amounts to stockholders . in january 2014 , we entered into securities purchase agreements with several investors , including crede cg iii , ltd. , an affiliate of terren s. peizer , chairman and chief executive officer of the company , relating to the sale and issuance of an aggregate of 1,724,141 shares of common stock , and warrants ( the “ january warrants ” ) to purchase an aggregate of 1,724,141 shares of common stock at an exercise price of $ 0.58 per share for aggregate gross proceeds of approximately $ 1,000,000. the january warrants expire in january 2019 , and contain anti-dilution provisions . as a result , if we , in the future , issue or grant any rights to purchase any of our common stock , or other security convertible into our common stock , for a per share price less than the exercise price of the april warrants , the exercise price of the january warrants will be reduced to such lower price , subject to customary exceptions . we had a related party receivable from xoftek , inc. , an affiliate of terren s. peizer , our chairman and chief executive officer , in the amount of $ 115,000 at december 31 , 2013 , which represents unpaid monthly rent related to a january 1 , 2011 sublease agreement . story_separator_special_tag we offset a $ 186,000 payable due to our chairman and chief executive officer against this receivable at december 31 , 2013. our ability to fund our ongoing operations and continue as a going concern is dependent on signing and generating fees from existing and new contracts for our catasys managed care programs and the success of management 's plans to increase revenue and continue to control expenses . we are operating programs in kansas , massachusetts , oklahoma , louisiana , kentucky , west virginia , and wisconsin . the programs in kentucky and west virginia commenced enrollment in the fourth quarter of 2013 and the wisconsin program , which represents our first managed care medicaid health plan customer , commenced enrollment in the first quarter of 2014. in march 2013 , we signed an agreement with a national health plan to provide services to their members in new jersey , which we expect to commence enrollment in the second quarter of 2014. we have generated fees from the launched programs and expect to increase enrollment and fees throughout 2014. however , there can be no assurance that we will generate such fees . in addition , we continue to seek ways to streamline our operating expenses . over the last two years , management took actions that have resulted in reduced annual operating expenses . these reductions have been offset by increased expenditures related to contract implementations and expanding enrollment in our programs . we anticipate increasing the number of personnel and incurring additional operating costs throughout 2014 to service our contracts as they become operational and the number of people enrolled in our program increases . in addition , we and our chief executive officer are party to a litigation in which the plaintiffs assert causes of action for conversion , a request for an order to set aside fraudulent conveyance and breach of contract . the case has been decided in our favor by the trial court and the appeals court , but the plaintiffs have appealed the verdict to the california supreme court . while we believe the plaintiffs ' claims are without merit and we intend to continue to vigorously defend the case , there can be no assurance that the litigation will ultimately be resolved in our favor . if this case is decided against us or our chief executive officer , it may cause us to pay substantial damages , and other related fees . regardless of whether this litigation is resolved in our favor , any lawsuit to which we are a party will likely be expensive and time consuming to defend or resolve . costs of defense and any damages resulting from litigation , a ruling against us or a settlement of the litigation could have a significant negative impact on our liquidity , including our cash flows . 26 cash flows we used $ 5.9 million of cash for continuing operating activities during the year ended december 31 , 2013 compared with $ 6.2 million in 2012. significant non-cash adjustments to operating activities for the year ended december 31 , 2013 , included amortization of debt discount and issuance costs of $ 3.1 million , share-based compensation expense of $ 213,000 , offset by fair value adjustment on warrant liability of $ 5.4 million . capital expenditures for the year ended 2013 were not material . our future capital expenditure requirements will depend upon many factors , including progress with expanding the adoption of our programs , and our marketing efforts , the necessity of , and time and costs involved in obtaining , regulatory approvals , competing technological and market developments , and our ability to establish collaborative arrangements , effective commercialization , marketing activities and other arrangements . our net cash provided by financing activities was $ 4.2 million year ended december 31 , 2013 , compared with net cash provided by financing activities of $ 8.5 million for the year ended december 31 , 2012. cash provided by financing activities for the twelve months ended december 31 , 2013 consisted of the net proceeds from the securities offerings in april 2013 and october 2013 , leaving a balance of $ 1.1 million in cash and cash equivalents at december 31 , 2013. as discussed above , we currently expend cash at a rate of approximately $ 500,000 per month , excluding non-current accrued liability payments . we also anticipate cash inflow to increase during 2014 as we continue to service our executed contracts . we expect our current cash resources to cover expenses into june 2014 ; however delays in cash collections , revenue , or unforeseen expenditures could impact this estimate . we are in need of additional capital and while we are currently in discussions with our existing stockholders regarding additional financing there is no assurance that additional capital can be raised in an amount which is sufficient for us or on terms favorable to us and our stockholders , if at all . if we do not obtain additional capital , there is a significant doubt as to whether we can continue to operate as a going concern and we will need to curtail or cease operations or seek bankruptcy relief . if we discontinue operations , we may not have sufficient funds to pay any amounts to stockholders . off-balance sheet arrangements as of december 31 , 2013 , we had no off-balance sheet arrangements . critical accounting estimates the discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . gaap requires management to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and the disclosure of contingent assets and liabilities .
| this program commenced enrollment in the first quarter of 2014 . 22 included in the loss from operations before provision for taxes , were consolidated non-cash charges for depreciation and amortization expense of $ 170,000 and $ 289,000 , and share-based compensation expense of $ 213,000 and $ 2.2 million , for the years ended december 31 , 2013 and 2012 , respectively . in 2013 , our loss before provision for income taxes included a $ 5.4million increase in the fair value of warrants compared with a $ 2.7 million increase in 2012. the warrants are marked-to-market each period , using the black-scholes pricing model until they are completely settled or expire . reconciliation of segment results the following table summarizes and reconciles the loss from operations of our reportable segments to the loss before provision for income taxes from our consolidated statements of operations for the years ended december 31 , 2013 and 2012 : replace_table_token_4_th healthcare services the following table summarizes the operating results for healthcare services for the years ended december 31 , 2013 and 2012 : replace_table_token_5_th year ended december 31 , 2013 compared with year ended december 31 , 2012 23 revenues as of december 2013 , five on trak program contracts were operational . recognized revenue increased by $ 379,000 , or 101 % for the period ended december 31 , 2013 , compared with the same period in 2012. most of the revenue related to these contracts are initially recorded to deferred revenue as the revenue is subject to performance guarantees , or in the case of case rates received upon enrollment , recognized ratably over the period of enrollment . deferred revenue was $ 534,000 and $ 278,000 as of december 31 , 2013 and 2012 , respectively , which if we were able to recognize would have increased revenue by $ 635,000 , or 97 % , compared with the same period in 2012. cost of healthcare services cost of healthcare
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million ; and ( ii ) received proceeds from the exercises of common stock warrants of approximately $ 0.4 million . as of february 10 , 2021 , we had $ 13.3 million in remaining availability for sales of our common stock under the july 2020 aspire cspa . we believe that our existing cash and cash equivalents balance , plus expected contractual payments to be received in connection with existing licensing agreements , will provide us with adequate liquidity to fund our planned operating needs into the first quarter of 2022. this operating forecast and related cash projection includes : ( i ) costs through the expected completion of our pivotal phase 3 trial for sb206 as a treatment for molluscum , the b-simple4 trial , including supporting activities ; ( ii ) preparatory costs associated with the anticipated continued regulatory progression of sb206 ; ( iii ) development activities in certain priority therapeutic areas , including infectious diseases and companion animal health ; ( iv ) conducting drug manufacturing capability transfer activities to external third-party cmos , including a drug delivery device technology enhancement project ; and ( v ) certain build-out and manufacturing capability costs related to the infrastructure necessary to support small-scale drug substance and drug product manufacturing at our new corporate headquarters , but excludes any potential costs associated with other late-stage clinical development programs . we will need significant additional funding to continue our operating activities and make further advancements in our product candidate development programs , as described in the section entitled “ management 's discussion and analysis of financial condition and results of operations—liquidity and capital resources ” in this annual report . therefore , we will need to secure additional capital or financing and or delay , defer or reduce our cash expenditures by the first quarter of 2022. there can be no assurance that we will be able to obtain additional capital or financing on terms acceptable to us , on a timely basis or at all . if we are not able to secure additional financing and are unable to reduce our expenditures sufficiently , we may be forced to terminate or eliminate our product development programs , wind down our operations , liquidate or seek bankruptcy protection . in that event , it is unclear to what extent we would be able to pay our obligations , and , accordingly , it is further unclear whether and to what extent any resources would be available for distributions to our stockholders . alternatively , we may seek to engage in one or more potential transactions , such as the sale of the company , or sale or divestiture of some of our assets , such as a sale of our dermatology platform assets , but there can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis or at all or on terms that are favorable to us . as discussed in “ note 1—organization and significant accounting policies ” of our accompanying consolidated financial statements included in this annual report , these matters raise substantial doubt about our ability to continue as a going concern . we will need additional funding to continue our operating activities and make further advancements in our product candidate development programs . please refer to the section entitled “ management 's discussion and analysis of financial condition and results of operations—liquidity and capital resources ” in this annual report for further discussion of our current liquidity and our future funding needs . manufacturing and supplies we have adopted a strategy of engaging with third parties through partnerships , collaborations , licensing or other strategic relationships that includes an increased utilization of and reliance upon third-party vendors and strategic partners for the performance of activities , processes and services that ( i ) do not result in the generation of significant new intellectual property and ( ii ) can leverage their existing robust infrastructure , systems and facilities as well as associated subject matter expertise . a parallel and inter-related strategic objective has been to reduce our own internal resources connected with our former large-scale manufacturing facility and our infrastructure capabilities that historically performed such activities , processes and services . we currently rely on third-party suppliers to provide the raw materials that are used by us or our third-party manufacturers in the manufacture of our product candidates . there are a limited number of suppliers for raw materials , including nitric oxide , that we use to manufacture our product candidates . at this stage , we intend to pursue a dual strategy of identifying and designating a partner to become the primary third-party external supplier of our proprietary berdazimer sodium ( nvn1000 ) drug substance to support short-term and long-term manufacturing needs , while developing internal capabilities to provide optionality and support certain small-scale and short-term manufacturing needs , including potential manufacture of registration batches to support an sb206 nda submission and initial commercialization inventory , as described in the section entitled “ business—manufacturing and supplies ” in this annual report . as discussed in the section entitled “ business—manufacturing and supplies—drug product ” in this annual report , we have executed a master contract manufacturing agreement with orion to enable technology transfer and manufacturing of 63 clinical trial materials for future clinical trials with our topical product candidates . we are engaged in the transfer of technology for the manufacture of both sb204 and sb206 , and upon completion , we intend for orion to be able to manufacture the drug product , or the finished dosage form of the gel , in accordance with our established manufacturing processes , in compliance with applicable regulatory guidelines and as appropriate for clinical trials . a completed manufacturing technology transfer to orion will enable the manufacture of multiple assets for supply of clinical trial materials and , potentially , commercial quantities if any of our product candidates are approved . story_separator_special_tag as we move forward with these initiatives , we will need significant additional funding to continue our operating activities , including technical transfers to third party manufacturers , development and utilization of internal capabilities and cost structure changes , and to make further advancements in our product development programs , as described in the section entitled “ management 's discussion and analysis of financial condition and results of operations—liquidity and capital resources ” in this annual report . amended sato agreement as described within the section entitled “ business—collaboration and licensing agreements ” in this annual report , in 2017 , we entered into the sato agreement , whereby we licensed rights to develop , use , and sell sb204 in certain topical dosage forms in japan for the treatment of acne vulgaris , and to manufacture the finished form of sb204 for sale in japan . in october 2018 , we entered into a second amendment to the sato agreement which expanded the amended sato agreement to include sb206 , our product candidate for the treatment of viral skin infections , including molluscum . in april 2020 , sato informed us of its intention to progress the sb206 development program in japan with a phase 1 clinical trial given the observed treatment benefit and favorable safety profile in the b-simple program . in november of 2020 , sato determined its initial japanese phase 1 study for sb206 would require an amended design , including potential evaluation of lower dose strengths , to further refine dose tolerability in a subsequent phase 1 study . based upon ( i ) the need for an additional phase 1 study ; ( ii ) sato 's current estimated comprehensive developmental schedule for sb206 including additional post-phase 1 clinical trials ; and ( iii ) current and future japanese clinical trial material manufacturing and technical transfer considerations , the company has concluded that a prospective delay in sato 's overall sb206 development plan has occurred . the company estimates the program timeline to be extended by 1.75 years from its previous estimate , and a corresponding extension of the performance period to 9.25 years , currently estimated to be completed in the second quarter of 2026. the material terms of the amended sato agreement and related revenue recognition are described in “ note 4—licensing arrangements ” and “ note 5—revenue recognition ” to the accompanying consolidated financial statements included in this annual report . covid-19 overview in december 2019 , the novel strain of a virus named sars-cov-2 ( severe acute respiratory syndrome coronavirus 2 ) , which causes novel coronavirus disease 2019 , or covid-19 , was reported in china , and in march 2020 , the world health organization declared it a pandemic . to date , covid-19 has surfaced in nearly all regions around the world and resulted in federal , state and local governments around the world implementing measures to help control the spread of the virus , including quarantines , “ shelter in place ” and “ stay at home ” orders , travel restrictions or bans , business curtailments , school closures , and other protective measures . such orders , restrictions and recommendations , and the perception that additional orders , restrictions or recommendations could occur , resulted and may result in additional closures of businesses , work stoppages , slowdowns and delays , work-from-home policies and travel restrictions , among other effects . we have continued to closely monitor and rapidly respond to the ongoing impact of covid-19 on our employees , our community and our business operations . we have worked to continue our critical business functions , including continued operation of our clinical development efforts , and we have adopted a series of precautionary measures and will continue to do so as the circumstances warrant , including increased sanitization of our facilities , use of personal protective equipment and physical distancing practices to help protect our employees ' health and safety as they continue to advance important research related to our product candidates . the timetable for development of our product candidates has been impacted and may face further disruption and our business could be further adversely affected by the outbreak of covid-19 . in particular , covid-19 impacted the timing of trial initiation of our b-simple4 phase 3 trial for sb206 , although we enrolled and dosed the first patient in the trial in september 2020 and completed enrollment in the first quarter of 2021. we plan to continue to assess any further impact of covid-19 on the b-simple4 phase 3 trial for sb206 . despite disruptions to our business operations and the business operations of third parties on which we rely , the covid-19 pandemic has not significantly impacted our operating results and financial condition to date . although it is not possible at this time to estimate the entirety of the impact that the covid-19 pandemic will have on our business , operations and employees , 64 our contract manufacturers , our clinical research contractors , and our collaborators in clinical research , any continued spread of covid-19 , measures taken by governments , actions taken to protect employees from this disease , and the broad impact of the pandemic on all business activities and financial markets , may materially and adversely affect our business , results of operations and financial condition and our stock price . these items are discussed in greater detail in the section entitled “ management 's discussion and analysis of financial condition and results of operations—components of our results of operations ” in this annual report . at this time , the full extent to which covid-19 may impact our financial condition or results of operations in the future is uncertain . due to numerous uncertainties surrounding the covid-19 pandemic , we are unable to predict the nature and extent of the future impacts that the pandemic will have on our financial condition and operating results .
| research and development expenses research and development expenses were $ 19.8 million for the year ended december 31 , 2020 , compared to $ 25.2 million for the year ended december 31 , 2019. the net decrease of $ 5.4 million , or 21 % was primarily related to ( i ) a net $ 0.7 million increase in the sb206 program , ( ii ) a $ 4.3 million decrease in other research and development expenses , ( iii ) a $ 1.6 million decrease in our sb414 program and ( iv ) a $ 0.2 million decrease in our sb204 program . in the sb206 program , we experienced a $ 5.3 million decrease in gross costs incurred primarily due to the relative timing of the b-simple4 trial 's enrollment initiation , which occurred late in the third quarter of 2020 , compared to enrollment initiations for the previous phase 3 trials ( b-simple1 and b-simple2 ) , which occurred late in the second quarter of 2019. we experienced a $ 6.0 million corresponding decrease in contra-research and development expense from the ratable amortization of the liability related to the funding agreement with ligand , which represents ligand 's contribution to the clinical development and regulatory approval of sb206 for the treatment of molluscum . 70 the $ 4.3 million decrease in other research and development expenses was primarily driven by ( i ) a $ 1.3 million net decrease in research and development personnel costs , ( ii ) a $ 1.6 million decrease in costs associated with our manufacturing technology transfer projects to third-party manufacturers , ( iii ) a $ 0.7 million decrease in depreciation expense and ( iv ) a $ 1.0 million decrease in manufacturing materials and support costs at our morrisville , north carolina facility , partially offset by $ 0.3 million of discrete morrisville , north carolina facility decommissioning costs incurred during the second and third quarters of 2020. the $ 1.3 million net decrease in research and development personnel costs is primarily due to ( i ) a $ 1.2 million decrease in recurring salary and benefits costs due to a reduced number of research and development personnel between the two comparative periods , ( ii ) a $ 0.5 million decrease in salary , accrued bonuses and benefits costs associated with personnel who changed roles between the comparative periods and , as a result , changed from research and development expenses to general and administrative expenses between the comparative periods , and ( iii ) $ 0.5 million
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the impairment charges were generally the result of the overall refractive market decline experienced by the company as well as equity market conditions , which led to an overall decline in fair value of various reporting units of the company . during 2008 , the company recognized a $ 4.8 million impairment of multiple cost and equity method investments due to the decline in their estimated fair value . the decline in fair values were deemed to be other than temporary based on the investees ' inability to generate or sustain an earnings capacity that would justify the carrying amount of the investment . in addition , the company recognized a $ 0.6 million impairment of fixed assets of an asc given the entities ' inability to generate an earnings capacity that would justify carrying values . a summary of impairment charges recorded by reporting segment during the year ended december 31 , 2008 follows : fiscal 2008 impairment charges replace_table_token_3_th 36 acquisitions the company 's strategy includes periodic acquisitions of , or investments in , entities that operate within its chosen markets . during the year ended december 31 , 2008 and 2007 , the company made acquisition and equity investments of $ 8.9 million and $ 4.8 million , respectively , to acquire or invest in various entities . included in acquisition and equity investments are cash payments during 2008 and 2007 of approximately $ 6.6 million and $ 2.8 million , respectively , related to the company 's 2005 truvision acquisition , which have been included in the purchase price allocation . of the 2008 and 2007 amounts , approximately $ 2.0 million and $ 2.8 million , respectively , relate to cash paid under the contingent earn-out provisions of the acquisition , which are included in the purchase price allocation . the remaining $ 4.6 million paid during 2008 relates to an amendment to the truvision merger agreement , which removed the contingent earn-out provisions , discussed in further detail below . during february 2007 , lindsay atwood , as shareholders ' representative pursuant to the october 2005 agreement and plan of merger by which the company acquired truvision , inc. , filed a lawsuit in state court in salt lake city , utah in a matter styled atwood v. tlc vision corporation . mr. atwood challenged the calculation of the first of three contingent annual earn-out payments set forth in the merger agreement . the lawsuit was stayed and the complaint was in arbitration until the parties concluded out-of-court to amend the merger agreement during may 2008. as part of the amended agreement , the company and mr. atwood agreed to eliminate and replace the current and future earn-out provisions in exchange for $ 12.3 million to be paid in three installment payments , and certain other immaterial assets . the amendment did not significantly impact net income as the cash payments represent additional purchase consideration related to the acquisition . on may 30 , 2007 the company entered into an agreement with jegc occ corp ( purchaser ) for the sale of all of its common shares of occulogix . the agreement provided for a two-step sale , and on june 22 , 2007 , the company completed its sale of 1.9 million shares of occulogix 's common stock for $ 2.0 million and recorded a gain of $ 0.9 million . immediately following the sale of stock , the company owned approximately 33 % of occulogix 's outstanding stock . the company agreed to sell the remaining shares subject to certain conditions , including the ability of the purchaser to obtain financing . the purchaser was unable to complete the purchase of the company 's remaining common shares of occulogix , and the company and the purchaser elected to terminate the agreement during the quarter ended june 30 , 2008. divestitures the company 's strategy includes periodic divestitures of subsidiaries or investments that operate in the refractive , cataract or eye care markets . during the year ended december 31 , 2008 , the company received approximately $ 1.3 million in cash proceeds resulting from various immaterial divestitures . during the year ended december 31 , 2007 , the company received approximately $ 3.6 million in cash proceeds from divestitures . included in the 2007 figure is approximately $ 2.0 million in cash proceeds received on the sale of occulogix , inc. stock and $ 1.6 million in cash proceeds resulting from various other divestitures . credit facility amendment dated february 2008 during february 2008 , the company reached agreement with its lenders to amend the consolidated fixed charge coverage ratio and leverage ratio covenants associated with the credit facility , discussed in further detail in note 14 , debt , to the consolidated financial statements . the ratio covenant changes were effective for the period beginning after september 30 , 2007. the amendment raised the interest rate margin on all of the company 's debt under the credit facility by 2.50 % per annum , effective february 2008. the company has accounted for the amendment as a modification of debt . the amendment resulted in the company incurring various creditor and legal fees of $ 0.5 million , which were capitalized to the extent allowable during the quarter ending march 31 , 2008 and will be amortized through 2013. critical accounting policies impairment of goodwill the company accounts for its goodwill in accordance with sfas no . 142 , goodwill and other intangible assets , which requires the company to test goodwill for impairment annually and whenever events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value . sfas no . 142 requires the company to determine the fair value of its reporting units . because quoted market prices do not exist for the company 's reporting units , the company uses a combination of present values of expected future cash flows ( i.e . the income approach ) and multiples of earnings ( i.e . story_separator_special_tag the market approach ) to estimate fair value . management must make significant estimates and assumptions about future conditions to estimate 37 future cash flows and appropriate multiples . if these estimates or related assumptions change in the future , including general economic and competitive conditions , the company may be required to record additional impairment charges related to these assets . during the year ended december 31 , 2008 , the company recorded a $ 73.4 million impairment charge against goodwill , which is further discussed in note 4 , impairment , of the consolidated financial statements . impairment of long-lived assets the company accounts for its long-lived assets in accordance with sfas no . 144 , accounting for the impairment or disposal of long-lived assets , which requires the company to assess the recoverability of these assets when events or changes in circumstances indicate that the carrying amount of the long-lived asset ( group ) might not be recoverable . if impairment indicators exist , the company determines whether the projected undiscounted cash flows will be sufficient to cover the carrying value of such assets . this requires the company to make significant judgments about the expected future cash flows of the asset group . the future cash flows are dependent on many factors including general and economic conditions and are subject to change . a change in these assumptions could result in material charges to income . recoverability of deferred tax assets the company has generated deferred tax assets and liabilities due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the income tax bases of such assets and liabilities . valuation allowances are recorded to reduce deferred tax assets to the amount expected to be realized . in assessing the adequacy of the valuation allowances , the company considers the scheduled reversal of deferred tax liabilities , future taxable income and prudent and feasible tax planning strategies . at december 31 , 2008 , the company had valuation allowances of $ 140.8 million to fully offset deferred tax assets of $ 140.8 million . the valuation allowance was based on the uncertainty of the realizability of certain deferred tax assets . in the event the company determines it is more likely than not it will be able to use a deferred tax asset in the future in excess of its net carrying value , the valuation allowance would be reduced , thereby increasing net income , reducing goodwill or increasing equity in the period such determination is made . accrual of medical malpractice claims the nature of the company 's business is such that it is subject to medical malpractice lawsuits . to mitigate a portion of this risk , the company maintains insurance in the united states for individual malpractice claims with a deductible of $ 250,000 per claim . management and the company 's insurance carrier review malpractice lawsuits for purposes of establishing ultimate loss estimates . the company has recorded reserves to cover the estimated costs of the deductible for both reported and unreported medical malpractice claims incurred . the estimates are based on the average monthly claims expense and the estimated average time lag between the performance of a procedure and notification of a claim . if the number of claims or the cost of settled claims is higher than the company 's historical experience or if the actual time lag varies from the estimated time lag , the company may need to record significant additional expense . accrued enhancement the company offers a portion of its patients extended lifetime warranties , i.e. , the tlc lifetime commitment ® . participation in the tlc lifetime commitment ® program is included in the surgical price for a specific type of procedure selected by a portion of the company 's patients . under this pricing model , the company accounts for the tlc lifetime commitment ® program as a warranty obligation under the provisions of sfas no . 5 , accounting for contingencies . accordingly , the costs expected to be incurred to satisfy the obligation are accrued as a liability at the point of sale given our ability to reasonably estimate such costs based on historical trends and the satisfaction of all other revenue recognition criteria . deferred revenues during the year ended december 31 , 2007 , the company began offering an extended tlc lifetime commitment ® warranty at a separately-priced fee to customers selecting a lower level base surgical procedure . under applicable accounting rules , 100 % of revenues and related costs from the sale of the separately priced lifetime warranty are to be deferred and recognized over the life of the contract on a straight-line basis unless sufficient experience exists to indicate that the costs to provide the service will be incurred other than on a straight-line basis . revenues generated under this program are initially deferred and recognized over a period of five years based on management 's future estimates of re-treatment volume , which are based on historical warranty claim activity . the company believes it has sufficient experience to support recognition on other than a straight-line basis . accordingly , the company has deferred these revenues and are recognizing them over the period in which the future costs of performing the enhancement procedure are expected to be incurred . 38 in addition to the deferral of revenues related to the separately-priced tlc lifetime commitment ® , the company has deferred a portion of its costs of service related to professional fees paid to the attending surgeon when an initial procedure is performed . the physician receives no incremental fee for an enhancement procedure under the tlc lifetime commitment ® . accordingly , a portion of the professional fee paid at the time of the initial procedure to the attending surgeon relates to the future enhancement procedures to be performed under the separately-priced tlc lifetime commitment ® and qualifies for deferral as a direct and incremental cost .
| under this pricing model , the company accounts for the tlc lifetime commitment ® program as a warranty obligation under the provisions of statement of financial accounting standards ( sfas ) no . 5 , accounting for contingencies . accordingly , the costs expected to be incurred to satisfy the obligation are accrued as a liability at the point of sale given the company 's ability to reasonably estimate such costs based on historical trends and the satisfaction of all other revenue recognition criteria . during the year ended december 31 , 2007 , the company began offering an extended tlc lifetime commitment ® warranty at a separately-priced fee to customers selecting a lower level base surgical procedure . under applicable accounting rules , 100 % of revenues and related costs from the sale of the separately priced lifetime warranty are to be deferred and recognized over the life of the contract on a straight-line basis unless sufficient experience exists to indicate that the costs to provide the service will be incurred other than on a straight-line basis . revenues generated under this program are initially deferred and recognized over a period of five years based on management 's future estimates of re-treatment volume , which are based on historical warranty claim activity . the company believes it has sufficient experience to support recognition on other than a straight-line basis . accordingly , the company has deferred these revenues and are recognizing them over the period in which the future costs of performing the enhancement procedure are expected to be incurred . in addition to the deferral of revenues related to the separately-priced tlc lifetime commitment ® , the company has deferred a portion of its costs of service related to professional fees paid to the attending surgeon when an initial procedure is performed . the physician receives no incremental fee for an enhancement procedure under the tlc lifetime commitment ® . accordingly , a portion of the professional fee paid at the time of the initial procedure to the attending surgeon relates to the future enhancement procedures to be performed
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the company provides leading edge logistics solutions to the biopharma , reproductive medicine and animal health markets to ship , store and deliver biologic materials , such as immunotherapies , stem cells , car-t cell therapies , vaccines and reproductive cells for clients worldwide . the global bioservices segment provides a comprehensive temperature-controlled sample management solution to the life science industry , including specimen storage , sample processing , collection , and retrieval . the spectrum of temperature-controlled solutions provided by the company ranges from ambient , or controlled room temperature ( 20°c to 25°c ) , refrigerated ( 2°c to 8°c ) , to frozen and cryogenic ( below 0°c to as low as −150°c ) . our chief executive officer is the chief operating decision maker for both segments . the company derives the results of the segments directly from its internal management reporting system . the accounting policies of the operating segments are substantially the same as those described in the summary of significant accounting policies . the company evaluates segment performance on the basis of revenues and profit or loss . management uses these operating results , in part , to evaluate the performance of , and to allocate resources to , each of the segments . the company 's reportable segments are strategic business units that offer different products and services . they are managed separately because each business requires different sales and marketing strategies and operational skillsets . the global bioservices segment is currently comprised of the cryogene business that was acquired in may 2019 , and the management at the time of the acquisition was retained . prior to this acquisition , the company had a single reportable segment : global logistics solutions . 33 story_separator_special_tag expense was $ 899,400 for the year ended december 31 , 2018 which was due to the repricing of certain warrants for the tender offer that was completed in february 2018. interest expense . interest expense increased $ 1.3 million for the year ended december 31 , 2019 , as compared to the prior year as a result of the interest expense on the convertible note issued in december 2018. other income , net . the increase in other income , net for the year ended december 31 , 2019 is primarily due to interest income on our cash and cash equivalents and short-term investments . liquidity and capital resources as of december 31 , 2019 , the company had cash and cash equivalents of $ 47.2 million , short-term investments of $ 47.1 million and working capital of $ 97.5 million . historically , we have financed our operations primarily through sales of equity securities and debt instruments . we believe that our pre-existing cash and cash equivalents and short-term investments , together with interest thereon , will be sufficient to fund our operations , including capital expenditures , for at least the next 12 months . 35 for the year ended december 31 , 2019 , we used $ 1.4 million of cash for operations primarily as a result of the net loss of $ 18.3 million adjusted for non-cash expenses of $ 20.0 million comprised of $ 9.6 million of accelerated stock-based compensation , $ 7.0 million of routine stock-based compensation expense as well as amortization of debt discounts and depreciation and amortization . also contributing to the cash impact of our net operating loss , excluding non-cash items , was an increase in accounts receivable of $ 3.6 million , an increase in prepaids and other current assets of $ 344,600 and an increase of $ 253,400 in inventory which was partially offset by an increase in accounts payable and other accrued expenses of $ 730,200 and an increase in accrued compensation and related expenses of $ 641,200. net cash used in investing activities of $ 62.9 million during the year ended december 31 , 2019 was primarily due to the $ 20.3 million acquisition of the cryogene business on may 14 , 2019 , $ 43.2 million purchase of short-term investments , and $ 5.3 million for the capitalization of software development costs for our cryoportal tm logistics management platform , and additional purchases of cryoport express ® shippers , smart pak tm condition monitoring systems , freezers and computer equipment , partially offset by the maturity of short-term investments of $ 6.0 million . net cash provided by financing activities of $ 74.2 million during the year ended december 31 , 2019 , was primarily as a result of $ 68.8 million in net proceeds from our june 2019 public offering of common stock and $ 5.4 million in proceeds from the exercise of stock options and warrants . the company 's management recognizes that the company may need to obtain additional capital to fund its operations until sustained profitable operations are achieved . additional funding plans may include obtaining additional capital through equity and or debt funding sources . no assurance can be given that additional capital , if needed , will be available when required or upon terms acceptable to the company . see “ — risks related to our financial condition — we may need to raise additional capital in the future , and if we are unable to secure adequate funds on terms acceptable to us , we could be unable to execute our business plan ” in the “ risk factors ” section in part i , item 1a of this form 10-k for additional information . off-balance sheet arrangements we do not have any off-balance sheet arrangements within the meaning of item 303 ( a ) ( 4 ) of regulation s-k. impact of inflation from time to time , cryoport experiences price increases from third party manufacturers and these increases can not always be passed on to cryoport 's customers . while these price increases have not had a material impact on cryoport 's historical operations or profitability in the past , they could story_separator_special_tag the company provides leading edge logistics solutions to the biopharma , reproductive medicine and animal health markets to ship , store and deliver biologic materials , such as immunotherapies , stem cells , car-t cell therapies , vaccines and reproductive cells for clients worldwide . the global bioservices segment provides a comprehensive temperature-controlled sample management solution to the life science industry , including specimen storage , sample processing , collection , and retrieval . the spectrum of temperature-controlled solutions provided by the company ranges from ambient , or controlled room temperature ( 20°c to 25°c ) , refrigerated ( 2°c to 8°c ) , to frozen and cryogenic ( below 0°c to as low as −150°c ) . our chief executive officer is the chief operating decision maker for both segments . the company derives the results of the segments directly from its internal management reporting system . the accounting policies of the operating segments are substantially the same as those described in the summary of significant accounting policies . the company evaluates segment performance on the basis of revenues and profit or loss . management uses these operating results , in part , to evaluate the performance of , and to allocate resources to , each of the segments . the company 's reportable segments are strategic business units that offer different products and services . they are managed separately because each business requires different sales and marketing strategies and operational skillsets . the global bioservices segment is currently comprised of the cryogene business that was acquired in may 2019 , and the management at the time of the acquisition was retained . prior to this acquisition , the company had a single reportable segment : global logistics solutions . 33 story_separator_special_tag expense was $ 899,400 for the year ended december 31 , 2018 which was due to the repricing of certain warrants for the tender offer that was completed in february 2018. interest expense . interest expense increased $ 1.3 million for the year ended december 31 , 2019 , as compared to the prior year as a result of the interest expense on the convertible note issued in december 2018. other income , net . the increase in other income , net for the year ended december 31 , 2019 is primarily due to interest income on our cash and cash equivalents and short-term investments . liquidity and capital resources as of december 31 , 2019 , the company had cash and cash equivalents of $ 47.2 million , short-term investments of $ 47.1 million and working capital of $ 97.5 million . historically , we have financed our operations primarily through sales of equity securities and debt instruments . we believe that our pre-existing cash and cash equivalents and short-term investments , together with interest thereon , will be sufficient to fund our operations , including capital expenditures , for at least the next 12 months . 35 for the year ended december 31 , 2019 , we used $ 1.4 million of cash for operations primarily as a result of the net loss of $ 18.3 million adjusted for non-cash expenses of $ 20.0 million comprised of $ 9.6 million of accelerated stock-based compensation , $ 7.0 million of routine stock-based compensation expense as well as amortization of debt discounts and depreciation and amortization . also contributing to the cash impact of our net operating loss , excluding non-cash items , was an increase in accounts receivable of $ 3.6 million , an increase in prepaids and other current assets of $ 344,600 and an increase of $ 253,400 in inventory which was partially offset by an increase in accounts payable and other accrued expenses of $ 730,200 and an increase in accrued compensation and related expenses of $ 641,200. net cash used in investing activities of $ 62.9 million during the year ended december 31 , 2019 was primarily due to the $ 20.3 million acquisition of the cryogene business on may 14 , 2019 , $ 43.2 million purchase of short-term investments , and $ 5.3 million for the capitalization of software development costs for our cryoportal tm logistics management platform , and additional purchases of cryoport express ® shippers , smart pak tm condition monitoring systems , freezers and computer equipment , partially offset by the maturity of short-term investments of $ 6.0 million . net cash provided by financing activities of $ 74.2 million during the year ended december 31 , 2019 , was primarily as a result of $ 68.8 million in net proceeds from our june 2019 public offering of common stock and $ 5.4 million in proceeds from the exercise of stock options and warrants . the company 's management recognizes that the company may need to obtain additional capital to fund its operations until sustained profitable operations are achieved . additional funding plans may include obtaining additional capital through equity and or debt funding sources . no assurance can be given that additional capital , if needed , will be available when required or upon terms acceptable to the company . see “ — risks related to our financial condition — we may need to raise additional capital in the future , and if we are unable to secure adequate funds on terms acceptable to us , we could be unable to execute our business plan ” in the “ risk factors ” section in part i , item 1a of this form 10-k for additional information . off-balance sheet arrangements we do not have any off-balance sheet arrangements within the meaning of item 303 ( a ) ( 4 ) of regulation s-k. impact of inflation from time to time , cryoport experiences price increases from third party manufacturers and these increases can not always be passed on to cryoport 's customers . while these price increases have not had a material impact on cryoport 's historical operations or profitability in the past , they could
| revenues in the reproductive medicine market increased by 34.1 % for the year ended december 31 , 2019 , as compared to the same period in 2018. this increase was driven by a 31.3 % increase in revenues in the u.s. market through continued success of our cryostork ® -branded offering and a 43.5 % increase in revenues in the international markets , which was primarily a result of our marketing initiatives and growing brand recognition . our revenue from animal health increased 2.1 % for the year ended december 31 , 2019 , as compared to the same period in 2018. in our global bioservices segment , revenue was $ 3.0 million for the year ended december 31 , 2019 , which reflects the acquisition of the cryogene business in may 2019. prior to this acquisition , the company had a single reportable segment , global logistics solutions . 34 gross margin and cost of revenues . gross margin for the year ended december 31 , 2019 was 51.1 % of revenues , as compared to 52.2 % of revenues for the year ended december 31 , 2018. the decrease in gross margin is primarily due to an increase in stock-based compensation of $ 383,800 related to the accelerated vesting for certain stock option awards as a result of meeting defined financial targets and the increased operating costs of our new global logistics centers in livingston , new jersey and hoofddorp , the netherlands that commenced operations during the third quarter of 2018. our cost of revenues is primarily comprised of freight charges , payroll and associated expenses related to our global logistics centers , third-party charges for our european and asian staging centers in the netherlands and singapore , depreciation expenses of our cryoport express ® shippers and supplies and consumables used for our solutions . cost of revenues increased $ 7.2 million , or 76.8 % , to $ 16.6 million for the year ended december 31 , 2019 , as compared to $ 9.4 million in the same period in 2018. the increase in cost of revenues was primarily due to higher freight charges from the increased volume of shipments , an increase in operating costs for our global logistics centers and
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because our lack of funds , we will have to raise additional capital in order to fund our selling , general and administrative , and research and development expenses . there are no assurances that we will be able to raise the funds necessary to maintain our operations or to implement our business plan . the consolidated financial statements included in this annual report do not include any adjustments relating to the recoverability and classification of recorded assets , or the amounts and classification of liabilities that might be necessary in the event we can not continue our operations . 50 recent developments amendment to certificate of incorporation on july 17 , 2017 , we amended our certificate of incorporation for the purpose of changing our name from oxis international , inc. to gt biopharma , inc. agreement and plan of merger on september 1 , 2017 , we entered into an agreement and plan of merger whereby we acquired 100 % of the issued and outstanding capital stock of gtp . gtp is a biotechnology company focused on acquiring or discovering and patenting what it believes to be close-to-market improved treatments for cns disease ( neurology and pain ) and shepherding the products through the fda approval process potentially to nda . gtp products currently include a treatment for neuropathic pain , the symptoms of myasthenia gravis , and motion sickness . in exchange for the ownership of gtp , we issued a total of 16,927,878 shares of our common stock to the three prior owners of gtp , which represented 33 % of our issued and outstanding capital stock on a fully diluted basis at the time of closing . upon the consummation of the acquisition , anthony j. cataldo resigned as our chief executive officer and was simultaneously elected as executive chairman of the board of directors . kathleen clarence-smith , m.d. , ph.d. , the founder of gtp , was then elected as our chief executive officer and a member of the board of directors . as conditions to the acquisition of gtp , ( i ) we raised $ 4,540,000 upon the sale of debentures which were subsequently converted into 3,575,109 shares of restricted common stock and 208,224 shares of series j preferred stock to a total of nine persons or entities ; ( ii ) canceled debt in the amount $ 17,295,352 upon the issuance of 13,712,516 shares of common stock and 700,278 shares of series j preferred stock to a total of 26 persons or entities ; ( iii ) issued 494,911 shares of common stock and 5,046 shares of series j preferred stock upon the cashless exercise of warrants to a total of 22 persons or entities ; and ( iv ) converted 25,000 shares of series h preferred stock and 1,666,667 series i preferred stock into 5,327,734 shares of common stock held by a total of three persons or entities . all stock issuances were exempt from the registration requirements of section 5 of the act of 1933 , as amended , or the act , pursuant to section 4 ( a ) ( 2 ) of the act because the issuances did not involve any public offering . employment contracts in connection with the acquisition , we entered into employment contracts on september 1 , 2017 , with mr. cataldo as executive chairman , dr. clarence-smith as chief executive officer , dr. raymond urbanski as chief medical officer and steven weldon as chief financial officer . we entered into an employment contract on november 15 , 2017 , with mr. cross as president and chief operating officer . on february 14 , 2018 , the company entered into the first amendment to the employment agreement with dr. clarence-smith , amending the employment agreement , dated september 1 , 2017 , between the company and dr. clarence-smith . under the first amendment , dr. clarence-smith 's title has been revised to reflect her new position and she will be paid an annual salary of $ 500,000 , paid in equal monthly installment . all other terms of her original employment agreement remain unchanged . on february 14 , 2018 , the company entered into a consultant agreement with mr. cataldo . the term of the consultant agreement lasts until august 31 , 2020 and is terminable at will and is subject to automatic extension for successive one-year periods . mr. cataldo will be paid $ 41,666.67 per month during the term of the consultant agreement and will be entitled to participate in the company 's bonus plans . on february 15 , 2018 , the company entered into an executive employment agreement with mr. cross , pursuant to which mr. cross will be employed as the company 's chief executive officer . the term of the executive employment agreement is three years and is terminable at will by either the company or mr. cross and subject to automatic extensions for successive one year periods . mr. cross will be paid an annual salary of $ 500,000 , paid in equal monthly installment . mr. cross is also entitled to participate in the company 's bonus plans . under the executive employment agreement , the company has agreed that i t will recommend to the board that the company grant mr. cross an option to purchase 2,000,000 shares of the company 's common stock at an exercise price equal to the fair market value of each share as determined by the board as of the date of the grant . story_separator_special_tag the stock option grant would vest according to the following schedule : ( i ) 34 % of the shares on february 15 , 2018 , ( ii ) 33 % of the shares on february 15 , 2019 , and ( iii ) 33 % of the shares on february 15 , 2020 . 51 trike agreements in march 2017 , we entered a new one-year sponsored research agreement with the university of minnesota . the purpose of this agreement is to determine toxicities and in vivo behavior in our trike technology , which we license from the university of minnesota . in june 2017 , we entered into a co-development partnership agreement with altor bioscience corporation in which the we will collaborate exclusively in the clinical development of a novel 161533 trike fusion protein for cancer therapies using our trike technology . license agreements pursuant to a patent license agreement with the id4 , dated december 31 , 2014 , we received a non-exclusive , worldwide license to certain intellectual property , including intellectual property related to treating a p62-mediated disease ( e.g. , multiple myeloma ) . on february 25 , 2015 , we licensed exclusive rights to three antibody-drug conjugates , or adcs , that mcit will prepare for further evaluation by gtbp as prospective therapeutics for the treatment of triple-negative breast cancer , and multiple myeloma and associated osteolytic bone disease . under the terms of the agreement , mcit will develop three adc product candidates which contain gtbp 's lead drug candidates oxs-2175 and oxs-4235 . we executed an exclusive worldwide license agreement with daniel a. vallera , ph.d. and his associate ( jointly `` dr. vallera '' ) , to further develop and commercialize dt2219arl ( oxs-1550 ) , a novel therapy for the treatment of various human cancers . under the terms of the agreement , we receive exclusive rights to conduct research and to develop , make , use , sell , and import dt2219arl worldwide for the treatment of any disease , state or condition in humans . gtbp shall own all permits , licenses , authorizations , registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as dt2219arl , including without limitation the fda and the european agency for the evaluation of medicinal products in the european union . under the agreement , dr. vallera will receive an upfront license fee , royalty fees , and certain milestone payments . in july 2016 , we executed an exclusive worldwide license agreement with the regents of the university of minnesota , to further develop and commercialize cancer therapies using trike technology developed by researchers at the university to target nk cells to cancer . under the terms of the agreement , we received exclusive rights to conduct research and to develop , make , use , sell , and import trike technology worldwide for the treatment of any disease , state or condition in humans . we shall own all permits , licenses , authorizations , registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as the trike technology , including without limitation the fda and the european agency for the evaluation of medicinal products in the european union . under the agreement , the university of minnesota will receive an upfront license fee , royalty fees , and certain milestone payments . in september 2017 , we in-licensed the rights to use the accubreak patents with drugs that , like carbamazepine , are voltage-gated sodium channel blockers in north america . the license field includes voltage gated sodium channels inhibitors and blockers for the treatment of epilepsy , neuropathic pain , and bipolar disorder . financing in january 2016 , the company entered into a securities purchase agreement with one accredited investor to sell 10 % convertible debentures , with and an exercise price of $ 1.25 , with an initial principal balance of $ 150,000 and warrants to acquire up to 80,000 shares of the company 's common stock at an exercise price of $ 1.25 per share . in may 2016 , the company entered into a securities purchase agreement with twenty accredited investors to sell 10 % convertible debentures , with and an exercise price of $ 0.40 , with an initial principal balance of $ 1,390,044 and warrants to acquire up to 3,475,111 shares of the company 's common stock at an exercise price of $ 0.45 per share . 52 in july 2016 , the company entered into a securities purchase agreement with one accredited investor to sell 10 % convertible debentures , with and an exercise price of $ 0.40 , with an initial principal balance of $ 112,135 and warrants to acquire up to 280,338 shares of the company 's common stock at an exercise price of $ 0.45 per share . in august 2016 , the company entered into a securities purchase agreement with one accredited investor to sell 10 % convertible debentures up $ 1,000,000 , with and an exercise price of $ 0.40 , with an initial principal balance of $ 250,000 and warrants to acquire up to 2,500,000 shares of the company 's common stock at an exercise price of $ 0.45 per share .
| the next quarter in order to continue to fund current operations . the company is pursuing several alternatives to address this situation , including the raising of additional funding through equity or debt financings . in order to finance existing operations and pay current liabilities over the next twelve months , the company will need to raise approximately $ 8-10 million of capital . critical accounting policies we consider the following accounting policies to be critical given they involve estimates and judgments made by management and are important for our investors ' understanding of our operating results and financial condition . basis of consolidation the consolidated financial statements contained in this report include the accounts of gt biopharma , inc. and its subsidiaries . all intercompany balances and transactions have been eliminated . 54 revenue recognition license revenue license arrangements may consist of non-refundable upfront license fees and various performance or sales milestones and future product royalty payments . some of these arrangements are multiple element arrangements . non-refundable , up-front fees that are not contingent on any future performance by us , and require no consequential continuing involvement on our part , are recognized as revenue when the license term commences and the licensed data , technology and or compound is delivered . we defer recognition of non-refundable upfront fees if we have continuing performance obligations without which the technology , right , product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement . in addition , if we have continuing involvement through research and development services that are required because our know-how and expertise related to the technology is proprietary to us , or can only be performed
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demand for our products in our market areas is also affected by general economic conditions , the pace of home and other construction and the demand for steel , as well as the level of governmental and private funding for highway construction . demand for our lime products from our highway construction and steel customers improved during 2011 , while construction demand related to housing developments continues to be anemic . the safe , accountable , flexible , and equitable transportation equity act ( `` safetea '' ) , which reauthorized the federal highway , public transportation , highway safety , and motor carrier safety programs for fiscal years 2005 through 2009 , expired on september 30 , 2009. the general provisions under safetea have been retained under continuing resolutions , the latest of which expires on march 31 , 2012. as part of his recently proposed 2013 budget , the president included a new six-year highway funding bill totaling $ 476 billion , but congress may reduce the size of the bill . although governmental funding of public sector projects remains a concern , we have seen an increase in the construction of tollroads in texas . our modernization and expansion projects in texas and arkansas , including the construction of a third kiln in arkansas ( completed in december 2006 ) , the development of the south quarry in arkansas ( mining began in first quarter 2010 ) , and our acquisitions of u. s. lime companyst . clair , our delta , colorado facilities and our texas slurry operations have positioned us to meet the demand for high-quality lime and limestone products in our markets , with our lime output capacity more than doubling since 2003. in addition , our distribution terminal in shreveport , louisiana has expanded our market area for this additional output . our modernization and expansion and development projects have also equipped us with up-to-date , fuel-efficient plant facilities , which has resulted in lower production costs and greater operating efficiencies , thus enhancing our competitive position . all of our kilns are fuel-efficient preheater kilns , except for one kiln at st. clair . for our plants to operate at peak efficiency , we must meet operational challenges that arise from time to time , including bringing new facilities on line and refurbishing and or improving acquired facilities , such as st. clair , which was acquired with the intention , of modernizing and expanding , subject to permitting and future economic outlook , as well as operating existing facilities efficiently . we also incur ongoing costs for maintenance and to remain in compliance with rapidly changing environmental laws and health and safety and other regulations . our primary variable cost is energy . prices for coal , petroleum coke , diesel , electricity , transportation and freight have increased over the past few years . in addition , our freight costs to deliver our products can be high relative to the value of our products and have increased significantly 22 in recent years . we have been able to mitigate to some degree the adverse impact of these energy cost increases by varying the mixes of fuel used in our kilns , and by passing on some of our increased costs to our customers through higher prices and or surcharges on certain products . we have not engaged in any significant hedging activity in an effort to control our energy costs , but may do so in the future . we financed our modernization and expansion and development projects and acquisitions through a combination of debt financing and cash flows from operations . in june 2010 , we amended our credit agreement , securing a number of benefits that provide us with greater flexibility and extending the maturity of our revolving credit facility in exchange for a 0.625 % increase in our interest rates . given our level of debt , we must generate sufficient cash flows to cover ongoing capital and debt service needs . our revolving credit facility matures june 1 , 2015 , and the remainder of our long-term debt becomes due at the end of 2015. absent a significant acquisition opportunity arising , we anticipate funding our capital requirements and continuing to pay down our debt in 2012 from our cash flows from operations . for us to increase our profitability in our lime and limestone operations in the face of our increased fixed and variable costs , we must continue to improve our revenues and control our operational and selling , general and administrative expenses . given reduced demand for our lime products at the start of the recession , in the fourth quarter 2008 we began to take various steps to reduce our costs . these efforts , along with other operating efficiencies , continued into 2011 and , combined with increased sales volumes of our lime products and increased prices for our lime and limestone products , resulted in substantial improvements in our gross profit and gross profit margins from our lime and limestone operations . to maintain or continue to improve our gross profit margins , we are focusing on maintaining , and increasing where possible , our lime and limestone prices to offset our increased costs and continued weak construction demand related to housing development , which is a challenging task in these difficult economic times . in addition , we will continue to explore ways to expand our operations and production capacity through major capital projects and acquisitions as conditions warrant or opportunities arise . we believe the enhanced production capacity resulting from our modernization and expansion and development projects at texas and arkansas , our acquisitions and the operational strategies we have implemented have allowed us to increase production , improve product quality , better serve existing customers , attract new customers and control our costs . story_separator_special_tag there can be no assurance , however , that demand and prices for our lime and limestone products will be sufficient to fully utilize our additional production capacity and cover our additional depreciation , depletion and other fixed costs , that our production will not be adversely affected by weather , maintenance , accident or other operational issues , that we can successfully invest in improvements to our existing facilities , that our results will not be adversely affected by continued increases in fuel , electricity , transportation and freight costs or new environmental , health and safety or other regulatory requirements , or that our revenues , gross profit , net income and cash flows can be maintained . natural gas interests . in 2004 , we entered into the o & g lease with eog with respect to oil and gas rights on our cleburne , texas property , located in the barnett shale formation . pursuant to the o & g lease , we have royalty interests ranging from 15.4 % to 20 % in oil and gas produced from any successful wells drilled on the leased property and an option to participate in any well drilled on the leased property as a 20 % non-operating working interest owner . our overall average revenue interest is 34.7 % in all 34 wells drilled under the o & g lease . in november 2006 , we also entered into a drillsite agreement with xto that has an oil and gas lease covering approximately 538 acres of land contiguous to our johnson county , texas property . pursuant to this agreement , we have a 3 % royalty interest and an optional 12.5 % non-operating 23 working interest , resulting in a 12.4 % interest in revenues in the six xto wells drilled from two padsites located on our property . no new wells were completed as producing wells in 2009. eight new wells were drilled in the fourth quarter 2009 and first quarter 2010 pursuant to the o & g lease , five of which were completed as producing wells during the fourth quarter 2010 , and three of which were completed as producing wells in late june 2011. in addition , two wells were drilled in the first quarter 2010 and completed as producing wells in the third quarter 2010 pursuant to the drillsite agreement . no new wells are currently being drilled . we can not predict the number of additional wells that ultimately will be drilled , if any , or their results . the pricing of natural gas sales is primarily determined by supply and demand in the marketplace and can fluctuate considerably . the prices that the company receives for its natural gas production is also affected by the amount of natural gas liquids included in the natural gas and the prices for those liquids , which prices normally track the prices of crude oil . in recent years , the demand and prices for crude oil have increased , while the prices of natural gas have tended to decline due to increased supply . critical accounting policies . the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` us gaap '' ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities , at the date of our financial statements . actual results may differ from these estimates and judgments under different assumptions or conditions and historical trends . critical accounting policies are defined as those that are reflective of significant management judgments and uncertainties and potentially result in materially different results under different assumptions and conditions . we believe the following critical accounting policies require the most significant management estimates and judgments used in the preparation of our consolidated financial statements . accounts receivable . we estimate the collectability of our trade receivables . a considerable amount of judgment is required in assessing the ultimate realization of these receivables and determining our allowance for doubtful accounts . uncollected trade receivables are charged-off when identified by management to be unrecoverable . the majority of our trade receivables are unsecured . payment terms for our trade receivables are based on underlying purchase orders , contracts or purchase agreements . credit losses relating to these receivables consistently have been within management expectations and historical trends . successful-efforts method for natural gas interests . we use the successful-efforts method to account for development expenditures related to our natural gas interests . under this method , drilling and completion costs of development wells are capitalized and depleted using the units-of-production method . costs to drill exploratory wells , if any , that do not find proved reserves are expensed . natural gas reserve estimates . proved oil and gas reserves are those quantities of oil and gas , which , by analysis of geoscience and engineering data , can be estimated with reasonable certainty to be economically producible from a given date forward , from known reservoirs , and under existing economic conditions , operating methods , and government regulations , prior to the time at which contracts providing the right to operate expire , unless evidence indicates that renewal is reasonably certain , regardless of whether deterministic or probabilistic methods are used for the estimation . the project to extract the hydrocarbons must have commenced or the operator must be reasonably certain it will commence the project within a reasonable time . 24 the volumes of our reserves are estimates that , by their nature , are subject to revision . the estimates are made using geological and reservoir data , as well as production performance data . these estimates will be reviewed annually and revised , either upward or downward , as warranted by additional performance data .
| additionally , in 2010 , we incurred and accrued costs resulting from an accident at the company 's st. clair plant in oklahoma . gross profit for 2011 also included $ 9.2 million from our natural gas interests , compared to $ 4.8 million in 2010 , an increase of $ 4.4 million , or 90.5 % . production volumes for 2011 from our natural gas interests in 40 wells totaled 1.6 bcf , sold at an average price per mcf of approximately $ 8.27 , compared to 2010 when approximately 1.0 bcf was produced and sold from 37 wells at an average price of approximately $ 7.78 per mcf . selling , general and administrative expenses ( `` sg & a '' ) increased to $ 8.8 million in 2011 from $ 8.4 in 2010 , an increase of $ 470 thousand , or 5.6 % . as a percentage of revenues , sg & a decreased to 6.2 % in 2011 from 6.3 % in 2010. the increase in sg & a in 2011 was primarily attributable to increased personnel costs , including non-cash stock-based compensation costs . interest expense in 2011 decreased to $ 2.5 million from $ 2.7 million in 2010 , a decrease of $ 220 thousand , or 8.1 % . interest expense in 2011 included $ 1.6 million paid in quarterly settlement payments pursuant to our interest rate hedges , compared to $ 1.8 million paid in 2010. the decrease in interest expense in 2011 primarily resulted from decreased average outstanding debt . income tax expense increased to $ 8.0 million in 2011 from $ 7.0 million in 2010 , an increase of $ 940 thousand , or 13.4 % . the increase in income tax expense in 2011 compared to 2010 was primarily due to the increase in our income before taxes . our effective income tax rate for 2011 decreased to 26.4 % compared to our 2010 rate of 28.0 % primarily because of increased statutory depletion in 2011 compared to 2010 , resulting from increased revenues from our natural gas interests and proportionately
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the majority of the company 's sales are paid by credit cards and the company usually receives the cash settlement in two to three banking days . credit card sales minimize accounts receivable balances relative to sales . the company maintains an allowance for doubtful accounts for losses that the company estimates will arise from customers ' inability to make required payments , arising from either credit card charge-backs or insufficient funds checks . the company determines its estimates of the uncollectibility of accounts receivable by analyzing historical bad debts and current economic trends . the allowance for doubtful accounts was approximately $ 13,000 at march 31 , 2016 , compared to $ 8,000 at march 31 , 2015. valuation of inventory inventories consist of prescription and non-prescription pet medications and pet supplies that are available for sale and are priced at the lower of cost or market value using a weighted average cost method . the company writes down its inventory for estimated obsolescence . the inventory reserve was approximately $ 64,000 and $ 63,000 as of march 31 , 2016 and 2015 , respectively . advertising the company 's advertising expense consists primarily of television advertising , internet marketing , and direct mail/print advertising . television advertising costs are expensed as the advertisements are televised . internet costs are expensed in the month incurred and direct mail/print advertising costs are expensed when the related catalogs , brochures , and postcards are produced , distributed , or superseded . 15 accounting for income taxes the company accounts for income taxes under the provisions of asc topic 740 , ( “ accounting for income taxes ” ) , which generally requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements or tax returns . under this method , defe rred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities , and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse . story_separator_special_tag 17 advertising cost of acquiring a new customer can be impacted by the advertising environment , the effectiveness of our advertising creative , increased advertising spending , and price competition . historically , the advertising environment fluctuates due to supply and demand . a more favorable advertising environment may positively impact future new order sales , whereas a less favorable advertising environment may negatively impact future new order sales . as a percentage of sales , advertising expense was 9.3 % and 11.0 % for the fiscal years ended march 31 , 2016 and 2015 , respectively . the decrease in advertising expense as a percentage of total sales for the fiscal year ended march 31 , 2016 can be attributed to a reduction in television advertising spending . the company currently anticipates advertising as a percentage of sales to be approximately 9 % for fiscal 2017. however , the advertising percentage will fluctuate quarter to quarter due to seasonality and advertising availability . for the fiscal year ended march 31 , 2016 , quarterly advertising expenses as a percentage of sales ranged between 7 % and 11 % . discontinued project costs during the quarter ended september 30 , 2014 the company discontinued an information technology project related to a new software platform , which was intended to be put into service and capitalized during fiscal 2015. the company expensed a one-time project charge of $ 1.7 million in the september 2014 quarter . the net after tax impact of this one-time charge was $ 1.1 million , or $ 0.05 diluted per share . the company does not expect any additional future expenditures relating to the discontinued project . there was no financial impact related to the discontinued project during the fiscal year ended march 31 , 2016. depreciation depreciation increased by approximately $ 110,000 , to approximately $ 770,000 for the year ended march 31 , 2016 , from approximately $ 660,000 for the year ended march 31 , 2015. this increase to depreciation for the fiscal year ended march 31 , 2016 can be attributed to an increase in new property and equipment additions . other income other income decreased slightly , to approximately $ 179,000 for the year ended march 31 , 2016 from approximately $ 185,000 for the year ended march 31 , 2015. other income mainly consists of interest income and rental income . other income may increase in fiscal 2017 due to increased rental revenue and interest income may decrease in the future as the company utilizes its cash balances on its share repurchase plan , with approximately $ 10.2 million remaining as of march 31 , 2016 , on any quarterly dividend payment , or on its operating activities . provision for income taxes for the fiscal years ended march 31 , 2016 and 2015 , the company recorded an income tax provision for approximately $ 12.0 million and $ 10.3 million , respectively . the increase to the income tax provision for fiscal 2016 is related to an increase to operating income for the period due to a reduction in operating expenses . the increase to the income tax provision is also related to the one-tim e discontinued project charge of $ 1.7 million which was recognized in fiscal 2015 , the net after tax impact of this one-time charge was $ 1.1 million , which reduced the income tax provision by approximately $ 600,000. the effective tax rate for the fiscal years ended march 31 , 2016 and 2015 were 36.8 % and 37.2 % , respectively . story_separator_special_tag the effective tax rate decrease for the fiscal year ended march 31 , 2016 , can be attributed to a one-time benefit related to a fiscal 2016 income tax over-accrual , which was recognized in the quarter ended december 31 , 2015 , compared to a one-time charge related to a fiscal 2015 income tax under-accrual , which was recognized in the quarter ended december 31 , 2014. the company estimates its effective tax rate will be approximately 37.0 % for fiscal 2017. net income net income increased by approximately $ 3.1 million , or 17.8 % , to approximately $ 20.6 million for the fiscal year ended march 31 , 2016 from approximately $ 17.5 million for the fiscal year ended march 31 , 2015. the increase was primarily due to a reduction in operating expenses during fiscal 2016 and the recognition of a one-time project charge of $ 1.7 million recognized in fiscal 2015. the net after tax impact of this one-time charge was $ 1.1 million . 18 fiscal 2015 compared to fiscal 2014 sales sales decreased by approximately $ 4.0 million , or 1.7 % , to approximately $ 229.4 million for the fiscal year ended march 31 , 2015 , from approximately $ 233.4 million for the fiscal year ended march 31 , 2014. the decrease in sales for the fiscal year ended march 31 , 2015 was primarily due to decreased new order and reorder sales . fiscal 2015 sales were negatively impacted primarily by the weakness in demand for flea and tick topical pet medications . the company acquired approximately 529,000 new customers for the year ended march 31 , 2015 , compared to approximately 597,000 new customers for the same period the prior year . the following chart illustrates sales by various sales classifications : replace_table_token_8_th going forward sales may continue to be adversely affected due to increased competition and consumers giving more consideration to price . the majority of our product sales were affected by the seasons , due to the seasonality of mainly heartworm , and flea and tick medications . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2015 , the company 's sales were approximately 32 % , 25 % , 21 % , and 22 % , respectively . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2014 , the company 's sales were approximately 32 % , 26 % , 21 % , and 21 % , respectively . cost of sales cost of sales decreased by $ 2.7 million , or 1.7 % , to $ 153.1 million for the fiscal year ended march 31 , 2015 , from $ 155.8 million for the fiscal year ended march 31 , 2014. the decrease in cost of sales is directly related to a reduction in sales . as a percentage of sales , cost of sales was 66.8 % in fiscal 2015 , as compared to 66.7 % in fiscal 2014. the cost of sales percentage increase can be mainly attributed to a slight increase in product costs . gross profit gross profit decreased by $ 1.3 million , or 1.7 % , to $ 76.3 million for the fiscal year ended march 31 , 2015 , from $ 77.6 million for the fiscal year ended march 31 , 2014. gross profit as a percentage of sales for fiscal 2015 was 33.2 % compared to 33.3 % , for fiscal 2014. the gross profit percentage decrease can be mainly attributed to a slight increase in product costs . general and administrative expenses general and administrative expenses decreased by $ 251,000 , or 1.2 % , to $ 21.1 million for the fiscal year ended march 31 , 2015 from $ 21.4 million for the fiscal year ended march 31 , 2014. the decrease in general and administrative expenses for the fiscal year ended march 31 , 2015 was primarily due to the following : a $ 151,000 reduction in payroll expense ; a $ 103,000 decrease in bank service fees due to a decrease in sales ; a $ 84,000 decrease in property expenses related to computer maintenance expenses ; and a $ 57,000 decrease in other expenses including office expense , insurance expense , and licenses and fees . offsetting the decrease was a $ 67,000 increase in professional fees , with the majority of the increase relating to investor relations and pharmacy ; a $ 53,000 one-time charge relating to state/county sales tax which was not collected on behalf of our customers ; and a $ 24,000 increase in telephone expenses . general and administrative expenses as a percentage of sales was 9.2 % for both the fiscal years ended march 31 , 2015 and 2014 , respectively . 19 advertising expenses advertising expenses decreased by approximately $ 2.0 million to approximately $ 25.2 million for the year ended march 31 , 2015 , from approximately $ 27.2 mi llion for the year ended march 31 , 2014. the decrease in advertising expenses for fiscal 2015 can be attributed to a reduction in television and print advertising . the advertising costs of acquiring a new customer , defined as total advertising costs divided by new customers acquired , was $ 48 for the fiscal year ended march 31 , 2015 , compared to $ 46 for the fiscal year ended march 31 , 2014. advertising cost of acquiring a new customer can be impacted by the advertising environment , the effectiveness of our advertising creative , increased advertising spending , and price competition . historically , the advertising environment fluctuates due to supply and demand . a more favorable advertising environment may positively impact future new order sales , whereas a less favorable advertising environment may negatively impact future new order sales .
| cost of sales cost of sales increased by $ 5.3 million , or 3.4 % to $ 158.4 million for the fiscal year ended march 31 , 2016 , from $ 153.1 million for the fiscal year ended march 31 , 2015. the increase in cost of sales in fiscal 2016 is directly related to the increase in sales during the fiscal year . as a percentage of sales , cost of sales was 67.5 % in fiscal 2016 , as compared to 66.8 % in fiscal 2015. the cost of sales percentage increase can be mainly attributed to an increase in product costs on certain brands and additional discounts given to customers to increase sales during the fiscal year . gross profit gross profit was $ 76.3 million for both of the fiscal years ended march 31 , 2016 and 2015. gross profit as a percentage of sales for fiscal 2016 was 32.5 % compared to 33.2 % , for fiscal 2015. the gross profit percentage decrease in fiscal 2016 can be mainly attributed to an increase in product costs on certain brands and additional discounts given to customers to increase sales during the fiscal year . general and administrative expenses general and administrative expenses increased by $ 200,000 , or 1.0 % , to $ 21.3 million for the fiscal year ended march 31 , 2016 from $ 21.1 million for the fiscal year ended march 31 , 2015. the increase in general and administrative expenses for the fiscal year ended march 31 , 2016 was primarily due to the following : a $ 165,000 increase in bad debt expenses relating to increased credit card chargebacks in the period ; a $ 139,000 increase in property expenses ; and a $ 135,000 increase in bank service fees due to increased sales . offsetting the increase was a $ 62,000 decrease in payroll expenses ; a $ 53,000 decrease due to a one-time charge relating to state/county sales tax which was not collected on behalf of our customers in fiscal 2015 ; a $ 53,000 decrease in licenses and fees ; a $ 39,000 decrease in insurance expenses ; and a $ 32,000 net decrease
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40 total return swap income of $ 11.7 million in 2016 consists of monthly settlements related to the company 's total return swap contracts that were entered into during 2015 , in connection with $ 257.3 million of tax-exempt mortgage notes payable . the company had total return swap income of $ 5.7 million in 2015 . interest and other income increased $ 8.2 million or 42.6 % in 2016 , primarily due to an increase of $ 5.1 million in gains from the sale of marketable securities and $ 2.5 million in income from marketable securities and other interest income . equity income from co-investments increased by $ 26.8 million or 122.8 % in 2016 compared to 2015 , primarily due to $ 13.0 million in income on the gain on sale of two co-investment communities as well as income from five preferred equity investments originated during 2016 . gains on sale of real estate and land increased by $ 107.2 million or 226.5 % in 2016 compared to 2015 , due primarily to a $ 126.6 million gain from the sale of minority membership interest in bex ii , llc , $ 10.7 million gain on the sale of harvest park before a tax expense , a $ 7.3 million gain on the sale of candlewood north and a $ 9.6 million gain on the sale of the company 's headquarters office building during 2016 , as compared to approximately $ 7.1 million in gains on the sales of pinnacle south mountain and two commercial buildings as well as a $ 40.2 million gain on the sale of sharon green during 2015 . deferred tax expense on gain on sale of real estate and land of $ 4.4 million for 2016 was recorded primarily due to the sale of harvest park , which was owned by our wholly owned taxable reit subsidiary . there was no current tax expense on the sale of real estate and land for 2016 as the harvest park proceeds were used in a like-kind exchange transaction . gains on remeasurement of co-investment of $ 34.0 million in 2015 was due to the remeasurement of the company 's investments , caused by the company 's acquisition of a controlling interest in the huxley and the dylan properties , resulting in a gain of $ 21.3 million , and reveal , resulting in a gain of $ 12.7 million . there were no gains on remeasurement of co-investments in 2016 . comparison of year ended december 31 , 2015 to the year ended december 31 , 2014 the company 's average financial occupancies for the company 's stabilized apartment communities for “ 2015 / 2014 same-properties ” ( stabilized properties consolidated by the company for the years ended december 31 , 2015 and 2014 ) was unchanged at 96.2 % in both 2015 and 2014. the regional breakdown of the company 's stabilized 2015 / 2014 same-property portfolio for financial occupancy for the years ended december 31 , 2015 and 2014 is as follows : replace_table_token_22_th the following table provides a breakdown of revenue amounts , including the revenues attributable to 2015 / 2014 same-properties . replace_table_token_23_th 41 ( 1 ) same-property excludes bre properties acquired april 1 , 2014 and properties held for sale . 2015 / 2014 same-property revenues increased by $ 48.7 million or 8.0 % to $ 658 million for 2015 compared to $ 609.3 million in 2014 . the increase was primarily attributable to an increase of 8.1 % in average rental rates from $ 1,741 per apartment home for 2014 to $ 1,882 per apartment home for 2015 . 2015 / 2014 non-same property revenues increased by $ 175.2 million or 49.7 % to $ 527.4 million in 2015 compared to $ 352.3 million in 2014 . the increase was primarily due to the bre merger and the acquisition or consolidation of ten communities , net of dispositions and properties held for sale , since january 1 , 2014. property operating expenses , excluding real estate taxes increased $ 30.3 million or 14.8 % in 2015 compared to 2014 , primarily due to the bre merger and the acquisition or consolidation of ten communities , net of dispositions and properties held for sale , since january 1 , 2014 . 2015/2014 same-property operating expenses excluding real estate taxes , increased by $ 2.3 million or 1.7 % in 2015 compared to 2014 , due mainly to a $ 1.7 million increase in repairs and maintenance . real estate taxes increased $ 20.7 million or 19.2 % in 2015 compared to 2014 , due primarily due to the bre merger and the acquisition or consolidation of ten communities , net of dispositions and held for sale , since january 1 , 2014 . 2015/2014 same-property real estate taxes increased by $ 1.7 million or 3.2 % for 2015 compared to 2014. depreciation and amortization expense increased by $ 92.8 million or 25.7 % in 2015 compared to 2014 , primarily due to the bre merger and the acquisition or consolidation of ten communities , net of dispositions and properties held for sale , since january 1 , 2014. merger and integration expenses include , but are not limited to , advisor fees , legal fees , and accounting fees related to the bre merger and related integration activity . the company completed the merger with bre on april 1 , 2014. merger and integration expenses were $ 3.8 million for 2015 and $ 53.5 million for 2014 . story_separator_special_tag interest expense increased $ 40.3 million or 24.5 % in 2015 , due to an increase in average outstanding debt primarily due to assumed debt in connection with the bre merger in addition to a $ 6.8 million decrease in capitalized interest in 2015 compared to 2014 , which was due to a decrease in development costs as compared to the same period in 2014. total return swap income of $ 5.7 million in 2015 consists of monthly settlements related to the company 's total return swap contracts that were entered into during the year , in connection with $ 257.3 million of tax-exempt mortgage notes payable . the company had no total return swap income in 2014 . interest and other income increased $ 7.3 million or 62.1 % in 2015 , due to an increase in the investment of mortgage backed securities , an increase of $ 3.1 million in insurance proceeds and $ 0.6 million in income from the sale of an investment . equity income from co-investments decreased by $ 18.0 million to $ 21.9 million in 2015 compared to $ 39.9 million in 2014 , primarily due to events in 2014 which did not recur in 2015 , including the company 's share of the gain on the sale of two co-investment communities of $ 6.6 million , promote income of $ 10.6 million , and income from the early redemption of preferred equity investments of $ 5.3 million in 2014 , partially offset by $ 2.0 million in income from the early redemption of two preferred equity investments during 2015 and an increase of $ 7.4 million in equity income from co-investment operations . additionally , income from preferred equity investments decreased by approximately $ 5.1 million from 2014 to 2015. gains on sale of real estate and land increased by $ 1.3 million or 2.8 % in 2015 compared to 2014 , due primarily to $ 7.1 million in gains on the sales of pinnacle south mountain and two commercial buildings as well as a $ 40.2 million gain on the sale of sharon green during 2015 as compared to approximately $ 16.8 million in gains on the sales of vista capri north , coldwater canyon , pinnacle town center , and a land parcel adjacent to the company 's park viridian property , as well as a $ 29.2 million gain on the sale of mt . sutro during 2014 . gains on remeasurement of co-investment increased by $ 34.0 million in 2015 compared to 2014 , due to the remeasurement of the company 's investments , as a result of the company 's acquisition of a controlling interest in the huxley and the dylan properties , resulting in a gain of $ 21.3 million , and reveal , resulting in a gain of $ 12.7 million . 42 liquidity and capital resources the following table sets forth the company 's cash flows for 2016 , 2015 and 2014 ( $ in thousands ) : replace_table_token_24_th ess 's business is operated primarily through the operating partnership . ess issues public equity from time to time , but does not otherwise generate any capital itself or conduct any business itself , other than incurring certain expenses in operating as a public company which are fully reimbursed by the operating partnership . ess itself does not hold any indebtedness , and its only material asset is its ownership of partnership interests of the operating partnership . ess 's principal funding requirement is the payment of dividends on its common stock and preferred stock . ess 's sole source of funding for its dividend payments is distributions it receives from the operating partnership . as of december 31 , 2016 , ess owned a 96.7 % general partner interest and the limited partners owned the remaining 3.3 % interest in the operating partnership . the liquidity of ess is dependent on the operating partnership 's ability to make sufficient distributions to ess . the primary cash requirement of ess is its payment of dividends to its stockholders . ess also guarantees some of the operating partnership 's debt , as discussed further in notes 6 and 7 of the notes to consolidated financial statements included elsewhere herein . if the operating partnership fails to fulfill certain of its debt requirements , which trigger the ess 's guarantee obligations , then ess will be required to fulfill its cash payment commitments under such guarantees . however , ess 's only significant asset is its investment in the operating partnership . for ess to maintain its qualification as a reit , it must pay dividends to its stockholders aggregating annually at least 90 % of its reit taxable income , excluding net capital gains . while historically ess has satisfied this distribution requirement by making cash distributions to its stockholders , it may choose to satisfy this requirement by making distributions of cash or other property , including , in limited circumstances , ess 's own stock . as a result of this distribution requirement , the operating partnership can not rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not reits can . ess may need to continue to raise capital in the equity markets to fund the operating partnership 's working capital needs , acquisitions and developments . at december 31 , 2016 , the company had $ 64.9 million of unrestricted cash and cash equivalents and $ 139.2 million in marketable securities , of which $ 44.8 million were held available for sale . the company believes that cash flows generated by its operations , existing cash and cash equivalents , marketable securities balances , availability under existing lines of credit , access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of the company 's reasonably anticipated cash needs during 2017 .
| the company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes . the calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes , and thus the calculation compares the gross value of all apartment homes excluding delinquency and concessions . for apartment communities that are development properties in lease-up without stabilized occupancy figures , the company believes the physical occupancy rate is the appropriate performance metric . while an apartment community is in the lease-up phase , the company 's primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives , and thus financial occupancy , which is based on contractual revenue is not considered the best metric to quantify occupancy . the regional breakdown of the company 's 2016 / 2015 same-property portfolio for financial occupancy for the years ended december 31 , 2016 and 2015 is as follows : replace_table_token_20_th 39 the following table provides a breakdown of revenue amounts , including the revenues attributable to 2016 / 2015 same-properties . replace_table_token_21_th ( 1 ) same-property excludes properties held for sale . 2016 / 2015 same-property revenues increased by $ 70.3 million or 6.7 % to $ 1.1 billion for 2016 compared to $ 1.0 billion in 2015 . the increase was primarily attributable to an increase of 6.4 % in average rental rates from $ 1,942 per apartment home for 2015 to $ 2,066 per apartment home for 2016 . 2016 / 2015 non-same property revenues increased by $ 29.9 million or 21.5 % to $ 169.4 million in 2016 compared to $ 139.4 million in 2015 . the increase was primarily due to revenue generated by the acquisition , completed development , or consolidation of three communities , net of dispositions , since january 1 , 2015. management and other fees from affiliates decreased by $ 0.6 million in 2016 compared to 2015 . the decrease
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upholstery fabrics segment net sales replace_table_token_10_th although overall upholstery fabrics sales increased in fiscal 2019 compared to the prior year , our sales decreased 8.3 % during the fourth quarter of fiscal 2019 compared to the fourth quarter of fiscal 2018. our upholstery fabrics net sales reflected more challenging market conditions with generally weaker consumer demand for furniture during the fourth quarter , as well as the ongoing trade dispute between the u.s. and china and continued uncertainties surrounding tariffs . the anticipation of additional tariffs resulted in more advance customer purchases in previous quarters and inflated inventories heading into the fourth quarter . this factor , combined with the generally weaker demand for furniture , affected our sales for the fourth quarter . the increase in upholstery fabric net sales for the year includes the contribution from read , acquired on april 1 , 2018 ( see below for further details regarding the acquisition of read ) , partially offset by the decline in sales associated with the closure of our anderson , south carolina facility during the second quarter of fiscal 2019. additionally , these results reflect our product-driven strategy with a sustained focus on innovation and creative designs . our ability to provide a diverse product offering has allowed us to reach new market segments and expand our customer base in both the residential and hospitality markets . our results reflect the continued success of this strategy , highlighted by expanded sales of livesmart® , our popular “ performance ” line of highly durable stain-resistant fabric . 39 currently , we expect the soft retail demand trends for furniture , as well as the impact of the continued uncertainties surrounding tariffs and the associated geopolitical risks , to continue at least through the early part of fiscal 2020. gross profit and operating income replace_table_token_11_th despite the increase in net sales noted above , our profitability in upholstery fabrics decreased slightly in fiscal 2019 compared with the same period a year ago . the decrease in profitability was primarily due to restructuring related charges totaling $ 2.3 million related to the closure of our upholstery fabrics operation located in anderson , south carolina ( see below for further details regarding closure of our anderson plant facility ) . exit and disposal activity on june 12 , 2018 , our board of directors announced the closure of our upholstery fabrics manufacturing facility in anderson , south carolina . this closure was completed during the second quarter of fiscal 2019 and was due to a continued decline in demand for the products manufactured at this facility , reflecting a change in consumer style preferences . the following summarizes our restructuring credit and related charges totaling $ 1.6 million that were associated with this exit and disposal activity . ( dollars in thousands ) 2019 inventory markdowns $ 1,564 other operating costs associated with a closed facility 824 employee termination benefits 661 gain on sale of property , plant , and equipment ( 1,486 ) total net charge $ 1,563 of this total net charge , a charge of $ 2.3 million , a charge of $ 40,000 and a credit of $ 825,000 was recorded in cost of sales , selling , general , and administrative expenses , and restructuring credit , at least through the early part of fiscal 2020 , respectively , in the fiscal 2019 consolidated statement of net income . 40 business combination - read window products , llc effective april 1 , 2018 , we entered into an asset purchase agreement ( agreement ) to acquire certain assets and assume certain liabilities of read , a source of custom window treatments for the hospitality and commercial industries . based in knoxville , tennessee , read is a turn-key provider of window treatments that offers sourcing of upholstery fabrics and other products , as well as measuring and installation services for read 's own products . read 's custom product line includes motorization , shades , upholstered drapery , upholstered headboards and shower curtains . in addition , read supplies soft goods such as decorative top sheets , coverlets , duvet covers , bed skirts , bolsters and pillows , for leading hospitality brands worldwide . the addition of window treatments and other soft goods to our product line allows us to be a more complete source of fabrics for the hospitality market , in which we believe there are significant growth opportunities . the purchase price for the net assets acquired was $ 5.7 million , of which $ 4.5 million was paid at closing on april 1 , 2018 , $ 375,000 was paid in may 2018 , and $ 763,000 was paid in july 2019. the following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed based on their fair values . replace_table_token_12_th the agreement contains a contingent consideration arrangement that requires us to pay the former shareholder of read an earn-out payment based on adjusted ebitda , as defined in the agreement for calendar year 2018 in excess of fifty percent of a pre-established adjusted ebitda target . as of april 28 , 2019 , based on actual financial results in relation to the pre-established adjusted ebitda target , a contingent payment is not required under the terms of the agreement , and therefore , no contingent liability has been recorded . acquisition costs totaling $ 339,000 were included in selling , general , and administrative expenses in our fiscal 2018 consolidated statement of net income . 41 segment assets segment assets consist of accounts receivable , inventory , and property , plant , and equipment . story_separator_special_tag replace_table_token_13_th accounts receivable as of april 28 , 2019 , accounts receivable was comparable with april 29 , 2018. this trend reflects a decrease in net sales of 8.3 % for the fourth quarter of fiscal 2019 compared with the fourth quarter of fiscal 2018 noted above , offset by higher days sales outstanding of 34 days for the fourth quarter of fiscal 2019 compared with 31 days for the fourth quarter of fiscal 2018. inventory as of april 28 , 2019 , inventory decreased compared with april 29 , 2018. the trend primarily represents the decrease in net sales noted above during the fourth quarter of fiscal 2019 compared with the fourth quarter of fiscal 2018. property , plant & equipment the $ 1.8 million at april 28 , 2019 , represents property , plant , and equipment located in the u.s. of $ 1.2 million and located in china of $ 591,000. the $ 2.4 million at april 29 , 2018 , represents property , plant , and equipment located in the u.s. of $ 1.8 million and located in china of $ 661,000. home accessories segment replace_table_token_14_th 42 net sales , gross profit , and operating income this segment , which includes our june 2018 majority investment in eluxury , represents our e-commerce and finished products business offering bedding accessories and home goods . the combined platform for this new segment supports sales of finished products to both consumers and business through global e-commerce and business-to-business sales channels . net sales for our home accessories segment were $ 16.0 million since the june 2018 investment date in eluxury , with no comparable prior year sales . our home accessories segment financial results for fiscal 2019 reflect typical product roll-out , sampling , and marketing challenges in connection with the start-up and integration of a newly combined platform . these challenges , along with reduced demand for legacy products , primarily mattress pads , unfavorably affected our financial results for the year . our strategic focus for the segment is to develop innovative bedding accessory products and other home good items through our global manufacturing platform and in coordination with culp 's other business segments . during the second half of fiscal 2019 , we developed and launched new products featuring culp mattress fabrics and upholstery fabrics , including mattress pads and mattress protectors made with culp mattress fabrics and dog beds made with livesmart® performance fabric . additionally , we are focused on expanding our sales channels beyond eluxury 's e-commerce platform to reach business retailers , both in brick and mortar stores and through their online platforms , as well as customers in the hospitality industry . business combination - eluxury , llc overview effective june 22 , 2018 , we entered an equity purchase agreement ( equity agreement ” ) pursuant to which we acquired an 80 % ownership interest in eluxury , a company that offers bedding accessories and home goods directly to consumers . eluxury 's primary products include a line of mattress pads manufactured at eluxury 's facility located in evansville , indiana . eluxury also offers handmade platform beds , cotton bed sheets , as well as other bedding items . their products are available on eluxury 's own branded website , eluxury.com , amazon , and other leading online retailers for specialty home goods . this acquisition brings together eluxury 's experience in e-commerce , online brand building and direct to consumer shopping and fulfillment with our global production , sourcing and distribution capabilities . the estimated consideration given for the 80 % ownership interest in eluxury totaled $ 18.1 million , of which $ 12.5 million represents the estimated purchase price and $ 5.6 million represents the estimated fair value for contingent consideration associated with an earn-out obligation ( see below for further details ) . of the $ 12.5 million estimated purchase price , $ 11.6 million was paid at closing on june 22 , 2018 , $ 185,000 was paid in august 2018 , and $ 749,000 is to be paid in september 2019 , subject to certain conditions as defined in the equity agreement . 43 assets acquired and liabilities assumed the following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed based on their fair values . replace_table_token_15_th as mentioned above , the equity agreement contains a contingent consideration arrangement that requires us to pay the seller , who is also the owner of the noncontrolling interest , an earn-out payment based on a multiple of adjusted ebitda , as defined in the equity agreement , for the twelve-month period ending august 31 , 2021 , less $ 12.0 million . we recorded a contingent liability at the acquisition date for this earn-out obligation at its fair value totaling $ 5.6 million based on the black scholes pricing model . consolidation and non-controlling interest as a result of the acquisition of our 80 % controlling interest , we included all the accounts of eluxury in our consolidated financial statements and have eliminated all significant intercompany balances and transactions . net income ( loss ) attributable to the noncontrolling interest in eluxury is excluded from total consolidated net income ( loss ) to arrive at net income ( loss ) attributable to culp inc. common shareholders . other acquisitions costs totaling $ 270,000 were included in selling , general , and administrative expenses in our fiscal 2019 consolidated statement of net income . segment assets segment assets consist of accounts receivable , inventory , and property , plant and equipment . ( dollars in thousands ) april 28 , 2019 april 29 , 2018 accounts receivable $ 379 $ - inventory 3,296 - property , plant & equipment 1,910 - 44 property , plant & equipment the $ 1.9 million at april 28 , 2019 , represents property , plant , and equipment located in the u.s. refer to note 21 located in the notes to the consolidated financial statements for disclosures regarding determination of our segment assets .
| these challenges , along with a weak retail and e-commerce sales environment , unfavorably affected our financial results for fiscal 2019. income before income taxes income before income taxes decreased 55.4 % compared to the same period a year ago . this decrease was primarily due to the decrease in sales of mattress fabrics noted above . additionally , income before income taxes was affected by restructuring and related charges and credits and other non-recurring items of approximately $ 2.7 million during fiscal 2019 , of which $ 1.6 million related to the closure of our upholstery fabrics operation located in anderson , south carolina , and non-recurring charges totaling $ 1.1 million which include $ 500,000 for a charitable contribution , payable over a period of three years , in honor of our co-founder and former chairman , robert g. culp , iii , as well as other non-recurring charges associated with the mattress fabrics segment . income taxes we recorded income tax expense of $ 6.4 million , or 53.6 % of income before income tax expense , in fiscal 2019 compared with income tax expense of $ 5.7 million , or 21.4 % of income before income tax expense , in fiscal 2018. our income tax expense of $ 6.4 million and the increase in our income tax rate compared with fiscal 2018 , reflects the mix of our taxable income favoring our foreign tax jurisdictions located in canada and china that have higher income tax rates in relation to the u.s. , and a significant decline in u.s. taxable income , which declined more than anticipated during our fourth quarter . this resulted in a significant increase in our global intangible low taxed income ( gilti ) tax , which was mostly incurred during our fourth quarter . our income tax expense of $ 5.7 million in fiscal 2018 included an income tax benefit totaling $ 2.1 million associated with the 2017 tax cuts and jobs act ( the “ tax act ” ) , which represented an income tax benefit of $ 4.3 million pertaining to the one-time mandatory repatriation tax , partially offset by a $ 2.2 million income tax charge for
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the holders of notes and holders of the claims under the term loan agreement received their proportionate distribution of approximately 90.1 % of our common stock ( subject to dilution by the warrants issued pursuant to the plan and the mip ) plus their pro rata share of $ 30.7 million cash distribution . the holders of claims in connection with the termination of the supply agreement between the predecessor and covia holding corporation received , in exchange for their claims , a $ 12.5 million cash distribution and 0.5 % of our common stock ( subject to dilution by the warrants issued pursuant to the plan and the mip ) . shares of class a common stock were also issued to a holder of certain termination claims under the plan . summary financial results ● total revenue for january 1 through november 19 , 2020 ( predecessor ) was $ 240.3 million and for november 20 through december 31 , 2020 ( successor ) was $ 22.6 million for a combined total of $ 262.9 million for 2020 , which represented a decrease of $ 513.7 million from 2019 . ● net loss for january 1 through november 19 , 2020 ( predecessor ) was $ 24.4 million and for november 20 through december 31 , 2020 ( successor ) was $ 13.4 million for a combined total of $ 37.8 million for 2020 , compared to net loss of $ 72.9 million in 2019 . ● adjusted ebitda for january 1 through november 19 , 2020 ( predecessor ) was $ 6.2 million and for november 20 through december 31 , 2020 ( successor ) was a loss of $ 5.8 million for a combined total of $ 0.4 million in 2020 , which represented a decrease of $ 129.2 million from 2019 . ● cash used by operating activities for january 1 through november 19 , 2020 ( predecessor ) was $ 46.5 million and cash provided by operating activities for november 20 through december 31 , 2020 ( successor ) was $ 2.9 million for a combined cash used total of $ 43.6 million in 2020 , which represented a decrease of $ 167.5 million from 2019. industry trends and business outlook our business depends on the willingness of e & p companies to make expenditures to explore for , develop , and produce oil and natural gas in the united states . the willingness of e & p companies to undertake these activities is predominantly influenced by current and expected future prices for oil and natural gas . a widely watched indicator of e & p companies ' aggregate activity levels is the drilling rig count , or rig count . the active horizontal rig count is a subset of the total rig count and is the most strongly correlated with the aggregate industry demand for hydraulic fracturing services . the average horizontal rig count was approximately 385 , 825 , and 900 in 2020 , 2019 , and 2018 , respectively , according to a report by baker hughes . the prices that we are able to charge for our services is affected by the supply of hydraulic fracturing equipment that is available in the market to meet customer demand . since the middle of 2018 , the supply of hydraulic fracturing equipment has exceeded the demand for equipment , and as a result , the pricing for our services declined during this period . in 2020 , the supply of equipment further exceeded demand as the demand for our services dropped significantly . in response to this competitive market environment , we remain disciplined with respect to our number of active fleets , and we remain focused on optimizing our utilization and cash flow . we reduce our active fleet count when certain fleets do not meet our utilization and profitability targets . we plan to focus on expanding our commercial strategy , further advancing our technology initiatives , and maintaining our industry leading safety performance . with this strategy , we strive to provide the best service quality for our customers while maintaining a low-cost structure . we believe that these efforts will generate free cash flow in 2021 and position us for a longer-term recovery . 36 story_separator_special_tag roman ' , 'times ' , 'serif ' ; font-size:10pt ; font-style : italic ; font-weight : bold ; text-indent:36pt ; margin:0pt 0pt 12pt 0pt ; '' > selling , general and administrative expense selling , general and administrative ( “ sg & a ” ) expense for january 1 through november 19 , 2020 ( predecessor ) was $ 47.8 million and for november 20 through december 31 , 2020 ( successor ) was $ 4.7 million for a combined total of $ 52.5 million in 2020 which decreased by $ 36.6 million from 2019. this decrease was primarily due to lower compensation and benefits expense due to lower headcount and wage reductions across the company in 2020 . 38 selling , general and administrative expense in 2019 increased by $ 1.2 million from 2018. this increase was primarily due to $ 2.4 million of bad debt expense , which was partially offset by decreased compensation and benefits expense due to our lower average headcount in 2019. depreciation and amortization the following table summarizes our depreciation and amortization : replace_table_token_5_th ( 1 ) related to service equipment included in “ property , plant , and equipment , net ” on our consolidated balance sheets discussed under the “ costs of revenue ” heading of this discussion and analysis . ( 2 ) related to all long-lived assets other than service equipment included in “ property , plant , and equipment , net ” on our consolidated balance sheet . ( 3 ) related to our developed technology intangible asset amortized over 36 months . story_separator_special_tag depreciation and amortization for january 1 through november 19 , 2020 ( predecessor ) was $ 68.5 million and for november 20 through december 31 , 2020 ( successor ) was $ 4.8 million for a combined total of $ 73.3 million for 2020 which decreased by $ 16.7 million from 2019. this decrease was primarily due to reduced capital expenditures in 2020 and the fresh start revaluation related to our emergence from bankruptcy . depreciation and amortization in 2019 increased by $ 5.3 million from 2018. this increase was primarily due to elevated capital expenditures from the fourth quarter of 2017 through the second quarter of 2018. impairments and other charges the following table summarizes our impairments and other charges : replace_table_token_6_th transaction costs : in 2020 , in preparation for , and prior to filing , our chapter 11 cases , the predecessor company incurred and paid $ 7.0 million in legal and professional fees and $ 11.5 million to certain holders of our term loan agreement and secured notes pursuant to the restructuring support agreement . 39 inventory write down : in 2020 and 2019 we recorded $ 5.1 million and 6.4 million , respectively , of inventory write-downs to reduce excess , obsolete , and slow-moving inventory to its estimated net realizable value . supply commitment charges : the predecessor company incurred supply commitment charges when our purchases of sand from certain suppliers are less than the minimum purchase commitments in our supply contracts . according to the accounting guidance for firm purchase commitments , future losses that are considered likely are also required to be recorded in the current period . the predecessor company recorded aggregate charges under these supply contracts of $ 9.1 million , $ 58.5 million and $ 19.2 million in 2020 , 2019 and 2018 , respectively . these charges relate to actual purchase shortfalls incurred , as well as forecasted losses expected to be incurred and settled in future periods . these purchase shortfalls are largely due to our customers choosing to procure their own sand , often from sand mines closer to their operating areas . in may 2019 , the predecessor company restructured and amended our largest sand supply contract to reduce the total remaining commitment through 2024 by approximately $ 162 million . this reduced our annual commitment from $ 47.9 million to $ 21.0 million from 2019 through 2024. due to the terms of the amended agreement and our estimated future purchases under this contract , we determined that we would not be able to satisfy $ 11.0 million of the $ 21.0 million annual commitment with sand purchases for the last five years of the contract . therefore , in connection with this amendment , we recorded a supply commitment charge of $ 55.0 million in the first quarter of 2019 to accelerate these purchase shortfalls . after recording the $ 55.0 million supply commitment charge in the first quarter of 2019 , the amount of accrued supply commitment charges for future periods that was recognized on our consolidated balance sheet at march 31 , 2019 was $ 66.0 million . we paid $ 11.0 million of this amount in the second quarter of 2019 and we expected to pay the remaining $ 55.0 million in annual installments of $ 11.0 million from january 2020 through january 2024. the remaining amount of the 2019 charges represent revised estimates of our purchase shortfalls under this contract for 2019. the company terminated all sand supply contracts upon emergence from bankruptcy . any amounts due as outlined in the plan were paid upon emergence and the company does not expect any future commitment related to these predecessor contracts . fleet capacity reduction : in the fourth quarter of 2019 , the predecessor company disposed of certain idle equipment where we believed there was no expectation of future use . the equipment we selected for disposal was comprised primarily of hydraulic fracturing pumps that were substantially depreciated . certain hydraulic fracturing components , such as engines and transmissions that we believe to have remaining useful lives , will be removed prior to disposing of the equipment and used in our maintenance and repair activities for our remaining fleets . these disposals reduced our capacity of equipment from 34 total fleets to 28 total fleets . the amount of proceeds we received from these disposals was not significant . we recorded an asset impairment of $ 4.2 million in the third quarter of 2019 in connection with these disposals . discontinued wireline operations : in may 2019 , the predecessor company discontinued our wireline operations due to financial underperformance resulting from market conditions . as a result of this decision , we recorded an asset impairment of $ 2.8 million and an inventory write-down of $ 1.4 million in the first quarter of 2019 to adjust these assets to their estimated fair market values and net realizable values , respectively . we sold substantially all of these assets in 2019 and received net proceeds of approximately $ 3.7 million . other impairments : in the second quarter of 2019 , the predecessor company recorded $ 2.7 million of impairments for certain land and buildings that we no longer use . we are closely monitoring current industry conditions and future expectations . if industry conditions decline , we may be subject to impairments of long-lived assets or intangible assets in future periods . interest expense , net interest expense , net of interest income , amortization for january 1 through november 19 , 2020 ( predecessor ) was $ 22.1 million and for november 20 through december 31 , 2020 ( successor ) was zero for a combined total of $ 22.1 40 million in 2020 which decreased by $ 8.6 million from 2019. this decreased as a result of the bankruptcy filing , which ceased interest charges on our debt and a reduction of indebtedness in accordance with the plan .
| total revenue in 2019 decreased by $ 766.7 million from 2018. this decrease was due to an increase in the portion of customers who provided their own proppant and fuel , lower average pricing of our services , a lower number of average active fleets , a decrease in wireline services , which were discontinued in may 2019 , and a decrease in the prices for materials used in the fracturing process . these decreases were partially offset by improved efficiencies in the number of fracturing stages completed per average active fleet in 2019 , which increased by 12 % due to operational improvements and customer job designs . the decrease in revenue from related parties in 2019 compared to 2018 was due to a decrease in the services performed for chesapeake . costs of revenue the primary costs involved in conducting our hydraulic fracturing services are costs for materials used in the fracturing process and costs to operate , maintain , and repair our fracturing equipment . costs related to the materials used in the fracturing process typically include costs for sand and other proppants , costs for chemicals added to the fracturing fluid , and freight costs to transport these materials to the well location . costs to operate our fracturing equipment primarily consist of labor and fuel costs . while we exclude certain amounts of depreciation and amortization from our 37 costs of revenue line item , we have included the amounts of depreciation that specifically relate to our revenue generating assets in our discussion below to provide further information regarding the total costs of generating our revenues . costs of revenue as a percentage of total revenue is as follows : replace_table_token_4_th total costs of revenue for january 1 through november 19 , 2020 ( predecessor ) was $ 262.4 million and for november 20 through december 31 , 2020 ( successor ) was $ 28.7 million for a combined total of $ 291.1 million in 2020 which decreased by $ 365.3 million from 2019. this decrease was primarily due to a decrease in our costs of revenue , excluding depreciation . costs of revenue , excluding depreciation , for january 1 through november 19 , 2020 ( predecessor ) was $ 197.2 million and for november 20 through december
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the following table summarizes the operating results of our liberty tax segment for the years ended december 26 , 2020 and april 30 , 2019 : replace_table_token_6_th total revenue for our liberty tax segment decreased $ 9.8 million , or 7 % , for the year ended december 26 , 2020 as compared to the year ended april 30 , 2019. the decrease in revenue is primarily driven by the following : a decrease of $ 8.6 million in royalties and advertising , financial products and electronic filing fees related to store closures and reduced u.s. federal tax returns due to covid-19 ; and a $ 4.6 million decrease in interest income related to a reduction in working capital loans to franchisees as well as a decrease in the loans due from reacquired ads and franchisees ; and an increase of $ 3.8 million in other revenues resulting primarily from gains recorded on ad and franchisee acquisitions where the consideration was less than the value of the acquired assets and ancillary product revenues ; and a $ 1.3 million increase in tax preparation fees due to an increase in the number of company-owned stores . operating expenses for the liberty tax segment decreased $ 34.2 million or 26 % for the year ended december 26 , 2020 as compared to the year ended april 30 , 2019. the decrease in operating expenses is primarily driven by the following : a $ 9.3 million decrease in restructuring costs primarily due to store closures in fiscal 2019 ; and a decrease of $ 7.6 million in other expenses primarily related to reduced bad debt expense in 2020 and non-recurring professional fees in 2019 ; and a decrease of $ 6.9 million in compensation costs due to reductions to head count in fiscal 2020 ; and a decrease of $ 6.0 million in ad expense related to related to buybacks and non-renewals of ads ; and a $ 3.7 million decrease in depreciation , amortization and impairment charges primarily related to software disposed of in december 2019 , partially offset by ad buybacks in 2020 ; and a $ 0.7 million reduction in advertising expense due to decreased tax return volume . for a discussion of the liberty tax segment 2019 transition period results of operations , including a discussion of the financial results for the transition period compared to unaudited period may 1 , 2018 to december 29 , 2018 , refer to part ii , item 7 of our form 10-k/t . for a discussion of the liberty tax segment 2019 results of operations , including a discussion of the financial results for the fiscal year ended april 30 , 2019 compared to the fiscal year ended april 30 , 2018 , refer to part ii , item 7 of our 2019 10-k. 34 adjusted ebitda . to provide additional information regarding our financial results , we have disclosed adjusted ebitda in the table below and within this annual report . adjusted ebitda represents net income ( loss ) , before income taxes , interest expense , depreciation and amortization , and certain other items specified below . we have provided a reconciliation below of adjusted ebitda to net loss , the most directly comparable gaap financial measure . we have included adjusted ebitda in this annual report because we believe the presentation of these measures is useful to investors as supplemental measures in evaluating the aggregate performance of our operating businesses and in comparing our results from period to period because they exclude items that we do not believe are reflective of our core or ongoing operating results . these measures are used by our management to evaluate performance and make resource allocation decisions each period . adjusted ebitda is also the primary operating metric used in the determination of executive management 's compensation . in addition , a measure similar to adjusted ebitda is used in the company 's credit facilities but is calculated differently . adjusted ebitda is not a recognized financial measure under gaap and may not be comparable to similarly-titled measures used by other companies in our industry . adjusted ebitda should not be considered in isolation from or as an alternative to net income ( loss ) , operating income ( loss ) , or any other performance measures derived in accordance with gaap . the following table presents a reconciliation of adjusted ebitda for each of the periods indicated . replace_table_token_7_th included in restructuring expense on the condensed consolidated statement of operations for the year ended april 30 , 2019 is $ 1.3 million of depreciation , amortization , and impairment charges . ebitda is $ 14.4 million for the year end april 30 , 2019 with these expenses included . 35 liquidity and capital resources we believe that we have sufficient liquidity to support our ongoing operations and maintain a sufficient liquidity position to meet our obligations and commitments . our liquidity plans are established as part of our financial and strategic planning processes and consider the liquidity necessary to fund our operating , capital expenditure and debt service needs . we primarily fund our operations and acquisitions through operating cash flows and , as needed , a combination of borrowings under various credit agreements , availability under our revolving credit facilities and the issuance of equity securities . cash generation can be subject to variability based on many factors , including seasonality , receipt of prepaid payments from area developers , timing of repayment of loans to franchisees and the effects of changes in end markets . subsequent to december 26 , 2020 , several transactions and events occurred that will or have the potential to affect our liquidity and capital resources in future periods as discussed in part i , item 1. business . story_separator_special_tag sources and uses of cash operating activities in the year ended december 26 , 2020 , cash provided by operating activities increased $ 224.4 million compared to the year ended april 30 , 2019. this increase is primarily due to : a $ 97.7 million increase in cash due to a decrease in inventory ; a $ 104.0 million increase in cash income ; a $ 24.2 million increase in accounts payable and accrued expenses ; and a $ 24.4 million increase in deferred revenue , partially offset by a $ 22.8 million decrease to accounts , notes , and interest receivable . in the transition period , cash used in operating activities decreased $ 10.3 million compared to the period from may 1 , 2018 to december 29 , 2018. this decrease is primarily due to : a $ 31.7 million increase in other assets due to an increase of $ 10.1 million in inventory , a $ 3.7 million increase in bank products receivable and a $ 5.6 million increase in restricted cash ; a $ 24.0 million increase in depreciation and amortization primarily due to the impairment of internally developed software that is no longer in use ; a $ 21.5 million decrease in income taxes receivable due to a valuation allowance related to the ability to utilize net operating loss carryforwards ; and a $ 61.4 million decrease in net income . in the fiscal year ended april 30 , 2019 , our cash provided from operating activities decreased $ 10.5 million from the cash provided in the fiscal year ended april 30 , 2018. this decrease was primarily driven by : a decrease of $ 11.6 million in tax preparation fees received due to closures of company-owned and year-round accounting stores , partially offset by ; a $ 4.0 million reduction in executive severance and recruitment payments in fiscal 2019 compared to fiscal 2018. investing activities in the year ended december 26 , 2020 , cash used for investing activities increased $ 338.5 million compared to the year ended april 30 , 2019. this increase is primarily driven by : a $ 353.4 million increase in cash used for the american freight acquisition ; 36 a $ 17.3 million decrease in cash payments received on operating loans to franchisees and ads ; a $ 31.9 million increase in purchases of property , equipment and software ; and partially offset by a $ 34.1 million decrease in cash used for operating loans to franchisees and ads and a $ 35.1 million increase in the proceeds from the sales of company-owned offices and area developer rights . in the transition period , cash used for investing activities increased $ 315.0 million compared to the period from may 1 , 2018 to december 29 , 2018. this increase is primarily due to the vitamin shoppe acquisition , the sears outlet acquisition and the acquisition of franchisees from a-team leasing . in the fiscal year ended april 30 , 2019 , we used $ 6.3 million less in investing activities than in the fiscal year ended april 30 , 2018 due to : a $ 2.7 million decrease in net cash used to acquire company-owned offices , ad rights and customer lists , net of sales ; and a $ 2.4 million decrease in purchases of property , equipment and software . financing activities in the year ended december 26 , 2020 , cash from financing activities increased $ 215.9 million compared to the year ended april 30 , 2019. this increase is primarily driven by : an increase of $ 586.0 million in borrowings under the fgnh credit agreement ; an increase of $ 227.5 million due to proceeds from share issuances ; an increase of $ 61.1 million of borrowings under revolving credit facilities . partially offset by $ 498.0 million in repayments of long-term obligations including term loans used to acquire buddy 's , sears outlet , vsi , and american freight ; and a decrease of $ 112.0 million in repayments of borrowings under revolving credit facilities . an increase of $ 27.1 million in dividend payments . in the transition period , cash from financing activities increased $ 341.0 million compared to the period from may 1 , 2018 to december 29 , 2018. the increase was driven by : a $ 333.3 million increase in cash raised from borrowings under debt agreements and revolving credit facilities , primarily under the vitamin shoppe credit agreement , sears outlet credit agreement and buddy 's credit agreement ( defined below ) ; a $ 96.1 million increase in cash raised from common stock issuances ; an increase of $ 15.1 million in cash used for debt issuance costs ; an increase of $ 30.5 million in cash used for repayments of term loans and the revolving credit facilities ; and an increase of $ 47.2 million in cash used to repurchase shares of common stock in connection with a tender offer . in the fiscal year ended april 30 , 2019 , we used $ 4.5 million less cash for financing activities compared to the fiscal year ended april 30 , 2018 primarily due to a decrease of $ 6.7 million in dividends paid . 37 long-term debt borrowings franchise group new holdco term loan and abl term loan . on february 14 , 2020 , as part of the american freight acquisition , we , through direct and indirect subsidiaries , entered into a $ 675.0 million credit facility , which included a $ 575.0 million senior secured term loan ( the “ fgnh term loan ” ) and a $ 100.0 million senior secured asset based term loan ( the “ fgnh abl term loan ” ) , to finance the american freight acquisition and repay the existing sears outlet and buddy 's term loans for an amount of $ 106.7 million and $ 101.6 million including accrued interest , respectively .
| the following table sets forth certain information regarding our income taxes for the years ended december 26 , 2020 and april 30 , 2019 : replace_table_token_5_th the increase in our income tax benefit in the year ended december 26 , 2020 compared to the year ended april 30 , 2019 relates to the coronavirus aid , relief , and economic security ( the `` cares act '' ) which was enacted on march 27 , 2020. the cares act retroactively changed the eligibility of certain assets for expense treatment in the year placed in service , back to 2018 , and permitted any net operating loss for the tax years 2018 , 2019 and 2020 to be carried back for five years . the company recorded an income tax benefit of $ 52.3 million as a result of the cares act which is the primary reason for the change in the effective rate for the year ended december 26 , 2020 compared to the year ended april 30 , 2019. net income . in the year ended december 26 , 2020 , we had net income of $ 27.2 million compared to a net loss of $ 2.2 in the year ended april 30 , 2019 , primarily as a result of the income tax benefit of $ 52.3 million related to the cares act . for a discussion of the 2019 transition period results of operations , including a discussion of the financial results for the transition period compared to unaudited period may 1 , 2018 to december 29 , 2018 , refer to part ii , item 7 of our transition report on form 10-k/t filed with the sec on april 24 , 2020 ( `` form 10-k/t '' ) . for a discussion of the 2019 results of operations , including a discussion of the financial results for the fiscal year ended april 30 , 2019 compared to the fiscal year ended april 30 , 2018 , refer to part ii , item 7 of our annual report on form 10-k for the year ended april 30 , 2019 , filed with the sec on june 27 , 2019 ( `` 2019
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standardized measure represents the present value of estimated future net cash flows from proved reserves , less estimated future development , production , plugging and abandonment costs and income tax expenses , discounted at 10 % per annum to reflect the timing of future cash flows . standardized measure is not an estimate of the fair market value of our properties . pv-10 is a non-gaap financial measure . for a reconciliation of pv-10 to standardized measure , see “ business — estimated proved reserves. ” 2016 capital expenditure budget in response to the continued decline in oil and natural gas prices experienced throughout 2015 and into early 2016 , we have reduced our 2016 estimated capital expenditure budget to $ 325.0 million , a decrease of 33 % , as compared to actual capital expenditures of $ 482.1 million ( excluding capital expenditures associated with the heyco merger ) for the year ended december 31 , 2015 . we plan to operate three contracted drilling rigs in the delaware basin throughout 2016 , although should oil prices drop and remain below $ 30.00 per bbl , we have the flexibility to reduce the number of rigs we are operating from three rigs to two rigs , either for a short time or for the remainder of 2016 , beginning as early as the second quarter of 2016. this could reduce our estimated 2016 capital expenditures by approximately $ 50.0 million . our 2016 estimated capital expenditure budget of $ 325.0 million ( assuming a three-rig program ) consists of approximately $ 260.0 million for drilling , completions , facilities and infrastructure , $ 40.0 million principally for the completion of new midstream facilities in the delaware basin to support our operations there and $ 25.0 million for land acquisitions and seismic data , primarily in the delaware basin . development of our delaware basin assets will be the primary driver of our projected growth in 2016 . approximately $ 315.0 million , or 97 % , of our 2016 estimated capital expenditures will be allocated to the further delineation and development of our growing leasehold position in the delaware basin . our 2016 delaware basin drilling program will focus on the development of the wolf and rustler breaks prospect areas and the further delineation and development of the ranger and arrowhead prospect areas . the $ 40.0 million in midstream capital expenditures is expected to primarily fund completion of the construction and installation of a cryogenic natural gas processing plant with approximately 60 mmcf per day of inlet capacity and a natural gas gathering system in the rustler breaks prospect area in eddy county , new mexico . this plant is expected to be operational by the third quarter of 2016. we do not plan to drill any operated eagle ford shale wells in south texas or haynesville shale wells in northwest louisiana and east texas during 2016 . approximately $ 5.6 million , or 2 % , of our 2016 estimated capital expenditures will be allocated to the eagle ford shale to allow for the installation of pumping units on certain properties and for lease extensions and acquisitions , if desired , and approximately $ 4.4 million , or just over 1 % , of our 2016 estimated capital expenditures will be allocated to participation in non-operated haynesville shale wells . approximately 92 % of our eagle ford acreage and essentially all of our haynesville and cotton valley acreage was either held by production at december 31 , 2015 or not burdened by lease expirations before 2017 . at december 31 , 2015 , we had $ 61.1 million in cash ( including restricted cash ) and $ 374.4 million in undrawn borrowing capacity under our credit agreement ( after giving effect to outstanding letters of credit ) . as a result , we expect to fund our 2016 drilling program through a combination of operating cash flows and borrowings under our credit agreement ( assuming availability under our borrowing base ) . we may also consider funding a portion of our 2016 capital expenditures through additional credit arrangements , potential joint ventures , the sale of midstream or other assets or acreage and the potential issuance of equity , debt or convertible securities , none of which may be available . while we have budgeted approximately $ 325.0 million of capital expenditures for 2016 , the aggregate amount of capital we expend may fluctuate materially based on market conditions , the actual costs to drill , complete and place on production operated or non-operated wells , our drilling results , the actual costs of our midstream activities , other opportunities that may become available to us and our ability to obtain capital . 57 revenues our revenues are derived primarily from the sale of oil , natural gas and natural gas liquids production . our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in oil , natural gas or natural gas liquids prices . the following table summarizes our revenues and production data for the periods indicated . replace_table_token_22_th ( 1 ) we report our production volumes in two streams : oil and natural gas , including both dry and liquids-rich natural gas . revenues associated with natural gas liquids are included with our natural gas revenues . ( 2 ) estimated using a conversion ratio of one bbl of oil per six mcf of natural gas . year ended december 31 , 2015 as compared to year ended december 31 , 2014 oil and natural gas revenues . our oil and natural gas revenues decrease d $ 89.4 million to $ 278.3 million , or a decrease of 24 % for the year ended december 31 , 2015 , as compared to $ 367.7 million for the year ended december 31 , 2014 . story_separator_special_tag our oil revenues decrease d $ 86.7 million , a decrease of 30 % , to $ 203.4 million for the year ended december 31 , 2015 , as compared to $ 290.0 million for the year ended december 31 , 2014 . the decrease in oil revenues resulted from a significantly lower weighted average oil price realized for the year ended december 31 , 2015 of $ 45.27 per bbl , as compared to $ 87.37 per bbl realized for the year ended december 31 , 2014 . the lower weighted average oil price was partially mitigated by the 35 % increase in our oil production to 4.5 million bbl of oil for the year ended december 31 , 2015 , or about 12,306 bbl of oil per day , as compared to just over 3.3 million bbl of oil , or about 9,095 bbl of oil per day , for the year ended december 31 , 2014 . this increase d oil production was primarily a result of newly drilled and completed wells in the delaware basin , as well as from newly drilled and completed wells in the eagle ford shale in early 2015. our natural gas revenues decrease d $ 2.7 million , or a decrease of 3 % , to $ 75.0 million for the year ended december 31 , 2015 , as compared to $ 77.7 million for the year ended december 31 , 2014 . the decrease in natural gas revenues resulted from a lower weighted average natural gas price realized for the year ended december 31 , 2015 of $ 2.71 per mcf , as compared to $ 5.08 per mcf realized for the year ended december 31 , 2014 . the lower weighted average natural gas price was partially mitigated by the 81 % increase in our natural gas production to 27.7 bcf for the year ended december 31 , 2015 , as compared to 15.3 bcf for the year ended december 31 , 2014 . the increased natural gas production was primarily attributable to new , non-operated haynesville shale wells completed and placed on production on our elm grove properties in northwest louisiana during the latter half of 2014 and into 2015 , but also included increased natural gas production associated with our operations in the delaware basin and the eagle ford shale . realized gain ( loss ) on derivatives . our realized net gain on derivatives was $ 77.1 million for the year ended december 31 , 2015 , as compared to a realized net gain of $ 5.0 million for the year ended december 31 , 2014 . we realized gain s of $ 62.3 million , $ 12.7 million and $ 2.2 million from our oil , natural gas and natural gas liquids ( “ ngl ” ) derivative contracts , respectively , for the year ended december 31 , 2015 due to oil and natural gas prices being below the floor prices of most of our costless collar contracts and ngl prices being below the fixed prices of all of our swap contracts . our realized net gain on derivatives was $ 5.0 million for the year ended december 31 , 2014 . we realized a gain from our oil derivative contracts of 58 approximately $ 5.2 million and a gain of $ 0.5 million from our ngl derivative contracts for the year ended december 31 , 2014 due to oil prices being below the floor prices of some of our costless collar contracts and ngl prices being below the fixed prices of some of our swap contracts , respectively , especially during the latter part of 2014. these gains were partially offset by a loss of $ 0.7 million on our natural gas derivative contracts , due to natural gas prices being in excess of the ceiling prices of our natural gas costless collar contracts , especially in the early months of 2014. we realized an average gain of approximately $ 22.89 per bbl hedged on all of our open oil costless collar contracts during the year ended december 31 , 2015 , as compared to an average gain of $ 2.00 per bbl hedged for the year ended december 31 , 2014 . our oil volumes hedged for the year ended december 31 , 2015 were also 5 % higher as compared to the year ended december 31 , 2014 . we realized an average gain of approximately $ 0.73 per mmbtu hedged on all of our open natural gas costless collar contracts during the year ended december 31 , 2015 , as compared to an average loss of approximately $ 0.06 per mmbtu hedged on all of our open natural gas costless collar contracts during the year ended december 31 , 2014 . our total natural gas volumes hedged for the year ended december 31 , 2015 were also 38 % higher than the total natural gas volumes hedged for the year ended december 31 , 2014 . unrealized gain ( loss ) on derivatives . our unrealized loss on derivatives was approximately $ 39.3 million for the year ended december 31 , 2015 , as compared to an unrealized gain of approximately $ 58.3 million for the year ended december 31 , 2014 . during the year ended december 31 , 2015 , the net fair value of our open oil , natural gas and ngl derivatives contracts decrease d to approximately $ 16.3 million from $ 55.5 million for the year ended december 31 , 2014 , resulting in an unrealized loss on derivatives of approximately $ 39.3 million for the year ended december 31 , 2015 . during the year ended december 31 , 2015 , the net fair value of our open oil , natural gas and ngl derivative contracts decrease d by $ 31.9 million , $ 5.4 million and $ 1.9 million , respectively , due primarily to the realized gains from oil , natural gas and ngl derivative contracts settled during the year ended december 31 , 2015 .
| approximately 78 % of our 2015 capital expenditures of $ 482.1 million ( excluding capital expenditures associated with the heyco merger ) were directed to the delineation and development of our leasehold position in the delaware basin , to the development of certain midstream assets to support our operations there , and to the acquisition of additional leasehold interests prospective for the wolfcamp , bone spring and other liquids-rich plays in the delaware basin . the remaining 22 % of our capital expenditures ( excluding capital expenditures associated with the heyco merger ) were directed to our operated drilling and completion activities in the eagle ford shale in the early part of 2015 and to our participation in a number of non-operated wells drilled and completed in the haynesville shale throughout 2015 , as noted above . we increased our leasehold position significantly in the delaware basin during 2015. at december 31 , 2014 , we held approximately 92,700 gross ( 66,100 net ) acres in southeast new mexico and west texas . including the acreage added as part of the heyco merger and other transactions completed during 2015 , at december 31 , 2015 , our total acreage position in this area had increased to 157,100 gross ( 88,800 net ) acres , primarily in the delaware basin in loving county , texas and lea and eddy counties , new mexico . our oil production , natural gas production and average daily oil equivalent production during 2015 were the best in matador 's history . our average daily oil equivalent production for the year ended december 31 , 2015 was 24,955 boe per day , including 12,306 bbl of oil per day and 75.9 mmcf of natural gas per day , an increase of 55 % as compared to 16,082 boe per day , including 9,095 bbl of oil per day and 41.9 mmcf of natural gas per day , for the year ended december 31 , 2014 . our average daily oil
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key operating factors key factors , which management believes have the largest impact on the overall results of operations of entegris , inc. , include : level of sales since a significant portion of the company 's product costs ( except for raw materials , purchased components and direct labor ) are largely fixed in the short-to-medium term , an increase or decrease in sales affects gross profits and overall profitability significantly . also , increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions , which are highly variable in nature . the company 's sales are subject to the effects of industry cyclicality , technological change , substantial competition , pricing pressures and foreign currency fluctuation . variable margin on sales the company 's variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials . this is affected by a number of factors , which include the company 's sales mix , purchase prices of raw material ( especially polymers , membranes , stainless steel and purchased components ) , competition , both domestic and international , direct labor costs , and the efficiency of the company 's production operations , among others . fixed cost structure . the company 's operations include a number of large fixed or semi-fixed cost components , which include salaries , indirect labor and benefits , facility costs , lease expense , and depreciation and amortization . it is not possible to vary these costs easily in the short-term as volumes fluctuate . accordingly , increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components , resulting in a large impact on the company 's profitability . overall summary of financial results for the year ended december 31 , 2014 on april 30 , 2014 , the company acquired atmi , inc. , a delaware corporation ( atmi ) , for approximately $ 1.1 billion in cash , or $ 809.4 million net of cash acquired , as described in note 2 to the company 's consolidated financial statements . atmi is a leading supplier of high-performance materials , materials packaging and materials delivery systems used worldwide in the manufacture of microelectronics devices . the acquisition of atmi ( the merger ) was funded with the issuance of $ 820 million in debt , described in note 7 to the consolidated financial statements . total net sales for the year ended december 31 , 2014 were $ 962 million , up $ 269 million , or 39 % , from sales of $ 693 million for the year ended december 31 , 2013 . this sales improvement was principally driven by the inclusion of sales of $ 245 million from atmi . exclusive of the effect of the added atmi sales and unfavorable foreign currency translation effects of $ 8 million , the company 's sales increased 4 % . overall demand from the semiconductor industry reflected improved demand from device makers , as wafer starts and semiconductor unit production increased , higher industry fab utilization rates and increased capital spending levels . based on the information available , the company believes sales of its products trailed industry growth measures for 2014. despite the significant net sales increase , the company 's gross profit rose by only $ 82 million for the year ended december 31 , 2014 , to $ 377 million , up from $ 294 million for the year ended december 31 , 2013 . accordingly , the company reported a 39.2 % gross margin rate compared to 42.4 % in 2013. the gross profit and gross margin figures reflect a $ 49 million charge for fair value write-up of acquired atmi inventory sold during the year . excluding that charge , the company 's gross margin for the year was 44.2 % . the company also incurred significantly higher selling , general and administrative ( sg & a ) expenses and engineering , research and development ( er & d ) expenses for 2014 , mainly due to the inclusion in sg & a and er & d expenses of atmi 's infrastructure , merger-related expenditures and the cost of integration activities . the company incurred interest expense of $ 33 million for the year ended december 31 , 2014 compared to a nominal amount a year ago , the increase related to the debt issued in connection with the funding of the atmi merger . the company 's effective tax benefit rate was 161 % in 2014 compared to 23 % in 2013 . the change in the effective tax rate is primarily due to a change in the company 's geographic composition of income toward jurisdictions with lower tax rates , the nondeductibility of certain acquisition-related expenditures incurred in connection with the atmi acquisition and the benefit of a foreign dividend . 35 as a result of the aforementioned factors , net income for 2014 was $ 8 million , or $ 0.06 per diluted share , compared to net income of $ 75 million , or $ 0.53 per diluted share , in 2013 . during 2014 , the company 's operating activities provided cash flow of $ 126 million . cash used for the atmi merger , net of cash acquired , was $ 809 million , while capital expenditures were $ 58 million . cash , cash equivalents and short-term investments were $ 394 million at december 31 , 2014 compared with $ 384 million at december 31 , 2013 . the company had long-term borrowings , including current maturities , of $ 767 million at december 31 , 2014 and none at december 31 , 2013 . critical accounting policies management 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . story_separator_special_tag the preparation of these consolidated financial statements requires the company to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . at each balance sheet date , management evaluates its estimates , including , but not limited to , those related to inventories , long-lived assets ( property , plant and equipment , goodwill and identified intangibles ) , income taxes and business combinations . the company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . if management made different judgments or utilized different estimates , this could result in material differences in the amount and timing of the company 's results of operations for any period . in addition , actual results could be different from the company 's current estimates , possibly resulting in increased future charges to earnings . the critical accounting policies affected most significantly by estimates , assumptions and judgments used in the preparation of the company 's consolidated financial statements are discussed below . inventory valuation the company uses certain estimates and judgments to properly value its inventory . the company 's inventories are recorded at the lower of cost or market . the company evaluates its ending inventories for obsolescence and excess quantities each quarter . this evaluation includes analyses of inventory levels , historical write-off trends , expected product lives , and historical and projected sales levels by product . inventories that are considered obsolete are written off or a full allowance is recorded . in addition , allowances are established for inventory quantities in excess of forecasted demand . inventory allowances were $ 11.9 million and $ 6.6 million at december 31 , 2014 and 2013 , respectively . the company 's inventories include materials and products subject to technological obsolescence , which are sold in highly competitive industries . if future demand or market conditions are less favorable than current conditions or the company 's projected outlook for sales , inventory write-downs or additional allowances may be required and would be reflected in cost of sales in the period the revision is made . impairment of long-lived assets as of december 31 , 2014 , the company had $ 313.6 million of net property , plant and equipment and $ 308.6 million of net intangible assets . the company routinely considers whether indicators of impairment of the value of its long-lived assets , particularly its manufacturing equipment , and its intangible assets , are present . a long-lived asset ( asset group ) shall be tested for recoverability whenever events or changes in circumstances ( triggering events ) indicate that its carrying amount may not be recoverable . the following are examples of such events or changes in circumstances : a. a significant decrease in the market price of a long-lived asset ( asset group ) b. a significant adverse change in the extent or manner in which a long-lived asset ( asset group ) is being used or in its physical condition c. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator d. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( asset group ) e. a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset ( asset group ) f. a current expectation that , more likely than not , a long-lived asset ( asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . 36 if such indicators are present , it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value . if less , an impairment loss is recognized based on the excess of the carrying amount of the assets in the group over its respective fair value . fair value is determined by discounting estimated future cash flows , appraisals or other methods deemed appropriate . if the asset groups determined to be impaired are to be held and used , the company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets ' carrying value . the fair value of the assets then becomes the assets ' new carrying value , which is depreciated or amortized over the remaining estimated useful life of the assets . the company 's long-lived assets are grouped with other assets and liabilities at the lowest level ( asset groups ) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities . as described above , the evaluation of the recoverability of long-lived assets requires the company to make significant estimates and assumptions . these estimates and assumptions primarily include , but are not limited to , the identification of the asset group at the lowest level of independent cash flows , the primary asset of the group and long-range forecasts of revenue and costs , reflecting management 's assessment of general economic and industry conditions , operating income , depreciation and amortization and working capital requirements . due to the inherent uncertainty involved in making estimates , actual results could differ from those estimates . in addition , changes in the underlying assumptions would have a significant impact on the conclusion that an asset group 's carrying value is recoverable , or the determination of any impairment charge if it was determined that the asset values were indeed impaired .
| working capital was $ 503.1 million at december 31 , 2014 , which included $ 389.7 million in cash and cash equivalents , a decrease from $ 514.7 million as of december 31 , 2013 , which included $ 384.4 million in cash and cash equivalents . accounts receivable increased by $ 52.1 million during 2014 , or $ 4.8 million after accounting for the effect of the atmi acquisition and foreign currency translation . the net increase reflects the year-over-year improvement in fourth quarter sales of the company 's products . the company 's days sales outstanding measure ( dso ) stood at 52 days at december 31 , 2014 compared to 50 days at the beginning of the year . inventories at december 31 , 2014 increased by $ 69.1 million from a year earlier , or $ 11.6 million after accounting for the effect of the atmi acquisition , foreign currency translation and the provision for excess and obsolete inventory . the increase primarily reflects increases in the company 's finished goods inventories . accounts payable and accrued expenses were $ 61.8 million higher than a year ago , or $ 14.3 million higher after accounting for the effect of the atmi acquisition and foreign currency translation . in part , the increase reflects a $ 5.6 million increase in accrued interest payable related to the long-term debt . the company made income tax payments , net of refunds , of $ 12.3 million in 2014 . investing activities cash flow used in investing activities totaled $ 860.3 million in 2014 . as noted above and described in note 2 to the company 's consolidated financial statements , on april 30 , 2014 , the company acquired atmi for approximately $ 1.1 billion in cash pursuant to an agreement and plan of merger with atmi . the acquisition is reflected in the company 's consolidated statements of cash flows net of cash of $ 321.1 million acquired from atmi , or $ 809.4 million . acquisition of
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as an indication of this quarter-to-quarter seasonality , the company generated revenues of $ 33.7 million ( 73 % ) during the first and fourth quarters of 2013 compared to $ 12.7 million ( 27 % ) during the second and third quarters of 2013. in 2012 , the company earned revenues of $ 20.8 million ( 66 % ) during the first and fourth quarters of 2012 , compared to $ 10.7 million ( 34 % ) during the second and third quarters of 2012. while the company is pursuing various strategies to lessen these quarterly fluctuations by increasing non-seasonal business opportunities , there can be no assurance that we will be successful in doing so . costs of revenues and gross profit : cost of revenues for the year ended december 31 , 2013 increased $ 8.4 million or 36 % from the comparable period last year . as a percentage of revenues , cost of revenues for 2013 decreased to 69 % of revenues as compared to 75 % of revenues for 2012. gross profit for the year ended december 31 , 2013 increased to $ 14.5 million or 31 % of revenues as compared to $ 8.0 million or 25 % of revenues during 2012. increased revenues from higher margin well enhancement services combined with improved labor efficiencies were the primary reasons for the corresponding increase in gross profits and gross margins . these increases were slightly tempered by a spike in propane prices in december 2013. below is a more detailed discussion of the factors that impacted gross margins : 34 ( 1 ) well enhancement service revenues , which typically generate a higher gross profit margin than other services , increased to 80 % of consolidated revenues for the year ended december 31 , 2013 as compared to 68 % during 2012. the increase in revenue from the higher margin well enhancement services increased the overall gross margin of the business ; ( 2 ) labor costs as a percentage of revenue were higher during 2012 due to the unseasonably warm weather during the first half of the 2012 , which resulted in lower utilization of field personnel ; ( 3 ) the company 's cost of revenues include certain fixed cost components which do not fluctuate in relationship to changes in revenues . items such as field office costs , employee housing , and other site overhead costs remained relatively flat during 2013. accordingly , the increase in revenues during 2013 resulted in a higher gross margin as compared to 2012 ; and ( 4 ) in december 2013 , a sudden spike in propane prices significantly impacted the gross margins our frac water heating business . at the time , approximately half of our frac water heating revenues were contractually priced on a fixed per barrel basis that included propane costs . as a result , gross margins significantly dropped on these contracts . fortunately , these per barrel contracts contained a price adjustment clause that was triggered january 2014 and allowed us to move to a pricing schedule that allows us to bill propane on a cost plus basis . the increase in propane prices reduced gross margins for the fourth quarter of 2013 to 26 % as compared to 32 % in the fourth quarter of 2012. the company anticipates that the revised pricing schedule will return margins to normal levels . general and administrative expenses : for the year ended december 31 , 2013 , general and administrative expenses increased $ 779,000 or 24 % from 2012. higher stock based compensation associated with stock option grants , higher investor relations costs , and higher professional fees all contributed to this increase . bad debt expense , which is included in general and administrative expense , also contributed $ 192,000 to this increase as the company increased its allowance for doubtful accounts due to the corresponding increase in receivables . as a percentage of revenues , general and administrative expenses decreased from 11 % of revenues in 2012 to 9 % of revenues for the year ended december 31 , 2013 as compared to last year . depreciation and amortization : depreciation and amortization expense for the year ended december 31 , 2013 decreased $ 871,000 , or 29 % from 2012 primarily due to the change in useful lives of trucks , equipment and disposal wells in march 2012. the company reassessed the estimated useful lives of this equipment and increased the useful lives of its trucks and equipment from 5-7 years to 10 years , and increased the useful lives of its disposal wells from 7-10 years to 15 years . this change in accounting estimate reduced depreciation and amortization expense by approximately $ 800,000 for the year ended december 31 , 2013 as compared to 2012. this decrease was partially offset by additional depreciation expense on new property and equipment added during 2012 and 2013. lower amortization expense related to non-compete agreements also contributed to the overall decrease for 2013. the non-compete agreements were fully amortized in february 2013 . 35 income from continuing operations : for the year ended december 31 , 2013 , the company recognized income from continuing operations of approximately $ 8.4 million as compared to $ 1.7 million for the comparative period last year . as discussed above , increased revenue from well enhancement services contributed to a $ 15.6 million increase in revenues and a six percentage point improvement in gross margins ( 25 % to 31 % ) as compared to the same period last year . lower depreciation and amortization expense due to the change in useful lives also contributed to the improvement in income from continuing operations . these increases were partially offset by a $ 779,000 increase in general and administrative expenses . story_separator_special_tag management believes that this improvement in our results of operations reflects the beneficial effect of our expanded and increased operations ( as discussed throughout this report ) , a focus on obtaining profitability , and the benefit of the colder weather in the first and last quarters of the year . we believe that as long as we are able to control our costs and increase our revenues as a result of our expanding geographical regions and service areas , our financial performance will continue to improve over the long run , although on a quarter-to-quarter basis , there may still be periods of loss due to the seasonality of our operations , as discussed several times herein . income taxes : for 2013 , the company recognized income tax expense of $ 3.1 million on pre-tax net income from continuing operations before taxes of approximately $ 7.5 million as compared to income tax expense of $ 427,000 on pre-tax income of $ 828,000. the effective tax rate on income from continuing operations for 2013 was approximately 42 % . this rate is higher than the federal statutory corporate tax rate of 34 % primarily due to state and local income taxes . during 2013 , the company fully utilized the $ 2.4 million of prior year nol carry forwards in 2013. see note 11 taxes on income from continuing operations in the notes to the accompanying audited consolidated financial statements for further details . loss from discontinued operations , net of tax : in december 2012 , the company made the decision to discontinue its heat waves well-site construction and roustabout line of service and immediately initiated efforts to close the north dakota construction operations . the company reclassified its construction assets to fixed assets held for sale and initiated efforts to terminate its construction equipment leases . accordingly , the loss from discontinued operations , net of tax for the year ended december 31 , 2013 was significantly lower at $ 74,000 as compared to $ 487,000 for 2012. since operations ceased in early 2013 , the loss from discontinued operations in 2013 primarily consisted remaining contractual lease obligations from construction equipment leases . 36 adjusted ebitda * : management believes that , for the reasons set forth below , adjusted ebitda ( even though a non-gaap measure ) is a valuable measurement of the company 's liquidity and performance and is consistent with the measurements offered by other companies in the company 's industry . the following table presents a reconciliation of net income to adjusted ebitda for each of the periods indicated : replace_table_token_5_th * note : see discussion to follow below for use of non-gaap financial measurements . use of non-gaap financial measures : non-gaap results are presented only as a supplement to the financial statements and for use within management 's discussion and analysis based on u.s. generally accepted accounting principles ( gaap ) . the non-gaap financial information is provided to enhance the reader 's understanding of the company 's financial performance , but no non-gaap measure should be considered in isolation or as a substitute for financial measures calculated in accordance with gaap . reconciliations of the most directly comparable gaap measures to non-gaap measures are provided within the schedules attached herein . ebitda is defined as net income plus interest expense , income taxes , and depreciation and amortization . adjusted ebitda excludes from ebitda stock-based compensation and , when appropriate , other items that management does not utilize in assessing the company 's operating performance ( see list of these items to follow below ) . none of these non-gaap financial measures are recognized terms under gaap and do not purport to be an alternative to net income as an indicator of operating performance or any other gaap measure . management uses these non-gaap measures in its operational and financial decision-making , believing that it is useful to eliminate certain items in order to focus on what it deems to be a more reliable indicator of ongoing operating performance and the company 's ability to generate cash flow from operations . management also believes that investors may find non-gaap financial measures useful for the same reasons , although investors are cautioned that non-gaap financial measures are not a substitute for gaap disclosures . 37 all of the items included in the reconciliation from net income to ebitda and from ebitda to adjusted ebitda are either ( i ) non-cash items ( e.g. , depreciation , amortization of purchased intangibles , stock-based compensation , warrants issued , etc . ) or ( ii ) items that management does not consider to be useful in assessing the company 's operating performance ( e.g. , income taxes , gain on sale of investments , loss on disposal of assets , etc. ) . in the case of the non-cash items , management believes that investors can better assess the company 's operating performance if the measures are presented without such items because , unlike cash expenses , these adjustments do not affect the company 's ability to generate free cash flow or invest in its business . because not all companies use identical calculations , the company 's presentation of non-gaap financial measures may not be comparable to other similarly titled measures of other companies . however , these measures can still be useful in evaluating the company 's performance against its peer companies because management believes the measures provide users with valuable insight into key components of gaap financial disclosures . changes in adjusted ebitda * adjusted ebitda from continuing operations increased $ 6.0 million or 121 % to $ 10.9 million for the year ended december 31 , 2013 as compared to $ 4.9 million for 2012. this increase was primarily due to an increase in revenues from our well enhancement services within our rocky mountain and eastern usa regions . the increased revenue was generated from both new and existing frac water heating and hot oiling customers in those regions .
| the following table sets forth revenue from continuing operations for the company 's three geographic regions during the years ending december 31 , 2013 and 2012 ( again , for discussion around revenue from discontinued operations , see the discontinued operations section below as well as note 3 to our consolidated financial statements within the form 10k accompanying this report ) : replace_table_token_4_th notes to tables : ( 1 ) frac water heating , acidizing , hot oil services , and pressure testing . ( 2 ) water hauling/disposal and frac tank rental . ( 3 ) amounts herein represent our dillco construction and roustabout services . during 2012 , the heat waves ' construction and roustabout service line was discontinued . see note 3 to our consolidated financial statements accompanying the form 10k within this report for more details . ( 4 ) consists of western colorado , southeastern wyoming , western north dakota , and eastern montana . heat waves is the only company subsidiary operating in this region . 32 ( 5 ) consists of southwestern kansas , northwestern oklahoma , texas panhandle , and northern new mexico . both dillco and heat waves engage in business operations in this region . ( 6 ) consists of the southern region of the marcellus shale formation ( southwestern pennsylvania and northern west virginia ) and the utica shale formation ( eastern ohio ) . heat waves is the only company subsidiary operating in this region . revenues : revenues from continuing operations increased $ 15.0 million or 48 % to $ 46.5 million for the year ended december 31 , 2013. the record revenue growth for 2013 was primarily attributable to revenues from our flagship well enhancement services , which increased $ 15.6 million or 72 % from 2012 and overcame a reduction of about $ 490,000 in revenues in our fluid management services . well enhancement services well enhancement service revenues , which includes frac water heating , hot oiling , and acidizing services continued to show record growth in 2013 increasing $ 15.6 million or 72 % to $ 37.2 million for the year ended december 31 , 2013. increased customer demand particularly in the rocky mountain region and eastern usa region combined with increased heating capacity from the addition of new frac water heating and hot oil equipment were the primary reason for our growth in 2013. the following factors contributed to the increase in well enhancement revenues during 2013 : ( 1 ) during 2012 and 2013 , the
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we generated $ 63.8 million in cash flow from operations during 2011. we paid distributions of $ 82.7 million to our unitholders in 2011 , an increase of $ 17.0 million over 2010. we plan to continue focusing our efforts on generating positive cash flows from operations which we expect will be used to ( i ) improve our liquidity position , ( ii ) pay quarterly distributions to our unitholders , ( iii ) service our debt obligations and ( iv ) provide funding for general partnership purposes . superior acquisition on september 30 , 2011 , we completed the acquisition of the superior refinery and associated operating assets and inventories and related business of murphy oil corporation ( murphy oil ) for aggregate consideration of approximately $ 413.2 million ( the superior acquisition ) . the superior acquisition was financed by a combination of ( i ) net proceeds of $ 193.5 million from our september 2011 public offering of common units ( including our general partner 's contribution and excluding the over-allotment option exercised ) , ( ii ) net proceeds of $ 180.3 million from our september 2011 private placement of 9 3 / 8 % senior notes due may 1 , 2019 and ( iii ) borrowings under our revolving credit facility . we acquired the following assets ( collectively the superior business ) : the superior refinery , with crude oil throughput capacity of approximately 45,000 bpd , which produces gasoline , diesel , asphalt , heavy fuel oils and specialty petroleum products that are primarily marketed in the upper midwest region of the u.s. and in canada ; a distribution network for fuel and asphalt products operated through various owned and leased terminals located in wisconsin , minnesota and utah and associated inventories and logistics assets located at each of the terminals ; and murphy oil 's spur branded gasoline wholesale franchise business . we believe the superior acquisition provides greater scale , geographic diversity and development potential to our refining business , increasing our current total refining throughput capacity by 50 % to 135,000 bpd . please see part i , items 1 and 2 business and properties our operating assets and contractual arrangements superior refinery for additional information . key performance measures our sales and net income are principally affected by the price of crude oil , demand for specialty and fuel products , prevailing crack spreads for fuel products , the price of natural gas used as fuel in our operations and our results from derivative instrument activities . our primary raw materials are crude oil and other specialty feedstocks and our primary outputs are specialty petroleum and fuel products . the prices of crude oil , specialty products and fuel products are subject to fluctuations in response to changes in supply , demand , market uncertainties and a variety of additional factors beyond our control . we monitor these risks and enter into financial derivatives designed to mitigate the impact of 56 commodity price fluctuations on our business . the primary purpose of our commodity risk management activities is to economically hedge our cash flow exposure to commodity price risk so that we can meet our cash distribution , debt service and capital expenditure requirements despite fluctuations in crude oil and fuel products prices . we enter into derivative contracts for future periods in quantities that do not exceed our projected purchases of crude oil and natural gas and sales of fuel products . as of december 31 , 2011 , we have hedged refining margins , or crack spreads , on approximately 16.5 million barrels of fuel products through december 2014 at an average refining margin of $ 20.26 per barrel with average refining margins ranging from a low of $ 17.46 per barrel in 2012 to a high of $ 25.01 per barrel in 2014. please refer to note 8 under item 8 financial statements and supplementary data notes to consolidated financial statements and item 7a quantitative and qualitative disclosures about market risk existing commodity derivative instruments and interest rate risk and existing interest rate derivative instruments and commodity price risk for detailed information regarding our derivative instruments and our commodity price and interest rate risks . our management uses several financial and operational measurements to analyze our performance . these measurements include the following : sales volumes ; production yields ; and specialty products and fuel products gross profit . sales volumes . we view the volumes of specialty products and fuel products sold as an important measure of our ability to effectively utilize our refining assets . our ability to meet the demands of our customers is driven by the volumes of crude oil and feedstocks that we run at our facilities . higher volumes improve profitability both through the spreading of fixed costs over greater volumes and the additional gross profit achieved on the incremental volumes . production yields . in order to maximize our gross profit and minimize lower margin by-products , we seek the optimal product mix for each barrel of crude oil we refine , which we refer to as production yield . specialty products and fuel products gross profit . specialty products and fuel products gross profit are important measures of our ability to maximize the profitability of our specialty products and fuel products segments . we define specialty products and fuel products gross profit as sales less the cost of crude oil and other feedstocks and other production-related expenses , the most significant portion of which includes labor , plant fuel , utilities , contract services , maintenance , depreciation and processing materials . we use specialty products and fuel products gross profit as indicators of our ability to manage our business during periods of crude oil and natural gas price fluctuations , as the prices of our specialty products and fuel products generally do not change immediately with changes in the price of crude oil and natural gas . story_separator_special_tag the increase in selling prices typically lags behind the rising costs of crude oil feedstocks for specialty products . other than plant fuel , production-related expenses generally remain stable across broad ranges of throughput volumes , but can fluctuate depending on maintenance activities performed during a specific period . our fuel products segment gross profit may differ from a standard u.s. gulf coast and group 3 2/1/1 or 3/2/1 market crack spread due to many factors , including derivative activities to hedge both our fuel products segment revenues and the cost of crude oil reflected in gross profit , our fuel products mix as shown in our production table being different than the ratios used to calculate such market crack spreads , the allocation of by-product ( primarily asphalt ) losses to the fuel products segment , operating costs including fixed costs and actual crude oil costs differing from market indices and our local market pricing differentials for fuel products in the shreveport , louisiana and superior , wisconsin vicinities as compared to u.s. gulf coast and group 3 postings , respectively . in addition to the foregoing measures , we also monitor our selling , general and administrative expenditures , substantially all of which are incurred through our general partner . 57 story_separator_special_tag and cotton valley refineries . ( 3 ) represents heavy fuel oils and other products produced in connection with the production of fuels at the shreveport and superior refineries . specialty products segment sales for 2011 increased $ 398.8 million , or 28.3 % , primarily as a result of an increase in the average selling price per barrel of $ 29.16 , or 22.3 % . sales volume increased 4.9 % over 2010 due primarily to incremental asphalt sales volume associated with the superior acquisition , which closed on september 30 , 2011. excluding incremental asphalt sales volume associated with the superior acquisition , our specialty products segment sales volume remained consistent with 2010. the increase in the specialty products average selling price per barrel is due primarily to a 26.1 % increase in the average cost of crude oil per barrel for 2011 as compared to 2010. fuel products segment sales for 2011 increased $ 545.4 million , or 69.8 % , due primarily to a 34.4 % increase in sales volume ( due primarily to the incremental fuel products sales volume from the superior acquisition ) and an increase in the average selling price per barrel ( excluding the impact of realized hedging losses reflected in sales ) of $ 30.91 , or 34.8 % , as compared to a 25.8 % increase in the average price of crude oil per barrel . excluding incremental sales volume associated with the superior acquisition , our fuels products sales volume 60 increased 7.5 % due to increased gasoline and diesel sales driven by market conditions and increased run rates at the shreveport refinery over 2010. the average selling price per barrel increased for all fuel products , with diesel and jet fuel average selling prices experiencing significant increases driven by improved market pricing . adversely impacting fuel products segment sales was a $ 144.1 million increase in realized derivative losses on our fuel products cash flow hedges recorded in sales . please see gross profit below for discussion of the net impact of our crude oil and fuel products derivative instruments designated as cash flow hedges . gross profit . gross profit increased $ 75.4 million , or 37.9 % , to $ 274.1 million in 2011 from $ 198.7 million in 2010. gross profit for our specialty and fuel products segments was as follows : replace_table_token_17_th the increase in specialty products segment gross profit of $ 71.2 million year over year was due primarily to a 22.3 % increase in the average selling price per barrel , partially offset by a 26.1 % increase in the average cost of crude oil per barrel and higher operating costs , primarily repairs and maintenance . the increase in fuel products segment gross profit of $ 4.1 million year over year was due primarily to a 34.4 % increase in sales volume as a result of the superior acquisition and a 34.8 % increase in the average selling price per barrel ( excluding the impact of realized hedging losses reflected in sales ) , partially offset by a 25.8 % increase in the average cost of crude oil per barrel , increased realized losses on derivatives of $ 117.3 million in our fuel products hedging program and higher operating costs , primarily repairs and maintenance . additionally , by-products production increased in 2011 compared to 2010 due primarily to an increase in run rates at the shreveport refinery . selling , general and administrative . selling , general and administrative expenses increased $ 15.6 million , or 44.3 % , to $ 50.8 million in 2011 from $ 35.2 million in 2010. this increase is due primarily to increased accrued incentive compensation costs of $ 7.0 million in 2011 compared to 2010 , $ 2.7 million of acquisition costs related to the superior acquisition with no comparable costs in 2010 , increased overall salaries and wages of $ 1.8 million and increased advertising costs of $ 1.3 million . transportation . transportation expenses increased $ 8.7 million , or 10.2 % , to $ 94.2 million in 2011 from $ 85.5 million in 2010. this increase is due primarily to increased truck and rail freight rates , incremental transportation expenses related to the superior acquisition and increased rail demurrage costs . insurance recoveries . insurance recoveries were $ 8.7 million for year ended december 31 , 2011. this gain was related to a claim settled in the second quarter of 2011 with insurers related to the failure of an environmental operating unit at the shreveport refinery in 2010. interest expense .
| the increase in total feedstock runs in 2011 compared to 2010 is due primarily to incremental feedstock runs from the acquisition of the superior refinery on september 30 , 2011 , our decision to increase feedstock run rates at our facilities overall during 2011 because of the favorable economics of running additional barrels and the failure of an environmental operating unit at our shreveport refinery during the first quarter of 2010 which impacted run rates in 2010 , partially offset by the impact of the approximately three week shutdown during may and june 2011 of the exxonmobil crude oil pipeline serving our shreveport refinery resulting from the mississippi river flooding occurring during the period . the decrease in total feedstock runs in 2010 compared to 2009 is due primarily to our decision to reduce feedstock run rates at our shreveport refinery during the entire first quarter of 2010 because of the poor economics of running additional barrels , the failure of an environmental operating unit during at our shreveport refinery the first quarter of 2010 and scheduled turnarounds completed in the second and fourth 58 quarters of 2010 related to various operating units at our shreveport refinery . these decreases were partially offset by higher feedstock runs at our cotton valley refinery throughout 2010 and the addition of volumes for a full year under the lyondellbasell agreements . ( 3 ) total facility production represents the barrels per day of specialty products and fuel products yielded from processing crude oil and other feedstocks at our facilities and at certain third-party facilities pursuant to supply and or processing agreements , including the lyondellbasell agreements . the difference between total facility production and total feedstock runs is primarily a result of the time lag between the input of feedstocks and production of finished products and volume loss . the increase in total facility production in 2011 over 2010 is due primarily to increased feedstock runs from the acquisition of the superior refinery on september 30 , 2011 and increased feedstock runs at our facilities overall , as discussed above in footnote 2 of this table . the increase in the production of specialty products in 2010 as compared to 2009 is primarily the result of the addition of volumes
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because of the fixed nature of the conversion the company determined that there was no beneficial conversion feature which would have qualified it for derivative accounting under asc 815-15 , derivatives and hedging . for the year ended december 31 , 2019 , the company recorded $ 24,321 amortization of the debt discount on the note leaving $ 695 unamortized . the company also recorded accrued interest expense of $ 4,207 . note 7 – stockholders ' equity as of december 31 , 2019 and 2018 a total of 5,131,612 shares of common stock are issued and outstanding . note 8 – income taxes the company provides for income taxes under fasb asc 740 , accounting for income taxes . fasb asc 740 requires the use of an asset and liability approach in accounting for income taxes . deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently . fasb asc 740 requires the reduction of deferred tax assets by a valuation allowance , if , based on the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the company 's opinion , it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset . f- 9 accordingly , a valuation allowance equal to the deferred tax asset has been recorded . the cumulative deferred tax asset for the years 2019 and 2018 is $ 120,237 and $ 33,905 , respectively , which is calculated by multiplying the estimated tax rate by the cumulative net operating loss ( nol ) adjusted for the following items : replace_table_token_8_th details of valuation allowance for the last two years are as follows : replace_table_token_9_th rate reconciliation : replace_table_token_10_th uncertain tax positions unrecognized income tax benefits represent income tax positions taken on income tax returns but not yet recognized in the financial statements . if recognized , substantially all of the unrecognized tax benefits for the company 's fiscal years ended december 31 , 2019 and 2018 would affect the effective income tax rate . there were no unrecognized income tax benefits as of december 31 , 2019 and 2018. the company recognizes the interest and penalties accrued related to unrecognized tax benefits in income tax expense . the company did not recognize any expenses any interest and penalties as of december 31 , 2019 and 2018 , respectively . all tax years since inception are open for examination by taxing authorities . f- 10 note 9 – related party transactions on january 1 , 2018 , the company amended the january 1 , 2015 executive and consulting agreement with sandor miklos , president and member of the board of directors for services rendered . the amended agreement calls for annual compensation of 450,000 common shares of the company fully earned immediately to be assigned and registered fully as at the end of the fiscal year . on november 20 , 2018 , the company received a loan payable in the amount of $ 2,781 from a more than 5 % shareholder for the payment of company expenses . this loan is unsecured , non-interest bearing , and has no specific terms for repayment . as of december 31 , 2019 , the company had a loan payable of $ 2,781 to the same party . on june 1 , 2019 , sandor miklos forgave accrued stock compensation owed to him valued at $ 562,500 , which represents the compensation for the full year 2018 ( $ 450,000 ) and the three months ended march 31 , 2019 ( $ 112,500 ) . for the remaining nine months ended december 31 , 2019 , 337,500 shares valued at $ 1.00 per share for a total of $ 337,500 was accrued as compensation for sandor miklos . as of december 31 , 2019 , there is accrued stock compensation owed to sandor miklos valued at $ 337,500 . note 10 – subsequent events the company 's management evaluated subsequent events through the date the financial statements were issued and there were no subsequent events to report except as noted below . on january 2 , 2020 , the company amended a convertible note payable ( convertible note payable , see note 6 ) to extend the due date to january 1 , 2021. f- 11 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . team 360 sports inc. ( registrant ) date : april 15 , 2020 by : sandor miklos sandor miklos president , chief executive officer chairman of the board of directors ( principal executive officer ) date : april 15 , 2020 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . team 360 sports inc. dated : april 15 , 2020 by : sandor miklos sandor miklos president , chief executive officer , chairman of the board of directors ( principal executive officer ) dated : april 15 , 2020 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) 24 story_separator_special_tag of operations . this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended december 31 , 2019 and 2018. the discussion and analysis that follows should be read together with our financial statements and the notes story_separator_special_tag because of the fixed nature of the conversion the company determined that there was no beneficial conversion feature which would have qualified it for derivative accounting under asc 815-15 , derivatives and hedging . for the year ended december 31 , 2019 , the company recorded $ 24,321 amortization of the debt discount on the note leaving $ 695 unamortized . the company also recorded accrued interest expense of $ 4,207 . note 7 – stockholders ' equity as of december 31 , 2019 and 2018 a total of 5,131,612 shares of common stock are issued and outstanding . note 8 – income taxes the company provides for income taxes under fasb asc 740 , accounting for income taxes . fasb asc 740 requires the use of an asset and liability approach in accounting for income taxes . deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently . fasb asc 740 requires the reduction of deferred tax assets by a valuation allowance , if , based on the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the company 's opinion , it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset . f- 9 accordingly , a valuation allowance equal to the deferred tax asset has been recorded . the cumulative deferred tax asset for the years 2019 and 2018 is $ 120,237 and $ 33,905 , respectively , which is calculated by multiplying the estimated tax rate by the cumulative net operating loss ( nol ) adjusted for the following items : replace_table_token_8_th details of valuation allowance for the last two years are as follows : replace_table_token_9_th rate reconciliation : replace_table_token_10_th uncertain tax positions unrecognized income tax benefits represent income tax positions taken on income tax returns but not yet recognized in the financial statements . if recognized , substantially all of the unrecognized tax benefits for the company 's fiscal years ended december 31 , 2019 and 2018 would affect the effective income tax rate . there were no unrecognized income tax benefits as of december 31 , 2019 and 2018. the company recognizes the interest and penalties accrued related to unrecognized tax benefits in income tax expense . the company did not recognize any expenses any interest and penalties as of december 31 , 2019 and 2018 , respectively . all tax years since inception are open for examination by taxing authorities . f- 10 note 9 – related party transactions on january 1 , 2018 , the company amended the january 1 , 2015 executive and consulting agreement with sandor miklos , president and member of the board of directors for services rendered . the amended agreement calls for annual compensation of 450,000 common shares of the company fully earned immediately to be assigned and registered fully as at the end of the fiscal year . on november 20 , 2018 , the company received a loan payable in the amount of $ 2,781 from a more than 5 % shareholder for the payment of company expenses . this loan is unsecured , non-interest bearing , and has no specific terms for repayment . as of december 31 , 2019 , the company had a loan payable of $ 2,781 to the same party . on june 1 , 2019 , sandor miklos forgave accrued stock compensation owed to him valued at $ 562,500 , which represents the compensation for the full year 2018 ( $ 450,000 ) and the three months ended march 31 , 2019 ( $ 112,500 ) . for the remaining nine months ended december 31 , 2019 , 337,500 shares valued at $ 1.00 per share for a total of $ 337,500 was accrued as compensation for sandor miklos . as of december 31 , 2019 , there is accrued stock compensation owed to sandor miklos valued at $ 337,500 . note 10 – subsequent events the company 's management evaluated subsequent events through the date the financial statements were issued and there were no subsequent events to report except as noted below . on january 2 , 2020 , the company amended a convertible note payable ( convertible note payable , see note 6 ) to extend the due date to january 1 , 2021. f- 11 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . team 360 sports inc. ( registrant ) date : april 15 , 2020 by : sandor miklos sandor miklos president , chief executive officer chairman of the board of directors ( principal executive officer ) date : april 15 , 2020 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . team 360 sports inc. dated : april 15 , 2020 by : sandor miklos sandor miklos president , chief executive officer , chairman of the board of directors ( principal executive officer ) dated : april 15 , 2020 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) 24 story_separator_special_tag of operations . this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended december 31 , 2019 and 2018. the discussion and analysis that follows should be read together with our financial statements and the notes
| our total assets were $ 214 and our total liabilities were $ 837,819. we had $ 214 in cash and our working capital deficit was $ 837,605. cash flows : replace_table_token_1_th there was $ 54,672 used in operations during the year ended december 31 , 2019 and $ 24,587 net cash used in operating activities during the year ended december 31 , 2018 , $ 54,672 provided by financing activities during the year ended december 31 , 2019 , and $ 6,638 cash provided through financing activities during the year ended december 31 , 2018. this resulted in no changes in net cash during the year ended december 31 , 2019 and $ 17,949 decrease in cash during the year ended december 31 , 2018 . 15 off-balance sheet arrangements we have no off-balance sheet arrangements . critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles of the united states ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year . the more significant areas requiring the use of estimates include asset impairment , stock-based compensation , and future income tax amounts . management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances . however , actual results may differ from the estimates . we believe the following is among the most critical accounting policies that impact or consolidated financial statement . we suggest that our significant accounting policies , as described in our financial statements in the summary of significant accounting policies , be read in conjunction with this management 's discussion and analysis of financial condition and results of operations . item
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name age position charles j. zwebner 52 chief executive officer and director jeffrey kapner 46 president , spot mobile corp. david stier 55 chief financial officer and director valerie ferraro 59 vice president and director charles j. zwebner ; chief executive officer and chairman of the board of directors charles j. zwebner has served as our chief executive officer and chairman of the board of directors since february 2010. mr. zwebner founded , and is currently the sole officer and director of , blackbird corporation which acquired the business of yak america , inc. and story_separator_special_tag introduction the following discussion should be read in conjunction with the information contained in our audited consolidated financial statements and the related notes thereto , appearing elsewhere herein . overview we are a telecommunications services company which , through our wholly-owned subsidiaries , provide prepaid telecommunication and transaction based point of sale activation solutions through over 420 independent retailers in the eastern united states . our operations are conducted primarily through our wholly-owned subsidiaries : mr. prepaid and spot mobile corp. mr. prepaid operates as a retail point of sale distributor of prepaid wireless airtime . spot mobile corp. is a prepaid wireless mvno . we distribute and sell prepaid wireless handsets and sim cards , offering talk , text and data services for wireless subscribers . our mvno operates on the global system for mobile communications ( gsm ) platform service and can offer wireless service on the at & t and t-mobile networks . 17 critical accounting policies this disclosure is based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates on historical experience and other assumptions that we believe to be proper and reasonable under the circumstances . we continually evaluate the appropriateness of estimates and assumptions used in the preparation of its consolidated financial statements . actual results could differ from those estimates . the following key accounting policies are impacted significantly by judgments , assumptions and estimates used in the preparation of the consolidated financial statements . use of estimates : the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . revenue recognition : revenues generated by prepaid calling cards and point of sale activated personal identification numbers ( pins ) , which represent the primary sources of our revenues , are recognized as revenue at the point of sale . revenue from the sale of spot mobile cellular air time is recognized when the air time is used . revenue from sale of spot mobile prepaid telephones is recognized at the point of sale . inventory : inventory consists of prepaid calling cards , pins , cellular telephones and sim cards which are valued at the lower of cost and net realizable value . accounts receivable : trade accounts receivable are stated at the amount we expect to collect . we regularly monitor credit risk exposures in accounts receivable and maintain a general allowance for doubtful accounts based on historical experience for estimated losses resulting from the inability of our customers to make required payments . we consider the following factors when determining the collectability of specific customer accounts : customer creditworthiness , past transaction history with the customer , current economic industry trends and changes in customer payment terms . should any of these factors change , the estimates made by our management would also change , which in turn would impact the level of our future provision for doubtful accounts . specifically , if the financial condition of our customers were to deteriorate , affecting their ability to make payments , additional customer-specific provisions for doubtful accounts may be required . we review our credit policies on a regular basis and analyze the risk of each prospective customer individually in order to minimize risk . based on our management 's assessment we provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance . interest is typically not charged on overdue accounts receivable . balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable . the valuation allowance was approximately $ 9,000 and $ 64,000 as of october 31 , 2010 and 2009 , respectively . property and equipment : property and equipment are stated at cost less accumulated depreciation and amortization . depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets ranging from three to seven years . expenditures for repairs and maintenance are charged to expense as incurred . goodwill : goodwill relates to our mr. prepaid operating segment . the company reviews goodwill arising from business combinations for impairment annually , or more frequently if impairment indicators arise . story_separator_special_tag impairment indicators include ( i ) a significant decrease in the market value of an asset , ( ii ) a significant change in the extent or manner in which an asset is used or a significant physical change in an asset , ( iii ) a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action by a regulator , and ( iv ) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue . the company considers the number of active stores and applies a fair market value per store to determine the fair market value of its goodwill . 18 segment information : prior to october 29 , 2010 , we had one operating segment and one reporting unit . for the purpose of identifying the reporting units ( i ) an operating segment is a reporting unit if discrete financial information is available , ( ii ) management regularly reviews individual operating results , and ( iii ) similar economic characteristics of components within one operating segment in a single reporting unit . our management regularly reviews one set of financial information , and all of our products share similar economic characteristics . to date , we have been developing and testing our spot mobile phone products . with the acquisition of the technology assets on october 29 , 2010 , we began operating in two segments ; ( i ) our mr. prepaid retail segment which markets and distributes electronic prepaid telecommunication products through independent retailers , and ( ii ) our spot mobile mvno offering prepaid mobile telephones and sim cards and airtime utilizing our telecommunication assets . these two segments are required on a regular basis by our chief operating decision makers . all of our operations are in the united states and no customers are individually material to our operations . long-lived assets : long-lived assets , including our customer lists and intellectual property arising from business combinations , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable . we do not perform a periodic assessment of assets for impairment in the absence of such information or indicators . conditions that would necessitate an impairment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable . for long-lived assets to be held and used , we recognize an impairment loss only if an impairment is indicated by its carrying value not being recoverable through undiscounted cash flows . the impairment loss is the difference between the carrying amount and the fair value of the asset estimated using discounted cash flows . long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell . during 2010 and 2009 , we completed goodwill and long-lived asset impairment analyses . based on the work performed , our management concluded that an impairment loss existed . accordingly , we recorded non-cash impairment charges for goodwill and intangible assets in 2010 and in 2009. the impairment charges resulted primarily from the general economic downturn in the u.s. in 2008 and from a decline in the customer base since 2009. our management estimated the impairment charges by cash flow analyses and by consideration of current market conditions and transactions in the prepaid telecommunications industry . fair value of financial instruments : the carrying amount of financial instruments included in current assets and liabilities and long-term debt is not materially different from fair value because of the short maturity of the instruments and or their respective interest rate amounts and other terms have been negotiated recently . the fair value of related party notes and advances payable are not practicable to estimate due to the related party nature of the underlying transactions . income taxes : we utilize the asset and liability approach to financial accounting and reporting for income taxes . deferred income taxes and liabilities are computed for differences between the financial statement carrying amounts and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are recorded when necessary to reduce deferred tax assets to the amount expected to be realized . income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities . recent accounting pronouncements : in june 2009 , the financial accounting standards board ( fasb ) approved its accounting standards codification ( codification ) as the single source of authoritative united states accounting and reporting standards applicable for all non-governmental entities , with the exception of the sec and its staff . the codification , which changes the referencing of financial standards , is effective for interim or annual financial periods ending after september 15 , 2009. therefore , all references made to us gaap now use the new codification numbering system prescribed by the fasb . as the codification is not intended to change or alter existing us gaap , it did not have any impact on our financial position or results of operations . 19 in october 2009 , the fasb issued a new accounting standard which provides guidance for arrangements with multiple deliverables . specifically , the new standard requires an entity to allocate consideration at the inception of
| interest expense interest expense increased by $ 22,000 from fiscal year 2009 , all relating to the senior secured debt we assumed under the initial closing under the share exchange agreement on february 24 , 2010. liquidity and sources of capital on february 24 , 2010 , we executed a convertible promissory note in the principal amount of $ 500,000 in favor of a third party lender ( the convertible note ) . the principal amount under the convertible note will begin to accrue interest on february 28 , 2011 at the rate of 3.00 % per year with quarterly payments of interest commencing on june 1 , 2011. the principal amount of the convertible note is due on december 31 , 2011. prior to maturity , the convertible note may be converted , at any time at the option of the holder , into shares of our common stock based on an initial conversion rate of $ 0.81 per share . 20 in july 2010 , we commenced a private placement to accredited investors of up to 803,333 million shares of our common stock pursuant for an aggregate purchase price of $ 1,205,000 ( $ 1.50 per share of common stock ) . for each share subscribed for in the private placement , each investor is also entitled to receive a warrant to purchase one share of our common stock at $ 4.50 per share and a warrant to purchase one share of our common stock at $ 2.70 per share . the issuance of the common stock and the warrants was made in reliance upon the exemption from registration provided by section 4 ( 2 ) of the securities act , or regulation d promulgated thereunder . on january 25 , 2011 , we completed the initial closing of the private placement with the investors , pursuant to which we sold to the investors an aggregate of 41 units at a purchase price of $ 50,000 per unit . each unit is comprised of ( i ) 100,000 shares of
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the drill program was designed with the primary objective of better defining the mineralized material for underground mining . secondly , material was recovered in the drill program for additional metallurgical testing and geotechnical data required to optimize precious metal recovery processes and to determine the most efficient mining method . in august , 2017 , we commenced drilling of deep monitoring wells at the grassy mountain project . data from this program will help to define a water flow model , characterize the water quality and determine if there will be any mine dewatering needs . these wells will also be used for monitoring during operation of the mine . also in august 2017 , the company filed a mine plan of operations ( “ poo ” ) with the federal bureau of land management 's ( “ blm ” ) district office in vale , oregon for its grassy mountain project . with the poo filed , the blm can initiate its national environmental policy act ( “ nepa ” ) review process which will commence with the preparation of an environmental impact statement ( “ eis ” ) . in october , 2017 , the company closed a public offering of 3,520,000 shares of common stock and closed a private placement of 1,775,000 shares of common stock both at a price of $ 1.40 for aggregate gross proceeds of $ 7.4 million . in november , 2017 , paramount received approvals from both the oregon department of geology and mineral industries ( “ dogami ” ) and the blm to proceed with a program of auger drilling , core drilling , and back hoe excavations at its grassy mountain proposed mine site as part of the project 's preliminary feasibility study ( “ pfs ” ) . the work is designed to characterize the rock and alluvium under the proposed mill , processing plant , and tailings areas to ensure stability and adjust the design of these installations if necessary . the work was completed in december 2017 . 24 in february , 2018 , paramount exercised its option to reduce the existing net smelter royalty ( “ nsr ” ) from 6 % down to 1.5 % and to acquire all rights to the private land at grassy mountain project for a total payment of $ 2.4 million . in march 2018 , paramount received approval for four environmental baseline studies by the dogami and the department of environmental quality ( “ deq ” ) . these studies are required for the permitting of paramount 's proposed gold mine at grassy mountain . in may 2018 , we released the results of a new pfs for our grassy mountain project in oregon . the pfs was completed by mine development associates ( “ mda ” ) of reno nevada . mda concluded the extraction of the estimated mineralized material will be accessed via a proposed underground mine that will be accessed via one decline and a system of internal ramps . the mine design is based on a production rate of 1,300 to 1,400 tons per day over four days per week , with two shifts per day , to provide sufficient material to feed the 750 tons per day to the mill on a seven day per week basis . the mineralization is considered to be amenable to a combination of gravity concentration and cyanide leaching . the recovery plan will be a conventional cil type and will produce gold doré bars to be sold to gold refiners . this mining scenario results in an average annual production of 47,000 ounces of gold and 50,000 ounces of silver for seven years . the metal prices used for the economic analysis includes $ 1,300 per ounce of gold sold and $ 16.75 per ounce of silver sold . the life of mine average cash operating are estimated to be $ 528 per gold ounce including silver revenues as credit produced and the total life of mine capital requirements are estimated to be $ 110 million . this pfs should not be considered to be a feasibility study , as the economics and technical viability of the grassy mountain project have not been demonstrated at this time . therefore , there can be no certainty that the estimates contained in the pfs will be realized on june 25 , 2018 , the company entered into definitive agreements with accredited investors to issue common stock and warrants in a private transaction ( the “ transaction ” ) . under the terms of the transaction , paramount has sold an aggregate of 2,400,000 units at $ 1.25 per unit for aggregate proceeds of $ 3,000,000. each unit consists of one share of common stock and one warrant to purchase one-half of a share of common stock . each warrant will have a two-year term and will be exercisable at the following exercise prices : in the first year at $ 1.30 per share and in the second year at $ 1.50 per share . the transaction closed on july 6 , 2018. outlook and plan of operation : we believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results . as an exploration and development company , we recognized the importance managing our liquidity and capital resources . we pay close attention to non-discretionary cash expenses and look for ways to minimize them when possible . story_separator_special_tag we ensure we have sufficient cash on hand to meet our annual land holding costs as the maintenance of mining claims and leases are essential to preserve the value of our mineral property assets . for the upcoming fiscal year , we intend to undertake the following : sleeper gold project : the company is expected to focus its efforts on its reclamation and claim management activities for the fiscal year ending june 30 , 2019. for these activities , the company has budgeted approximately $ 0.7 million . of this budgeted amount approximately $ 0.41 million has been allocated for claim maintenance and the remaining amount of $ 0.29 to other general and administration expenses . all reclamation expenses are reimbursed by an in place insurance program . grassy mountain project : paramount expects to submit a consolidated mining permit with the state of oregon . in order submit the application , the company will be required to receive the approval of additional baseline studies from the permitting agencies and complete additional detailed analysis to satisfy the permit application requirements . in addition to its permitting activities , the company will implement an exploration program on selective targets on the grassy mountain land package and will seek proposals to complete a feasibility study on the proposed mining operation . the company has estimated costs of approximately $ 4 million for these activities for the fiscal year ending june 30 , 2019 . 25 compa rison of operating results for the year ended june 30 , 201 8 as compared to june 30 , 2017 story_separator_special_tag style= '' margin-top:12pt ; margin-bottom:0pt ; text-indent:0 % ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > we anticipate our twelve month cash expenditures for our fiscal year ending june 30 , 2019 to be as follows : $ 2.0 million on corporate administration expenses ( expenses include executive management and employee salaries , legal , audit , marketing and other general and administrative expenses ) $ 0.70 million on the sleeper gold project ( expenses include reclamation costs , employee salary and benefits , and land holding costs ) $ 4.0 million on the grassy mountain project ( expenses include consulting fees , land holding costs and general and administration expenses , environmental impact statement preparation , state of oregon permit application and evaluation activities ) in order for us to complete our anticipated cash-budget , the company will require further capital resources . historically , we and other similar exploration and development public companies have accessed capital through equity financing arrangements . if , however we are unable to obtain additional capital or financing , our exploration and development activities will be significantly adversely affected . contractual obligations the following table summarizes our obligations and commitments as of june 30 , 2018 to make future payments under certain contracts , aggregated by category of contractual obligation , for specified time periods : replace_table_token_4_th critical accounting policies management considers the following policies to be most critical in understanding the judgments that are involved in preparing the company 's consolidated financial statements and the uncertainties that could impact the results of operations , financial condition and cash flows . our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . management believes the company 's critical accounting policies are those related to mineral property acquisition costs , exploration and development cost , stock based compensation , derivative accounting and foreign currency translation . estimates the company prepares its consolidated financial statements and notes in conformity to united states generally accepted accounting principles ( “ u.s . gaap ” ) and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period . on an ongoing basis , management evaluates these estimates , including those related to allowances for doubtful accounts receivable and long-lived assets . management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis of making judgments about the carrying 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 . mineral property acquisition costs the company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense these costs if it is determined that the mineral property has no future economic value or the properties are sold or abandoned . costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties . properties acquired under option agreements , whereby payments are made at the sole discretion of the company , are recorded in the accounts of the specific mineral property at the time the payments are made . 27 the amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves . exploration expenses we record exploration expenses as incurred . when we determine that precious metal resource deposit can be economically and legally extracted or produced based on established proven and probable reserves , further exploration expenses related to such reserves incurred after such a determination will be capitalized . to date , we have not established any proven or probable reserves and will continue to expense exploration costs as incurred . asset retirement obligation the fair value of the company 's asset retirement obligation ( “ aro ” ) is measured by discounting the expected cash flows using a discount factor that reflects the credit-adjusted risk free rate of interest , while
| salaries and benefits for the year ended june 30 , 2018 , salary and benefits decreased by 21 % or by $ 174,111 from the prior year to $ 657,070. salary and benefits is comprised of cash and stock based compensation of the company 's executive and corporate administration teams . the decrease reflects a reduction of stock based compensation from the comparable prior year period . included in the salary and benefits expense amount for the year ended june 30 , 2018 and 2017 was a non-cash stock based compensation of $ 19,353 and $ 132,845 , respectively . professional fees and general and administration for the year ended june 30 , 2018 , professional fees were $ 113,783 compared to $ 199,013 in the prior year . this represents a decrease of 43 % or $ 85,230. in the prior year 's comparable period the company incurred one-time legal , accounting and tax advisory fees related to its integration of its acquisition of calico . for the year ended june 30 , 2018 , general and administration expenses increase by 3 % to $ 523,890 from $ 507,038 in the prior year . the increase reflects additional general and administration expenses , increased compliance costs and increased travel and marketing expenses from the prior year . liquidity and capital resources as an exploration and development company , paramount funds its operations , reclamation activities and discretionary exploration programs with its cash on hand . at june 30 , 2018 , we had cash and cash equivalents of $ 297,389 compared to $ 1,911,170 as at june 30 , 2017. during the three months ended december 31 , 2017 , the company closed a public offering of 3,520,000 shares of common stock and closed a private placement of 1,775,000 shares of common stock both at a price of $ 1.40 for aggregate gross proceeds of $ 7.4 million . the main uses of cash were comprised of the following material amounts : cash used to fund our operations which included general and administration expenses , land holding costs , exploration programs
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following crc , we anticipate focusing on lung cancer , prostate and pancreatic cancer , using our nucleosomics ® biomarker discovery platform . our development pipeline includes assays to be used for symptomatic patients or asymptomatic ( screening ) population . the platform employs a range of simple nu.q tm immunoassays on an industry standard elisa format , which allows rapid quantification of epigenetic changes in biofluids ( whole blood , plasma , serum , sputum , urine etc . ) compared to other approaches such as bisulfite conversion and polymerase chain reaction , or pcr . nu.q tm biomarkers can be used alone , or in combination to generate profiles related to specific conditions . we have developed thirty-nine blood-based assays to date to detect specific biomarkers that can be used individually or in combination to generate a profile which forms the basis of a product for a particular cancer or disease . we anticipate that because of their ease of use and cost efficiency , our tests have the potential to become the first method of choice for cancer diagnostics , allowing detection of a range of cancers at an earlier stage than typically occurs currently , and testing of individuals who , for reasons such as time , cost or aversion to current methods , are not currently tested . we intend to commercialize our products in the future through various channels within the european union , the united states and throughout the rest of the world , most likely beginning with asia . management has identified the specific processes and resources required to achieve the near and medium term objectives of our business plan , including personnel , facilities , equipment , research and testing materials including antibodies and clinical samples , and the protection of intellectual property . to date , operations have proceeded satisfactorily in relation to the business plan . however it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost . it is also possible that the results of some processes may not be as expected and that modifications of procedures and materials may be required . such events could result in delays to the achievement of the near and medium term objectives of the business plan , in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market . we do not anticipate earning significant revenues until such time as we are able to fully market our intended products on the ivd market . for this reason , our auditors stated in their report on our most recent audited financial statements that our losses and negative cash flow from operations raise substantial doubt that we will be able to continue as a going concern without further financing . our ability to continue as a going concern is dependent upon our ability to successfully accomplish our plan of operations described herein , obtain financing and eventually attain profitable operations . our first product the nu.q tm colorectal cancer screening triage test achieved the ce mark in december 2016. we now plan to conduct pathway design studies ( where appropriate ) as we roll out to eu and other markets . we do not anticipate significant revenues in 2017. liquidity and capital resources as of december 31 , 2016 , we had cash and cash equivalents of $ 21,678,734 and prepayments and other current assets of $ 332,814. as of december 31 , 2016 , we had current liabilities of $ 2,033,496. this represents a working capital surplus of $ 19,978,052. for the year ended december 31 , 2016 , we used $ 9,055,693 in net cash from operating activities , compared to $ 8,546,274 for the year ended december 31 , 2015. the increase in cash used year over year was primarily due to an increase in research and development expenditure and legal costs associated with multiple public offerings and other corporate matters . please see results of operations , below for more detail . 32 net cash used in investing activities increased year over year by $ 282,896 to $ 415,091 for the year ended december 31 , 2016 , mainly as a result of the purchase of a new building and land in belgium . for further details , see note 11 ( c ) of the consolidated financial statements . net cash provided by financing activities amounted to $ 25,379,356 for the year ended december 31 , 2016 , compared to $ 12,442,505 for the year ended december 31 , 2015. in march 2016 we raised approximately $ 13.1 million in net cash proceeds when approximately 4.3 million shares of common stock were issued in a public offering . in october 2016 we raised approximately $ 11.8 million in net cash proceeds when approximately 2.5 million shares of common stock were issued in a public offering . we also raised approximately $ 0.4 million from exercises of warrants and stock options for the year ended december 31 , 2016. repayments on a capital lease for a new building in belgium resulted in approximately $ 0.6 million of cash outflow over this period . this was offset by cash proceeds of $ 0.5 million from debt financing on the aforementioned building in belgium . this resulted in an increase of cash and cash equivalents of $ 15,762,728 for the year ended december 31 , 2016 , compared to an increase of $ 3,777,042 for the year ended december 31 , 2015. we currently lease three tecan machines ( automated liquid handling robots ) under a lease classified as a capital lease . the total cost of this leased laboratory equipment is $ 578,830 ( 550,454 ) . the capital lease is repayable over a five year period , ending in 2020. on october 4 , 2016 , we entered into a capital story_separator_special_tag following crc , we anticipate focusing on lung cancer , prostate and pancreatic cancer , using our nucleosomics ® biomarker discovery platform . our development pipeline includes assays to be used for symptomatic patients or asymptomatic ( screening ) population . the platform employs a range of simple nu.q tm immunoassays on an industry standard elisa format , which allows rapid quantification of epigenetic changes in biofluids ( whole blood , plasma , serum , sputum , urine etc . ) compared to other approaches such as bisulfite conversion and polymerase chain reaction , or pcr . nu.q tm biomarkers can be used alone , or in combination to generate profiles related to specific conditions . we have developed thirty-nine blood-based assays to date to detect specific biomarkers that can be used individually or in combination to generate a profile which forms the basis of a product for a particular cancer or disease . we anticipate that because of their ease of use and cost efficiency , our tests have the potential to become the first method of choice for cancer diagnostics , allowing detection of a range of cancers at an earlier stage than typically occurs currently , and testing of individuals who , for reasons such as time , cost or aversion to current methods , are not currently tested . we intend to commercialize our products in the future through various channels within the european union , the united states and throughout the rest of the world , most likely beginning with asia . management has identified the specific processes and resources required to achieve the near and medium term objectives of our business plan , including personnel , facilities , equipment , research and testing materials including antibodies and clinical samples , and the protection of intellectual property . to date , operations have proceeded satisfactorily in relation to the business plan . however it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost . it is also possible that the results of some processes may not be as expected and that modifications of procedures and materials may be required . such events could result in delays to the achievement of the near and medium term objectives of the business plan , in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market . we do not anticipate earning significant revenues until such time as we are able to fully market our intended products on the ivd market . for this reason , our auditors stated in their report on our most recent audited financial statements that our losses and negative cash flow from operations raise substantial doubt that we will be able to continue as a going concern without further financing . our ability to continue as a going concern is dependent upon our ability to successfully accomplish our plan of operations described herein , obtain financing and eventually attain profitable operations . our first product the nu.q tm colorectal cancer screening triage test achieved the ce mark in december 2016. we now plan to conduct pathway design studies ( where appropriate ) as we roll out to eu and other markets . we do not anticipate significant revenues in 2017. liquidity and capital resources as of december 31 , 2016 , we had cash and cash equivalents of $ 21,678,734 and prepayments and other current assets of $ 332,814. as of december 31 , 2016 , we had current liabilities of $ 2,033,496. this represents a working capital surplus of $ 19,978,052. for the year ended december 31 , 2016 , we used $ 9,055,693 in net cash from operating activities , compared to $ 8,546,274 for the year ended december 31 , 2015. the increase in cash used year over year was primarily due to an increase in research and development expenditure and legal costs associated with multiple public offerings and other corporate matters . please see results of operations , below for more detail . 32 net cash used in investing activities increased year over year by $ 282,896 to $ 415,091 for the year ended december 31 , 2016 , mainly as a result of the purchase of a new building and land in belgium . for further details , see note 11 ( c ) of the consolidated financial statements . net cash provided by financing activities amounted to $ 25,379,356 for the year ended december 31 , 2016 , compared to $ 12,442,505 for the year ended december 31 , 2015. in march 2016 we raised approximately $ 13.1 million in net cash proceeds when approximately 4.3 million shares of common stock were issued in a public offering . in october 2016 we raised approximately $ 11.8 million in net cash proceeds when approximately 2.5 million shares of common stock were issued in a public offering . we also raised approximately $ 0.4 million from exercises of warrants and stock options for the year ended december 31 , 2016. repayments on a capital lease for a new building in belgium resulted in approximately $ 0.6 million of cash outflow over this period . this was offset by cash proceeds of $ 0.5 million from debt financing on the aforementioned building in belgium . this resulted in an increase of cash and cash equivalents of $ 15,762,728 for the year ended december 31 , 2016 , compared to an increase of $ 3,777,042 for the year ended december 31 , 2015. we currently lease three tecan machines ( automated liquid handling robots ) under a lease classified as a capital lease . the total cost of this leased laboratory equipment is $ 578,830 ( 550,454 ) . the capital lease is repayable over a five year period , ending in 2020. on october 4 , 2016 , we entered into a capital
| 34 salaries and office administration fees our salaries and office administration fees increased $ 692,650 , or 42.5 % , in 2016 compared to 2015. this is mainly explained by an increase in equity plan option and warrants amortization of $ 184,312 , alongside an increase in salaries and fees of $ 395,713. there was additional compensation for our senior executives and the appointment of an additional director and additional senior officers in 2016. research and development our research and development costs increased $ 735,797 , or 12.1 % , in 2016 compared to 2015. the hvidovre hospital study has incurred additional costs of $ 503,726 , as a new crc related study was initiated in 2016. additional studies and research contracts increased costs by $ 309,995. antibody and sample costs decreased by $ 209,384 , due to the development and usage of antibodies varying year on year . an increase in equity plan option amortization costs and salaries for research and development resources of $ 173,465 also contributed to the change . net other income we recognized net other income of $ 361,325 in 2016 , a decrease of 23.3 % , compared to net other income of $ 470,873 in 2015. in 2016 , net other income consisted of $ 361,325 in grant funds received from public bodies in respect of approved expenditures , where there is no obligation to repay . in 2015 , net other income mainly consisted of $ 146,812 in grant funds and a gain of $ 339,744 on the re-measurement of a derivative liability . net loss our net loss increased $ 2,375,036 , or 24.9 % , in 2016 compared to 2015. the change is a result of the factors described above . going concern we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities . for these reasons , the auditors stated in their report on the audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital
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in conjunction with the simplification merger , we modified our business segments and our financial statements now reflect three operating and reporting segments : ( i ) gathering and processing ( g & p ) , which includes our natural gas , crude oil and produced water g & p operations ; ( ii ) storage and transportation , which includes our natural gas and crude oil storage and transportation operations ; and ( iii ) marketing , supply and logistics ( formerly ngl and crude services operations ) , which includes our ngl supply and logistics business , crude oil storage and rail loading facilities and fleet , and salt production business . consequently , the results of our arrow operations are now reflected in our gathering and processing operations for all periods presented and our colt and prbic operations are now reflected in our storage and transportation operations for all periods presented . these respective operations were previously included in our ngl and crude services operations . all of our operations are conducted by or through crestwood midstream . below is a discussion of events that highlight our core business and financing activities . gathering and processing our g & p operations provide gathering , compression , treating , and processing services to producers in multiple unconventional resource plays across the united states and we have established footprints in “ core of the core ” areas of many of the largest shale plays . we believe that our strategy of focusing on prolific shale plays positions us well to ( i ) generate greater returns in the near term while commodity prices remain depressed , ( ii ) capture greater upside economics when commodity prices normalize , and ( iii ) in general , better manage through commodity price cycles and production changes associated therewith . our g & p operations primarily include : bakken shale . we own and operate an integrated crude oil , natural gas and produced water gathering system ( the arrow system ) on fort berthold indian reservation in the core of the bakken shale in mckenzie and dunn counties , north dakota . the arrow system consists of 590 miles of low-pressure gathering pipeline capable of gathering 100 mmcf/d of natural gas , 125 mbbls/d of crude oil , and 40 mbbls/d of produced water . we also have approximately 266,000 barrels of crude oil working storage capacity at the arrow central delivery point ; marcellus shale . we own and operate natural gas gathering and compression systems in harrison , doddridge and barbour counties , west virginia . these systems have a total gathering capacity of 875 mmcf/d and 138,080 horsepower of compression ; 53 barnett shale . we own and operate ( i ) a low-pressure natural gas gathering system with a gathering capacity of approximately 425 mmcf/d of rich gas produced by our customers in hood and somervell counties , texas , which delivers the rich gas to our processing plant where ngls are extracted from the natural gas stream ; and ( ii ) low-pressure gathering systems with a gathering capacity of 530 mmcf/d of dry natural gas produced by our customers in tarrant and denton counties , texas ; fayetteville shale . we own and operate five low-pressure gas gathering systems with a gathering capacity of approximately 510 mmcf/d of dry natural gas produced by our customers in conway , faulkner , van buren , and white counties , arkansas ; delaware permian . we own and operate low-pressure dry gas and rich natural gas systems with a primary focus on the willow lake system that includes a gathering and processing system with approximately 50 mmcf/d of capacity to serve our customers in eddy county , new mexico ( willow lake system ) ; other 100 % owned and operated systems . we own and operate ( i ) a low-pressure natural gas gathering system with a gathering capacity of approximately 36 mmcf/d of rich gas produced by our customers in roberts county , texas , and a processing plant that extracts ngls from the natural gas stream ( granite wash system ) ; and ( ii ) high-pressure natural gas gathering pipelines with a gathering capacity of approximately 100 mmcf/d that provide gathering and treating services to our customers located in sabine parish , louisiana ( haynesville/bossier system ) ; and prb niobrara shale . we own a 50 % ownership interest in the jackalope joint venture with williams , which we account for under the equity method of accounting . the joint venture , operated by williams , owns the jackalope gas gathering system and bucking horse processing plant . the jackalope system is supported by a 20-year gathering and processing agreement with chesapeake under an area of dedication of approximately 388,000 gross acres in the core of the prb niobrara . although the cash flows from our g & p operations are predominantly fee-based under contracts with original terms ranging from 5-20 years , the results of our g & p operations are significantly influenced by the volumes gathered and processed through our systems . during 2015 , two of our g & p customers , quicksilver and sabine filed for protection under chapter 11 of the u.s. bankruptcy code . in january 2016 , quicksilver executed an asset purchase agreement with a third party for the sale of its u.s. oil and gas assets . the sale is expected to close on march 31 , 2016 , pending certain closing conditions . on february 5 , 2016 , quicksilver filed a motion to reject its gathering agreements with us . we filed an objection to this motion on february 26 , 2016 and a hearing is scheduled in delaware on march 4 , 2016. we are in discussions with the third party regarding those agreements . we continue to provide services to quicksilver , and the outcome of its restructuring process could have a material impact on our g & p segment 's results of operations . story_separator_special_tag sabine continues to work with the bankruptcy court on its bankruptcy filing , and we continue to monitor their proceedings , and the outcome could impact our g & p segment 's results of operations in the future . the cash flows from our g & p operations can also be impacted in the short term by changing commodity prices , seasonality and weather fluctuations . we gather , process , treat , compress , transport and sell crude oil and natural gas pursuant to fixed-fee and , to a lesser extent , percent-of-proceeds contracts . we have historically taken title to the crude oil and natural gas volumes gathered under arrow 's fixed-fee contracts , and we remit netbacks to our producer customers based on the market prices at which we sell the crude oil and natural gas . on our other g & p systems , we do not take title to natural gas or ngls under our fixed-fee contracts , whereas under our percent-of-proceeds contracts , we take title to the residue gas , ngls and condensate and remit a portion of the sale proceeds to the producer based on prevailing commodity prices . our election to enter primarily into fixed-fee contracts minimizes our g & p segment 's commodity price exposure and provides us more stable operating performance and cash flows . storage and transportation our storage and transportation segment consists of our natural gas storage and transportation assets as follow : northeast storage and transportation . we have four natural gas storage facilities ( stagecoach , thomas corners , steuben and seneca lake ) and three transportation pipelines ( north/south facilities , marc i and the east pipeline ) located in the northeast in or near the marcellus shale . our storage facilities provide 40.9 bcf of certificated firm storage capacity and 1.3 bcf/d of firm transportation capacity to producers , utilities , marketers and other customers . we believe the location of our storage and transportation assets in the northeast relative to new york city and other premium demand markets along the east coast helps to insulate our operations from production and commodity price changes that can more easily impact storage and transportation operators in other geographic regions , including texas ; 54 colt hub . we own and operate the colt hub , which is one of the largest crude oil rail terminals in the bakken shale based on actual throughput and which complements our arrow acquisition . located approximately 60 miles away from arrow 's central delivery point , the colt hub interconnects with the arrow system through the hiland and tesoro pipeline systems . the hub , which can be sourced by numerous pipeline systems or truck , is capable of loading up to 160,000 bbls/d and has approximately 1.2 million barrels of total crude oil storage capacity ; and prbic . prbic , our 50 % equity method investment , owns an integrated crude oil loading , storage and pipeline terminal , located in douglas county , wyoming , which provides a market for crude oil production from the prb niobrara . the joint venture , operated by twin eagle , sources crude oil production from chesapeake and other prb niobrara producers . prbic includes 20,000 bbls/d of rail loading capacity and 380,000 barrels of crude oil working storage capacity . additionally , in anticipation of growing prb niobrara crude oil volumes , prbic expanded its pipeline terminal to include connections to kinder morgan 's hh pipeline system in july 2015 and initiated a pipeline project to interconnect with plains all american pipeline 's rocky mountain pipeline system , which is expected to be completed in march 2016. tres holdings . we own a 50.01 % ownership interest in tres holdings llc ( tres holdings ) , a joint venture between crestwood midstream and an affiliate of brookfield , which owns the remaining 49.99 % interest in tres holdings . tres holdings owns tres palacios , which owns a ferc-certificated 38.4 bcf multi-cycle , salt dome natural gas storage facility . its 63-mile , dual 24-inch diameter header system ( including a 52-mile north pipeline lateral and an approximate 11-mile south pipeline lateral ) interconnects with 10 pipeline systems and can receive residue gas from the tailgate of kinder morgan inc. 's houston central processing plant . in december 2014 , crestwood equity sold its 100 % membership interest in tres palacios to tres holdings . as a result of the sale , effective december 1 , 2014 , crestwood equity deconsolidated tres palacios ' operations . we account for the investment in tres holdings under the equity method of accounting . brookfield and tres palacios entered into a five-year , fixed fee contract under which tres palacios will make 15 bcf of firm storage capacity and 150,000 dth/d of enhanced interruptible services available to brookfield . the cash flows from our storage and transportation operations are predominantly fee-based under contracts with an original term ranging from 1-10 years . our cash flows from interruptible and other hub services tends to increase during the peak winter season . our current cash flows from crude-by-rail facilities are largely supported by take-or-pay contracts with refiners and , to a lesser extent , marketer customers and are not significantly affected in the short term by changing commodity prices , seasonality or weather fluctuations . we are working to renew long-term storage and loading contracts associated with our colt hub operations . several of these contracts expire in 2016 and we expect to extend the contract terms for several of our existing customers . we are also pursuing multiple pipeline and storage projects at the colt terminal supported by long-term take-or-pay contracts . marketing , supply and logistics our marketing , supply and logistics segment consists of our ngl supply and logistics business and us salt . we utilize our over-the-road and rail fleet , processing and storage facilities , and contracted pipeline capacity on a portfolio basis to provide integrated supply and logistics solutions to producers , refiners and other customers .
| 59 the following tables summarize the ebitda of our segments ( in millions ) : replace_table_token_9_th replace_table_token_10_th 60 segment results below is a discussion of the factors that impacted ebitda by segment for the three years ended december 31 , 2015 , 2014 and 2013 . gathering and processing year ended december 31 , 2015 compared to year ended december 31 , 2014 ebitda for cmlp 's g & p segment decreased by approximately $ 250.0 million for the year ended december 31 , 2015 compared to 2014 primarily due to property , plant and equipment , intangible asset and goodwill impairments of approximately $ 265.5 million recorded during 2015 related to our fayetteville , granite wash and haynesville operations , compared to $ 51.7 million of impairments during the year ended december 31 , 2014. for a further discussion of these impairments , see part iv , item 15. financial statements schedules , note 2. also contributing to cmlp 's ebitda decrease was a $ 769.1 million decrease in revenues , offset by a $ 756.0 million decrease in costs of products/services sold and a $ 13.8 million decrease in operations and maintenance expense . the revenue and costs of product/services sold decreases were primarily driven by our arrow operations , which experienced a decrease in product revenues of $ 742.9 million partially offset by a decrease in its costs of product/services sold of $ 738.4 million . the decrease in product revenues and costs of product/services sold was driven by the decreases in market prices on crude oil , which caused average crude oil prices on our crude oil sales to decrease by approximately 50 % during the year ended december 31 , 2015 compared to 2014. we experienced a $ 21.7 million increase in arrow 's service revenues due to an increase of 14 % , 30 % and 49 % in its crude oil , natural gas and water volumes , respectively , during the year ended december 31 , 2015 compared to 2014 , as new wells were connected to the system . during the year ended december 31 , 2015 , we experienced
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the following assumptions were used to calculate the fair value of stock-based compensation related to stock options during the years ended : replace_table_token_12_th expected price volatility is the measure by which the company 's stock price is expected to fluctuate during the expected term of an option . the company exited shell status on march 24 , 2011 and its stock became available for trading on april 8 , 2011. in situations where a public entity has limited historical data on the price of its publicly traded shares and no other traded financial instruments , authoritative guidance is provided on estimating this assumption by basing its expected volatility on the historical , expected , or implied volatility of similar entities whose share option prices are publicly available . in making the determination as to similarity , the guidance recommends the consideration of industry , stage of life cycle , size and financial leverage of such other entities . the company 's expected volatility is derived from the historical daily change in the market price of its common stock since its stock became available for trading , story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes and other financial information appearing elsewhere in this annual report . except for the historical information contained herein , the following discussion contains forward-looking statements which are subject to known and unknown risks , uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements . we discuss such risks , uncertainties and other factors throughout this report and specifically under item 1a of part i of this report , “ risk factors. ” company overview we are a biotechnology company with a proprietary immunotherapy platform ( immunopulse® ) designed to overcome tumor immune tolerance through electroporation-based local delivery of immune-modulating therapeutic product candidates intended to treat a wide range of tumor types . our technology encompasses intellectual property relating to our immuno-oncology product portfolio which consists of immunopulse® delivery technology ( an electroporation delivery device ) that we use in combination with our potential therapeutic product candidates , including dna plasmids that encode for immunologically active agents , to deliver the therapeutic directly into the tumor and promote an inflammatory response against the cancer . this unique therapeutic modality is intended to reverse the immunosuppressive microenvironment in the tumor and engender a systemic anti-tumor response against untreated tumors in other parts of the body . our electroporation delivery device consists of an electrical pulse generator and disposable applicators , which can be adapted to treat different tumor types and our lead product candidate , immunopulse® il-12 , is ideal for combination with other therapies , such as anti-pd-1/pd-l1 therapies . immunopulse® il-12 , consists of a plasmid construct encoding the proinflammatory cytokine il-12 , that is delivered into the tumor through in vivo electroporation , which enhances local delivery and uptake of the therapeutic directly into the tumor . we have completed two phase 2 studies , oms-i100 in metastatic melanoma and oms-i110 in merkel cell carcinoma ( “ mcc ” ) . the oms-i100 clinical study demonstrated that multiple treatments of immunopulse® il-12 were safe and well tolerated , with no treatment-limiting toxicities . this lack of evidence of systematic toxicities led to the oms-i100 addendum study , in which the oms-i100 protocol was amended to enroll up to an additional 30 patients in order to continue to acquire clinical and immune correlational data . enrolllment in oms-i100 addendum is complete . the data from the oms-i100 metastatic melanoma clinical trial suggest that immunopulse® il-12 may prime and enhance response rates to pd-1/pd-l1 blockade and exploratory biomarker analyses from the oms-i110 mcc clinical trial showed a trend toward increased intratumoral expression of a variety of genes associated with inflammation , which we believe promotes tumor immunogenicity . the safety and efficacy of intratumoral electroporation with plasmid il-12 is also being tested in other cancer indications . we have an ongoing pilot study , oms-i140 in triple negative breast cancer ( “ tnbc ” ) , which is designed to assess whether immunopulse® il-12 increases tnbc tumor immunogenicity through increases in cytotoxic tumor-infiltrating lymphocytes ( “ tils ” ) . this study is open for enrollment and ongoing . we also have a phase 2 clinical study in head and neck squamous cell carcinoma ( “ hnscc ” ) in which one patient continues to receive treatment ; otherwise the hnscc clinical trial is no longer enrolling patients . in addition to studying immunopulse® il-12 as monotherapy , in collaboration with the university of california , san francisco , ( the sponsor of the study ) we are investigating the safety and efficacy of immunopulse® il-12 in combination therapy . cc-15852 is an open label phase 2 clinical trial of immunopulse® il-12 plus keytruda® ( “ pembrolizumab ” ) in patients with “ low til ” , advanced , metastatic melanoma ( “ combination ist ” ) . this investigator-initated study is enrolling and ongoing . we began our operations as a biotechnology company in march 2011 , following our completion of the acquisition of certain technology and related assets from inovio pharmaceuticals , inc. ( “ inovio ” ) pursuant to an asset purchase agreement dated march 14 , 2011. on may 18 , 2015 , we effected a reverse stock split , pursuant to which each 20 shares of issues and outstanding common stock were combined into and became one share of common stock . story_separator_special_tag the accompanying financial statements and related disclosures give retroactive effect to the reverse stock split for the periods presented related to our fiscal period ended july 31 , 2015. on may 29 , 2015 , our common stock began trading on the nasdaq stock market llc 's nasdaq capital market tier , under the symbol oncs . prior to operating as a biotechnology company , we were incorporated under the laws of the state of nevada on february 8 , 2008 under the name of netventory solutions , inc. 28 recent equity financings may 2016 registered direct offering on may 26 , 2016 our stock price closed at $ 1.62 and we closed an “ at-the-market registered direct offering ” ( the “ may 2016 offering ” ) with a single healthcare-dedicated institutional fund for the purchase of ( i ) 665,049 shares of our common stock , ( ii ) series b warrants to purchase 4,844,593 shares of our common stock at an exercise price of $ 0.01 , and ( iii ) series a warrants to purchase up to an aggregate of 5,509,642 shares of common stock at an exercise price of $ 1.69 per share with a term of nine ( 9 ) years . the warrants are immediately exercisable on the date of issuance . at the closing , the placement agents were also issued warrants to purchase an aggregate of up to five percent ( 5 % ) of the aggregate number of shares of common stock and series b warrants sold in this offering , or 275,482 shares . the placement agent warrants have an exercise price of $ 2.26875 , are immediately exercisable , and expire on may 24 , 2021. the investor paid a purchase price of $ 1.815 per share of common stock and an accompanying series a warrant to purchase one share of common stock and $ 1.805 per series b warrant and accompanying series a warrant to purchase one share of our common stock . the gross proceeds of the offering were $ 9.9 million . net proceeds , after deducting the placement agent 's fee , financial advisory fees , and other estimated offering expenses payable by us , were approximately $ 9.2 million . we intend to use proceeds from the offering for general corporate purposes , including clinical trial expenses and research and development expenses . november 2015 public offering on november 9 , 2015 , we closed a registered direct offering of an aggregate of 2,142,860 shares of our common stock at a purchase price of $ 3.50 per share and warrants to purchase an aggregate of 1,071,430 shares of our common stock ( the “ november 2015 offering ” ) . the warrants have an exercise price of $ 4.50 per share , are exercisable on may 9 , 2016 and expire on may 9 , 2021. the gross proceeds to us from the november 2015 offering was approximately $ 7.5 million . after deducting for fees and expenses , the aggregate net proceeds from the sale of the common stock in the november 2015 public offering were approximately $ 6.9 million . in connection with the november 2015 offering , we paid placement agent fees consisting of ( i ) a cash fee equal to six percent ( 6 % ) of the gross proceeds of the offering , as well as a non-accountable expense allowance equal to one percent ( 1 % ) of the gross proceeds , and ( ii ) warrants to purchase up to an aggregate of five percent ( 5 % ) of the aggregate number of shares of common stock sold in the offering , or 107,143 shares of our common stock . the warrants issued to the placement agent are exercisable at an exercise price of $ 4.375 per share , have a term of five ( 5 ) years became exercisable on may 9 , 2016 , and expire on november 9 , 2020. critical accounting policies accounting for long-lived assets / intangible assets we assess the impairment of long-lived assets , consisting of property and equipment , and finite-lived intangible assets , whenever events or circumstances indicate that the carry value may not be recoverable . examples of such circumstances include : ( 1 ) loss of legal ownership or title to an asset ; ( 2 ) significant changes in our strategic business objectives and utilization of the assets ; and ( 3 ) the impact of significant negative industry or economic trends . if a change were to occur in any of the above-mentioned factors the likelihood of a material change in our net loss would increase . recoverability of assets to be held and used in operations is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the assets . the factors used to evaluate the future net cash flows , while reasonable , require a high degree of judgment and the results could vary if the actual results are materially different than the forecasts . in addition , we base useful lives and amortization or depreciation expense on our subjective estimate of the period that the assets will generate revenue or otherwise be used by us . if such assets are considered impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs .
| the approximately $ 1.6 million increase in research and development expenses for the fiscal year ended july 31 , 2016 as compared to the fiscal year ended july 31 , 2015 ( “ fiscal 2015 ” ) was primarily the result of ( i ) increased clinical trial expenses of $ 1.2 million due to ( a ) the progression of our melanoma extension study which has completed enrollment and ( b ) progression of the combination ist which continues to enroll patients and is on-going , ( ii ) increased outside services expenses of approximately $ 0.9 million related to sponsored research , clinical development consulting and engineering consulting to assist in the research of novel electroporation technologies , combination studies and to facilitate the planning and development of our next generation electroporation device and ( iii ) increased expenses of approximately $ 0.9 million related to facility costs as we relocated our labs to our new corporate headquarters , offset by ( i ) a reduction in intangibles amortization of approximately $ 0.5 million due to our patents being fully amortized , ( ii ) a decrease of approximately $ 0.5 million in engineering and discovery research supplies spend due to moving our labs and refocusing our discovery research priorities , ( iii ) a decrease of approximately $ 0.3 million in salary-related costs and ( iv ) a reduction of $ 0.1 million in fees and licenses primarily related to patent acquisition . we expect research and development to continue to account for a significant portion of our total expenses in the future as we continue to to develop our product pipeline . we expect to use our current funds for the advancement of our clinical and r & d milestones . we anticipate our spending on clinical trials and cmc to increase as we continue to define and execute our registration pathway for metastatic melanoma and we anticipate our spending on discovery research and next-generation electroporation technologies to increase as we further pursue novel immuno-therapies and future product candidates . 30 general and administrative our general and administrative expenses include expenses related to our executive , accounting and finance , compliance , information technology , legal , facilities , human resource , administrative and corporate communications activities . these expenses consist primarily of salaries , benefits , stock-based compensation costs , independent auditor costs , legal fees , consultants , travel , insurance , and public company expenses , such as stock transfer agent fees and listing fees in connection with obtaining our listing on the nasdaq capital market . the approximately $ 4.0 million increase in general and administrative expenses for fiscal 2016 , as compared to fiscal 2015 , was primarily the
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in the current commodity price environment , our eagle ford shale assets offer more attractive cash flow margins than our natural gas assets . from 2008 to 2010 , we lowered our lease operating costs on a consolidated basis from $ 1.32 per mcfe to $ 0.78 per mcfe by focusing on lower cost haynesville shale potential and divesting higher cost mature assets . we expect this trend to continue as it relates to our natural gas properties . maintain financial flexibility . as of december 31 , 2010 , we had a borrowing base of $ 225 million under our senior credit facility , of which none was outstanding . we have historically funded growth through cash flow from operations , equity and equity-linked security issuances , divestments of non-core assets and entering into strategic joint ventures . we actively manage our exposure to commodity price fluctuations by hedging meaningful portions of our expected production through the use of derivatives , typically fixed price swaps and costless collars . the level of our hedging activity and the duration of the instruments employed depend upon our view of market conditions , available hedge prices and our operating strategy . 2010 overview we achieved annual production volume growth of 13 % with production volume growing from 29.8 bcfe in 2009 to 33.7 bcfe in 2010. we ended the year with estimated proved reserves of approximately 463.9 bcfe ( approximately 454.2 bcf of natural gas and 1.6 mmbbls of oil and condensate ) , with a pv-10 of $ 362.1 million and a standardized measure of $ 358.7 million , approximately 41 % of which is proved developed . we conducted drilling operations on 36 gross wells ( 12.7 net ) in the haynesville shale trend and added 23 gross ( 8.8 net ) wells to production in 2010. as of december 31 , 2010 , we had 13 gross ( 4.0 net ) wells drilled but awaiting completion . 32 index to financial statements we acquired lease acreage in the eagle ford shale trend where we conducted drilling operation on 6 gross ( 4.1 net wells ) all of which were added to production in 2010. we sold our shallow rights in our non-core high cost properties for approximately $ 70 million before normal closing adjustments recognizing a loss on sale of assets of $ 2.8 million . we reduced our lease operating expense per mcfe by 23 % from $ 1.01 in 2009 to $ 0.78 per mcfe in 2010. we recorded an impairment expense of $ 234.9 million on our non-core properties we decreased our depletion expense by 42 % from $ 5.38 per mcfe in 2009 to $ 3.14 per mcfe in 2010. eagle ford shale trend during the second half of 2010 , the company commenced drilling operations on its acreage in the eagle ford shale trend . the company 's leasehold position is located in both la salle and frio counties , texas . during 2010 , the company conducted drilling operations on approximately 8 gross ( 6 net ) operated eagle ford shale trend wells . during december 2010 , the company commenced drilling operations with a second rig on its eagle ford shale trend acreage . in 2011 , the company plans to spend approximately $ 145 million on 20 to 24 gross wells . haynesville shale trend our relatively low risk development drilling program in this trend is primarily centered in and around rusk , panola , angelina and nacogdoches counties , texas and desoto and caddo parishes , louisiana . we continue to build our acreage position in this trend and hold 158,749 gross acres as of december 31 , 2010 producing from and prospective for the haynesville shale . as of year- end 2010 , we drilled and completed a cumulative total of 85 wells in the trend with a 100 % success rate . our net production volumes from our haynesville shale wells aggregated approximately 47,000 mcfe per day in 2010 , or approximately 51 % of our total oil and gas production for the year . our 2011 capital expenditure budget includes plans to utilize approximately 1 to 3 rigs to conduct drilling operations on approximately 7 to 9 gross additional haynesville shale horizontal wells . core haynesville shale the company 's core haynesville shale drilling program is primarily concentrated in the bethany-longstreet and greenwood-waskom fields in caddo and desoto parishes in northwest louisiana . the company 's core haynesville shale drilling activity includes both operated and non-operated drilling in and around its core acreage positions in northwest louisiana . the company continues to build its acreage position in the trend and currently holds approximately 30,000 gross ( 16,000 net ) acres as of december 31 , 2010. the company 's net production volumes from its core haynesville shale wells totaled approximately 37,000 mcfe per day in 2010 , or approximately 40 % of the company 's total production for the year . in 2011 , the company estimates that it will spend approximately $ 25 to 30 million on 5 to 7 gross wells . shelby trough / angelina river trend during the second half of 2010 , the company spud its first haynesville & bossier shale wells in the shelby trough / angelina river trend area . the company operates all of its drilling activities , which are primarily located in nacogdoches , angelina and shelby counties , texas . the company continues to build its acreage position in the trend and currently holds approximately 48,500 gross ( 27,000 net ) acres as of december 31 , 2010. the company 's net production volumes from its shelby trough wells totaled approximately 1,300 mcfe per day in 2010 , or approximately 1 % of the company 's total production for the year . in 2011 , the company estimates that it will spend approximately $ 20 to 30 million on 2 to 3 gross wells . story_separator_special_tag 33 index to financial statements cotton valley taylor sand during 2010 , the company conducted drilling operations on four horizontal cotton valley taylor sand wells throughout its acreage position in the minden , beckville and south henderson fields of east texas . in the south henderson field , the company 's travis crow 1h well reached initial production of over 12.0 mmcfe/day , which included approximately 380 bbls of oil per day . in 2011 , the company plans to spend approximately $ 20 25 million to drill three offset wells in its south henderson field . the company has approximately 56,000 gross ( 49,000 ) net acres prospective for the cotton valley taylor sand . the company 's net production volumes from its cotton valley taylor sand wells totaled approximately 7,000 mcfe per day in 2010 , or approximately 8 % of the company 's total oil and gas production for the year . during 2010 , we drilled and completed 4 gross ( 4 net ) oil wells with a 100 % success rate in the play . our 2011 capital expenditure budget includes plans to utilize approximately 1 rig to conduct drilling operations on approximately 3 gross ( 3 net ) additional cotton valley horizontal wells . story_separator_special_tag we have drilled in the state of louisiana . the lower production tax for 2010 compared to 2009 is attributable to the increasing portion of our production coming from the haynesville shale horizontal wells , which are exempt for two years from state of louisiana production tax . the tgs tax credits allow for reduced and in many cases the complete elimination of severance taxes in the state of texas for qualifying wells for up to ten years of production . we only accrue for such credits once we have been notified of the state 's approval . we anticipate that we will incur a gradually lower production tax rate in the future as we add additional texas qualifying wells to our production base and as reduced rates are approved . the louisiana horizontal wells are eligible for a two year severance tax exemption from the date of first production or until payout of qualified costs , whichever is first . ad valorem taxes decreased $ 0.5 million to $ 2.5 million in 2010 from $ 3.0 million in 2009. ad valorem tax is assessed on the value of properties as of the first day of the year and is highly influenced by commodity prices for the prior several months . though the number of properties we owned increased from january 1 , 2009 to january 1 , 2010 , the assessed values for our properties were lower year-to-year driven by decreased commodity prices . during the year 2008 , production and other taxes were $ 7.5 million , which included production tax of $ 5.5 million and ad valorem tax of $ 2.0 million . production tax for 2008 is net of $ 3.2 million of tgs credits for our wells in the state of texas . the lower production tax for 2009 compared to 2008 is attributable to decreased gas prices year- to- year . also , an increasing portion of our production is attributable to haynesville shale horizontal wells , which are exempt for two years from state of louisiana production tax . 36 index to financial statements ad valorem taxes increased $ 1.0 million to $ 3.0 million in 2009 from $ 2.0 million in 2008. the number of properties we owned increased from january 1 , 2008 to january 1 , 2009 and the assessed values for our existing properties were higher year-to-year . the combination of these two factors led to the increase in ad valorem taxes . transportation transportation expense increased 4 % to $ 9.9 million ( $ 0.29 per mcfe ) in 2010 compared to $ 9.5 million ( $ 0.32 per mcfe ) in 2009. the increase in expense is primarily due to our higher production volumes and also up slightly due to a contractual annual volume deficiency charge related to non-core properties while the lower unit costs are a function of our changing geographic production mix , as well as a greater percentage of sales coming from non-operated properties from which the operator nets the transportation cost from revenues . transportation expense increased 9 % to $ 9.5 million ( $ 0.32 per mcfe ) in 2009 compared to $ 8.6 million ( $ 0.36 per mcfe ) in 2008. the increase in expense is primarily due to our higher production volumes while the lower unit costs are a function of our changing geographic production mix , as well as a greater percentage of sales coming from non-operated properties from which the operator nets the transportation cost from revenues . exploration exploration expenses for 2010 increased $ 0.9 million to $ 10.2 million from $ 9.3 million for 2009 , including a $ 6.0 million and $ 4.7 million for amortization of leasehold cost in 2010 and 2009 , respectively.2010 exploration expenses include $ 1.3 million in seismic costs including exploratory seismic costs for our angelina river area 3-d seismic program , slightly higher undeveloped leasehold cost amortization offset by a decrease in exploration labor cost as compared to 2009. exploration expenses for 2009 increased $ 0.9 million to $ 9.3 million from $ 8.4 million for 2008 . 2009 exploration expenses include drilling contract early termination charges of $ 1.2 million . replace_table_token_14_th depreciation , depletion & amortization our dd & a expense decreased $ 54.5 million to $ 105.9 million in 2010 from $ 160.4 million in 2009 as a result of a lower dd & a rate . the average dd & a rate decreased 42 % while production increased 13 % year-to-year . the decrease in the average depletion rate contributed $ 75.5 million to the decrease in dd & a expense offset by $ 21.0 million attributed to the higher production in 2010 .
| oil and gas revenues decreased $ 104.6 million to $ 110.8 million in 2009 , a decrease of 49 % from 2008. the oil and gas revenue reduction attributable to the realized price decrease was $ 125.5 million while the increase in production offset that decrease by $ 20.9 million . we did increase our daily production average to 81.6 mmcfe per day in 2009 from 66.1 mmcfe per day in 2008 , or 24 % . the drilling and completion of 45 wells in our northwest louisiana and east texas area , 32 of which were in the haynesville shale , resulted in the continued trend of annual natural gas production growth for the company . operating expenses operating expenses of $ 428.8 million in 2010 included a $ 234.9 million asset impairment , a $ 2.8 million loss on sale of assets and other expense of $ 4.3 million . eliminating these non-comparable items from the operating expenses in both 2010 and 2009 , the adjusted operating expense of $ 186.8 million in 2010 decreased 23 % or $ 54.7 million from adjusted operating expense of $ 241.5 million in 2009. this decrease is primarily attributed to lower lease operating expense on our haynesville shale wells and decreased depreciation , depletion and amortization ( dd & a ) expense because of a lower dd & a rate . the dd & a rate reduction was primarily due to the impairment writedown of the carrying value of our oil and gas properties and the addition of the haynesville shale reserves with its relatively lower pending costs . operating expenses totaled $ 450.1 million for the year ended december 31 , 2009. operating expenses of $ 70.6 million in 2008 included a $ 145.9 million gain on sale of assets . excluding the gain on sales of assets and impairment expense for both 2009 and 2008 , operating expense of $ 241.5 million in 2009 increased 29 % or $ 53.6 million over operating expense of $ 187.9 million in 2008. this increase is primarily attributed to increased dd & a expense because of a higher dd & a rate and increased
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today , we still continue to invest heavily in marketing our verification services and our wherefoodcomesfrom® brand to build consumer awareness and demand through the use of videos , television exposure , word-of-mouth and the internet . we believe we are positioning ourselves to benefit significantly in 2013 and beyond , but , of course , no assurance can be given that this investment will generate future revenue nor can we determine for how long , if at all . 16 acquisition of 60 % of outstanding shares of ics as part of our business strategy , we regularly evaluate acquisition opportunities as a means of accelerating our growth and achieving our long-term strategic objectives . on february 29 , 2012 , we entered into a purchase and exchange agreement ( the “ purchase agreement ” ) , by and among imi and international certification services , inc. ( “ ics ” ) , and other shareholders as individually named in the agreement ( collectively the “ sellers ” ) . pursuant to the purchase agreement , on february 29 , 2012 ( the “ closing ” ) the company acquired 60 % of the issued and outstanding common stock of ics in exchange for aggregate consideration of approximately $ 427,800 , which included $ 350,000 in cash and 172,840 shares of common stock of imi valued at approximately $ 77,800 , based upon the closing price of our stock on february 29 , 2012 , of $ 0.45 per share . the purchase agreement provides for 50 % of the shares to be held in escrow for a period of eighteen months to support any indemnification claims by us for breach of ics representations , warranties and covenants under the purchase agreement . the purchase agreement also includes non-dilution provisions , and we have right of first refusal on the remaining 40 % of the outstanding stock . ics is a premier provider of organic accreditation services and has a strong reputation in the organic market segment . they have a large and growing customer base that includes food retailers as well as producers and processors of fruits , vegetables , dairy , livestock and honey . their flagship certification program is farm verified organic® – an iso guide 65 and ifoam accredited program that meets the requirements of the usda national organic program – that is designed for organic producers selling to the us and international markets . ics also offers usda national organic program , canadian organic regime ( cor ) and food alliance sustainability certification as well as facilitation and compliancy of european union ( eu ) , japan and bio suisse standards . it is estimated that the total organic market segment in the us and eu is more than $ 50 billion annually . ics represents an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups , including poultry , grain , fruits and vegetables and dairy when sold as fresh , processed or packaged goods . we believe this acquisition has tremendous synergies for both imi and ics . as industry leaders in our respective product and service offerings , we are now positioned to offer our customers new solutions across the verification and certification spectrum . we also believe it provides diversification for our company in the produce , grain and dairy industries . it should enable us to better serve our customers , as well as accelerate our revenue growth , be accretive to earnings and provide another avenue for our wherefoodcomesfrom® labeling program . 17 story_separator_special_tag block '' > income tax benefit during the year ended december 31 , 2012 and 2011 , utilization of nol carry forwards reduced our effective tax rate . for the year ended december 31 , 2012 , we recorded an income tax benefit of approximately $ 391,500. the income tax benefit included the effect of reversing the remainder of our valuation allowance that existed as of december 31 , 2011 after concluding that the likelihood for a full realization of the benefits of our deferred tax assets is more likely than not . net income and per share information as a result of the foregoing , net income attributable to wfcf shareholders for the year ended december 31 , 2012 was approximately $ 870,400 or $ 0.04 per basic and diluted common share , compared to net income of $ 864,500 or $ 0.04 per basic and diluted common share for the year ended december 31 , 2011. the benefit from income taxes that we recorded related to the reversal of a portion of our valuation allowance on our deferred tax assets had an impact of approximately $ 0.02 per share on a dilutive basis in 2012 and approximately $ 0.01 per share on a dilutive basis in 2011. liquidity and capital resources at december 31 , 2012 , we had cash and cash equivalents of approximately $ 1,403,500 compared to approximately $ 969,000 of cash and cash equivalents at december 31 , 2011. our working capital at december 31 , 2011 was $ 1,699,500 compared to approximately $ 1,523,400 at december 31 , 2010. net cash provided by operating activities during 2012 was approximately $ 334,700 compared to net cash provided of $ 720,700 during the same period in 2011. cash provided by operating activities is driven by our net income and adjusted by non-cash items . non-cash adjustments primarily include depreciation , amortization of intangible assets , stock based compensation expense , and a deferred tax benefit resulting from the reversal of the valuation allowance and recognition of our deferred tax assets . fluctuations are primarily due to the timing of cash receipts and cash disbursements offset by operating performance . story_separator_special_tag 19 net cash provided by investing activities during 2012 was approximately $ 12,300 compared to cash used of $ 316,000 during 2011. net cash provided in 2012 was due to proceeds of approximately $ 302,100 from the sale of marketable securities partially offset by the acquisition of 60 % of the outstanding stock of ics in which we paid $ 350,000 in cash less approximately $ 135,200 in cash acquired . additionally , we spent approximately $ 73,900 towards property and equipment and $ 13,700 to renew our usda accreditation . net cash used during 2011 was primarily attributable to net purchases of marketable equitable securities of approximately $ 298,600 in 2011 , offset by capital expenditures of $ 12,200. net cash provided by financing activities during 2012 was approximately $ 87,500 compared to $ 51,200 in the 2011 period . net cash provided in 2012 was primarily due to proceeds of approximately $ 145,900 from stock option exercises offset by net repayments towards notes payable and capital lease obligations of $ 46,200. during the 2011 period , we received $ 200,000 under our new sba loan agreement offset by repayments of approximately $ 89,000 towards our notes payable and $ 61,600 in repurchases under our stock buyback program . historically , our growth has been funded through a combination of convertible debt from private investors and private placement offerings . we continually evaluate all funding options including additional offerings of our securities to private , public and institutional investors and other credit facilities as they become available . the primary driver of our operating cash flow is our third-party verification solutions , specifically the gross margin generated from services provided . therefore we focus on the elements of those operations including revenue growth and long term projects that ensure a steady stream of operating profits to enable us to meet our cash obligations . on a weekly basis we review the performance of each of our revenue streams focusing on third party verification solutions compared with prior periods and our operating plan . we believe that our various sources of capital , including cash flow from operating activities , overall improvement in our performance , and our ability to obtain additional financing are adequate to finance current operations as well as the repayment of current debt obligations . we are not aware of any other event or trend that would negatively affect our liquidity . in the event such a trend develops , we believe that there are sufficient financing avenues available to us and from our internal cash generating capabilities to adequately manage our ongoing business . the culmination of all our efforts has brought significant opportunities to us including : increased investor confidence and renewed interest in our company , third-party interest in our expertise to develop and enhance websites , as well as the potential to develop business relationships with long term strategic partners . in keeping with our core business , we will continue to review our business model with a focus on profitability , long term capital solutions and the potential impact of acquisitions or divestitures , if such an opportunity arises . our plan for continued growth is primarily based upon acquisitions , as well as , intensifying our focus on international markets . we believe that there are significant growth opportunities available to us because often the only way to access various restrictions as imposed on international market imports/exports is via a quality verification program . debt facility on april 22 , 2011 , we entered into a u.s. small business administration note with great western bank . the note which matures on may 1 , 2021 provides for $ 200,000 in additional working capital . the interest rate on the note is at prime plus 2.5 % and is adjusted quarterly . principal and interest are payable monthly . the note can be prepaid without penalties and contains certain customary affirmative and negative covenants . the loan agreement is secured by the accounts receivable , property and equipment , and intangible assets of the company . the note is further guaranteed by john and leann saunders , founders of the company , 20 with a security interest in 3,000,000 shares of the company 's common stock , which are personally owned by the saunders . simultaneous with the closing of the new loan agreement with great western bank , we amended the terms of our existing $ 300,000 in unsecured debt . the note is held by a major shareholder who is related to pete lapaseotes , a director of the company . modifications to the terms of the existing agreement include a reduction in the interest rate from 9 % to 6 % annually , as well as an extension of the maturity date from september 12 , 2012 to march 31 , 2014. principal is due in full upon the maturity date ; interest is payable quarterly . ics has a revolving line of credit ( loc ) agreement which matures on april 4 , 2014 , and provides for $ 70,050 in working capital . the interest rate is at the bank index rate less 0.5 % and is adjusted daily . interest is calculated using a 360 day year . principal and interest are payable upon demand , but if demand is not made , then annual payments of accrued interest only is due , with the principal balance due on maturity . the loc is collateralized by all the business assets of ics . off balance sheet arrangements as of december 31 , 2012 , we had no off-balance sheet arrangements of any type . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with gaap .
| product sales for the year ended december 31 , 2012 decreased 4.0 % compared to the year ended december 31 , 2011. the decrease was due to decreased volume in the quantity of tags sold in connection with our source and age verification programs . other revenue primarily represents the fees earned from our wherefoodcomesfrom® labeling program . other revenue for the year ended december 31 , 2012 increased 106.6 % compared to the year ended december 31 , 2011. this revenue source is still in its infancy , and we anticipate exponential growth in the future as more and more food producers continue to show interest in this product offering . cost of sales and gross margin cost of sales for the year ended december 31 , 2012 were approximately $ 2,431,400 compared to $ 1,884,400 for the year ended december 31 , 2011. included in our cost of sales is approximately $ 499,700 attributable to ics . gross margin for 2012 decreased to 53.8 % of revenues compared to 55.5 % for 2011. our gross margins for 2012 are slightly declining compared to 2011 , partially because ics currently operates at a lower gross margin and due to shifts in our sales mix . many of our customers are transitioning from verification of a single attribute to verification of multiple attributes performed in a single audit . a multiple attribute type of audit provides a slight increase in revenue but costs us more time to complete the audit , thereby resulting in lower gross margins as compared to our single service offerings . for a more detailed discussion regarding profitability , read “ management 's strategy ” above . 18 selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2012 were approximately $ 2,341,700 , an increase of $ 669,900 , or 40.1 % over the year ended december 31 , 2011. included in our selling , general and administrative expenses is approximately $ 466,400 attributable to ics . excluding ics expenses , our selling , general and administrative expenses for the year ended december 31 , 2012 increased approximately $ 203,400 over 2011 .
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revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met , including whether the delivered element has stand-alone value to the customer . the consideration received is allocated among the separate units based on their respective fair values , and the applicable revenue recognition criteria are applied to each of the separate units . the application of the multiple element guidance requires subjective determinations , and requires us to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship . deliverables are considered separate units of accounting provided that : ( 1 ) the delivered item ( s ) has value to the customer on a stand-alone basis and ( 2 ) if the arrangement 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 . in determining the units of accounting , we evaluate certain criteria , including whether the deliverables have stand-alone value , based on the consideration of the relevant facts and circumstances for each arrangement . in addition , we consider whether the buyer can use the other deliverable ( s ) for their intended purpose without the receipt of the remaining element ( s ) , whether the value of the deliverable is dependent on the undelivered item ( s ) , and whether there are other vendors that can provide the undelivered element ( s ) . arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method , and the applicable revenue recognition criteria , as described above , are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition . we determine the estimated selling price for deliverables within each agreement using vendor-specific objective evidence , or vsoe , of selling price , if available , third-party evidence , or tpe , of selling price if vsoe is not available , or management 's best estimate of selling price , or besp , if neither vsoe nor tpe is available . determining the besp for a unit of accounting requires significant judgment . in developing the besp for a unit of accounting , we consider applicable market conditions and relevant entity-specific factors , including factors that were contemplated in negotiating the agreement with the customer and estimated costs . contract manufacturing revenue we and endo ventures entered into a supply agreement , or the supply agreement , in connection with the sale of the sumavel dosepro business to endo in may 2014. under terms of the supply agreement , we retain the sole and exclusive right and the obligation to manufacture or supply sumavel dosepro to endo . we recognize deferred revenue related to our supply of sumavel dosepro as contract manufacturing revenue when earned on a `` proportional performance '' basis as product is delivered . we recognize revenue related to the sale of sumavel dosepro product , equal to the cost of contract manufacturing plus a 2.5 % mark-up , upon the transfer of title to endo . we supply sumavel dosepro product based on non-cancellable purchase orders . we initially defer revenue for any consideration received in advance of services being performed and product 58 being delivered , and recognize revenue pursuant to the related pattern of performance , based on total product delivered relative to the total estimated product delivery over the minimum eight year term of the supply agreement . we continually evaluate the performance period and will adjust the period of revenue recognition if circumstances change . in addition , we follow the authoritative accounting guidance when reporting revenue as gross when we act as a principal versus reporting revenue as net when we act as an agent . for transactions in which we act as a principal , have discretion to choose suppliers , bear credit risk and perform a substantive part of the services , revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services . product revenue , net we sold sumavel dosepro through may 2014 , and sold zohydro er through april 2015 , in the united states to wholesale pharmaceutical distributors and retail pharmacies , or collectively our customers , subject to rights of return within a period beginning six months prior to , and ending 12 months following , product expiration . we recognized sumavel dosepro product sales at the time title transferred to our customer , and we reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized . we are responsible for all returns of sumavel dosepro product distributed by us prior to sale up to a maximum per unit amount as specified in the asset purchase agreement . given the limited sales history of zohydro er , we could not reliably estimate expected returns of the product at the time of shipment . accordingly , we deferred recognition of revenue on zohydro er product shipments until the right of return no longer exists , which occurs at the earlier of the time zohydro er was dispensed through patient prescriptions or expiration of the right of return . we estimated zohydro er patient prescriptions dispensed using an analysis of third-party syndicated data . zohydro er was launched in march 2014 and , accordingly , we did not have a significant history estimating the number of patient prescriptions dispensed . if we underestimated or overestimated patient prescriptions dispensed for a given period , adjustments to revenue from discontinued operations may be necessary in future periods . the deferred revenue balance does not have a direct correlation with future revenue recognition as we recorded sales deductions at the time the prescription unit was dispensed . story_separator_special_tag in addition , the costs of zohydro er associated with the deferred revenue were recorded as deferred costs , which were included in inventory , until the time the related deferred revenue was recognized . we are responsible for returns of product sold prior to the sale of the business on april 24 , 2015 and for rebates , chargebacks , and related fees for product sold until july 8 , 2015 per terms of the asset purchase agreement . zohydro er activity is included in discontinued operations in our consolidated financial statements . inventories inventories are stated at the lower of cost ( on a first in , first out basis ) or market and consist of materials used in the manufacture of sumavel dosepro , which is included in continuing operations in our consolidated financial statements , and zohydro er until we sold the business in april 2015 , which is included in discontinued operations in our consolidated financial statements . we have significant lead times for the procurement and manufacture of our finished goods and we therefore order goods from our suppliers and manufacturers based on forecasts of future demand . also , we generally do not sell product that is within twelve months of expiration . to the extent we procure component materials or produce finished goods in excess of actual future demand , we may be required to reduce the carrying value of inventories . we record these adjustments based on an analysis of inventory on hand and on firm purchase commitments compared to forecasts of future demand . goodwill , intangible assets and other long-lived assets — impairment assessments we regularly perform reviews to determine if the carrying values of our long-lived assets are impaired . a review of goodwill , intangible assets and other long-lived assets is performed annually and when an event occurs indicating the potential for impairment . if indicators of impairment exist , we assess the recoverability of the affected long-lived assets and compare their fair values to the respective carrying amounts . in order to estimate the fair value of our intangible assets and other long-lived assets goodwill , we estimate the fair value of the reporting unit on an entity-level and compare it to the carrying value of goodwill recorded using our market capitalization and consideration of other qualitative inputs . in order to estimate the fair value of our intangible assets and other long-lived assets , we estimate the present value of future cash flows from those assets . the key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows , the time value of money , and other factors that a willing market participant would consider . significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows . assumptions and estimates about future values and remaining useful lives are complex and often subjective . they can be affected by a variety of factors , 59 including external factors such as industry and economic trends , and internal factors such as changes in our business strategy and our internal forecasts . for example , if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit , we may be required to record future impairment charges for our goodwill or long-lived assets . impairment charges could materially decrease our future net income and result in lower asset values on our balance sheet . warrants for common stock we classify common stock warrants that contain covenants where compliance with such covenants may be outside of our control as short-term liabilities on the consolidated balance sheet . we record the warrant liability at fair value and adjust the carrying value of these common stock warrants to their estimated fair value at each reporting date with the increases or decreases in the fair value of such warrants recorded as change in fair value of warrant liability in the consolidated statements of operations . the significant unobservable inputs used in measuring the fair value of the common stock warrant liabilities is expected volatility , as well as the probability of the occurrence of an extraordinary event for the warrants associated with our july 2012 public offering . significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement . business combinations under the acquisition method of accounting , we allocate the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition . the fair values assigned , defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants , are based on estimates and assumptions determined by management . we record the excess consideration over the aggregate fair value of tangible and intangible assets , net of liabilities assumed , as goodwill . these valuations require us to make significant estimates and assumptions , especially with respect to intangible assets . in connection with some of our acquisitions , additional contingent consideration is earned by the sellers upon completion of certain future performance milestones . in these cases , a liability is recorded on the acquisition date for an estimate of the acquisition date fair value of the contingent consideration by applying the income approach utilizing variable inputs such as anticipated future cash flows , risk-free adjusted discount rates , and nonperformance risk .
| we initiated phase 3 clinical trials in january 2016 in north america and plan to begin phase 3 clinical trials in europe in the first half of 2016. we have an additional product candidate in development , relday tm ( risperidone once-monthly long-acting injectable ) for the treatment of schizophrenia . relday is a proprietary , long-acting injectable formulation of risperidone . risperidone is used to treat the symptoms of schizophrenia and bipolar disorder in adults and teenagers 13 years of age and older . we began enrolling patients in a phase 1b multi-dose clinical study for relday in march 2015. on september 30 , 2015 , we announced positive top-line pharmacokinetic results from the phase 1b study . we have now initiated efforts with a third-party transaction advisory firm to help secure a global strategic development and commercialization partner for relday . we launched zohydro® er ( hydrocodone bitartrate ) extended-release capsules , cii , an opioid agonist , extended-release oral formulation of hydrocodone without acetaminophen in march 2014 with our own sales force and had double-digit quarter-over-quarter growth during the launch year . on january 30 , 2015 , the fda approved our supplemental new drug application , or snda , for a modified formulation of zohydro er with beadtek tm , which was developed using safe , well-known excipients and proprietary manufacturing processes to create an inactive ingredient that immediately forms a viscous gel when crushed and dissolved in liquids or solvents . on april 24 , 2015 , we sold our zohydro er business to ferrimill limited , an irish corporation and subsidiary of pernix therapeutics . we have experienced operating net losses and negative cash flow from operating activities since inception , and as of december 31 , 2015 , had an accumulated deficit of $ 375.5 million . we expect to continue to incur net losses and negative cash flow from operating activities for at least the next year primarily as a result of our efforts to progress the clinical development for zx008 and relday .
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million of 8.875 % senior secured second lien notes due 2016 ( the `` fiesta notes '' ) , the proceeds from which were used to distribute funds to carrols restaurant group to enable carrols restaurant group to repay its existing indebtedness , as well as to pay all related fees and expenses . effective with the issuance of the fiesta notes , amounts due to carrols restaurant group were repaid . in the first quarter of 2012 carrols restaurant group transferred to us $ 2.5 million of excess cash proceeds from the financings as a contribution of capital . on july 30 , 2012 , we exchanged all of the $ 200.0 million of the fiesta notes for newly issued notes that have terms which are identical to the fiesta notes that are registered under the securities act of 1933 , as amended ( the `` securities act '' ) , which we 34 refer to as the `` exchange notes '' . on august 5 , 2011 , we also entered into a $ 25.0 million senior secured revolving credit facility which was undrawn at closing . executive summary-consolidated operating performance for the year ended december 30 , 2012 our fiscal year 2012 results and highlights include the following : net income decreased $ 1.3 million to $ 8.3 million in 2012 , or $ 0.35 per diluted share , compared to net income of $ 9.5 million , or $ 0.41 per diluted share , primarily due to the impact of the spin-off from carrols restaurant group and impairment charges recognized in the first quarter of 2012 related to the closure of five pollo tropical restaurants in new jersey , partially offset by the positive impact of revenue growth as noted below and related profitability , and the positive impact of the qualification for sale treatment of sale-leaseback transactions upon the consummation of the spin-off . total revenues increased 7.3 % in 2012 to $ 509.7 million from $ 475.0 million in 2011 , driven primarily by an increase in comparable restaurant sales of 8.1 % for the pollo tropical restaurants and 4.7 % for the taco cabana restaurants . the growth in comparable restaurant sales resulted from an increase in comparable guest traffic of 6.6 % at pollo tropical and 1.9 % at taco cabana , with an increase in average check of 1.5 % at pollo tropical and 2.8 % at taco cabana . during 2012 , we opened five new pollo tropical restaurants and five new taco cabana restaurants and permanently closed five pollo tropical restaurants and one taco cabana restaurant . in addition , during the fourth quarter of 2012 , we sold two company-owned taco cabana restaurants to an existing franchisee , resulting in two net restaurant openings in 2012. story_separator_special_tag the following table presents the primary drivers of the changes in the components of restaurant operating margins for pollo tropical and taco cabana . all percentages are stated as a percentage of applicable segment restaurant sales . replace_table_token_11_th 37 replace_table_token_12_th consolidated restaurant rent expense . restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases , reduced by amortization of gains on sale-leaseback transactions . restaurant rent expense , as a percentage of total restaurant sales , increased to 4.3 % in 2012 from 3.6 % in 2011 due primarily to the qualification for sale treatment of the sale-leaseback transactions discussed above which increased rent expense in 2012 by $ 4.4 million . this was partially offset by the effect of higher restaurant sales volumes at both pollo tropical and taco cabana on fixed rental costs . restaurant rent expense , as a percentage of restaurant sales , decreased to 3.6 % in 2011 from 3.8 % in 2010 due primarily to the effects of sales increases at our restaurants on fixed rental costs . consolidated general and administrative expenses . general and administrative expenses are comprised primarily of ( 1 ) salaries and expenses associated with the development and support of our company and brands and the management oversight of the operation of our restaurants ; ( 2 ) legal , auditing and other professional fees and stock-based compensation expense ; and ( 3 ) subsequent to the spin-off , costs incurred under the tsa for administrative support services . general and administrative expenses increased to $ 43.9 million in 2012 from $ 37.5 million in 2011 and , as a percentage of total restaurant sales , increased to 8.6 % compared to 7.9 % in 2011 , due to the hiring of certain fiesta executive management and administrative staff as well as legal and other costs of $ 0.8 million incurred in connection with the spin-off . general and administrative expense also includes stock-based compensation expense and other costs of $ 1.1 million in the first quarter of 2012 related to the conversion of carrols restaurant group outstanding stock options into either shares of carrols restaurant group common stock or restricted stock in connection with the spin-off and the acceleration of vesting of restricted stock awards of our former chairman upon his departure from our board of directors . in addition , general and administrative costs during 2012 included $ 0.6 million associated with retirement agreements entered into during the third quarter . general and administrative expenses increased $ 4.6 million in 2011 to $ 37.5 million and , as a percentage of restaurant sales , increased to 7.9 % from 7.5 % in 2010 due in part to an increase of $ 1.2 million in performance-based administrative bonus accruals and higher allocated stock-based compensation expense of $ 0.7 million . general and administrative expenses included total allocated carrols restaurant group 's corporate expenses for executive management , information systems and certain accounting , 38 legal and other administrative functions of $ 11.0 million and $ 9.1 million in 2011 and 2010 , respectively , including costs and related expenses of $ 0.9 million incurred in connection with the planned spin-off from carrols restaurant group . adjusted segment ebitda . story_separator_special_tag adjusted segment ebitda , which is the measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance , is defined as earnings attributable to the applicable segment before interest , income taxes , depreciation and amortization , impairment and other lease charges , stock-based compensation expense and other income and expense . adjusted segment ebitda may not be necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation . adjusted segment ebitda for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management , information systems and certain accounting , legal and other administrative functions . as a result of the factors discussed above , adjusted segment ebitda for our pollo tropical restaurants increased to $ 38.6 million in 2012 from $ 35.6 million in 2011. adjusted segment ebitda for our pollo tropical restaurants was negatively impacted by an increase in rent expense of $ 1.6 million in 2012 due to the qualification for sale treatment of sale-leaseback transactions , as discussed above . adjusted segment ebitda for our taco cabana restaurants decreased to $ 25.6 million in 2012 from $ 26.8 million in 2011. adjusted segment ebitda for our taco cabana restaurants was also negatively impacted by an increase in rent expense of $ 2.7 million in 2012 due to the qualification for sale treatment of sale-leaseback transactions , as discussed above . as a result of the factors discussed above , adjusted segment ebitda for our pollo tropical restaurants increased to $ 35.6 million in 2011 from $ 30.1 million in 2010. adjusted segment ebitda for our taco cabana restaurants decreased to $ 26.8 million in 2011 from $ 27.3 million in 2010. depreciation and amortization . depreciation and amortization expense decreased to $ 18.3 million in 2012 from $ 19.5 million in 2011 due primarily to the qualification for sale treatment of the sale-leaseback transactions discussed above which decreased depreciation expense in 2012 by $ 1.4 million . depreciation and amortization expense increased to $ 19.5 million in 2011 from $ 19.1 million in 2010 due primarily from our capital expenditures in 2011 of $ 22.9 million . impairment and other lease charges . impairment and other lease charges were $ 7.0 million in 2012 and consisted of asset impairment charges of $ 4.1 million and lease charges of $ 1.5 million associated with the closure of our five pollo tropical restaurants in new jersey in the first quarter of 2012 and $ 1.0 million of asset impairment charges for two taco cabana restaurants . two of the five closed pollo tropical restaurants ' assets were previously impaired in 2011. in 2011 we recorded total impairment and other lease charges of $ 2.7 million which included other lease charges of $ 1.2 million associated with five closed pollo tropical restaurants , $ 0.2 million of lease charges for two closed taco cabana restaurants and a $ 1.3 million impairment charge for an underperforming pollo tropical restaurant . in 2010 we recorded total impairment and other lease charges of $ 6.6 million which included impairment charges of $ 3.9 million for four underperforming pollo tropical restaurants and $ 1.4 million for two underperforming taco cabana restaurants . we also recorded other lease charges of $ 0.7 million for non-operating pollo tropical restaurant properties and $ 0.5 million for non-operating taco cabana restaurant properties . interest expense . interest expense increased $ 0.4 million to $ 24.4 million in 2012 from 2011 due primarily to our refinancing activities in the third quarter of 2011 , partially offset by the elimination of interest expense of $ 7.1 million in 2012 as a result of the qualification for sale treatment of sale-leaseback transactions and the prospective treatment of those payments as rent , as discussed above . total interest expense increased $ 4.1 million to $ 24.0 million in 2011 from 2010 due primarily to higher debt balances resulting from our refinancing in the third quarter of 2011. interest expense on lease financing obligations increased to $ 11.3 million in 2011 from $ 10.9 million in 2010. provision for income taxes . the effective tax rate for 2012 of 34.2 % increased as compared to an effective tax rate for 2011 of 32.7 % , primarily due to the expiration of the work opportunity tax credit and the hire act retention tax credit effective december 31 , 2011. the 2012 effective tax rate also includes the positive impacts of discrete items totaling approximately $ 0.7 million . the american taxpayer relief act of 2013 ( the `` act '' ) was signed into law on january 2 , 2013. the act included a provision to retroactively restore several expired business tax provisions , including the work opportunity tax credit , as of january 1 , 2012 , with a new expiration date of december 31 , 2013. because a change in tax law is accounted for in the period of enactment , and the act was enacted after fiesta 's fiscal year-end , the retroactive effect of renewing the work opportunity tax credit is not reflected in the 2012 provision for income taxes , but will instead be recorded as a discrete item in the first quarter of 2013 , which is expected to total approximately $ 0.6 million . 39 the effective tax rate for 2011 decreased to 32.7 % from 34.8 % in 2010 due primarily from higher work opportunity tax credits and the hire act retention tax credit in 2011 as compared to 2010. net income . as a result of the foregoing , we had net income of $ 8.3 million in 2012 compared to net income of $ 9.5 million in 2011 , and $ 7.0 million in 2010. liquidity and capital resources we do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies .
| restaurants are included in comparable restaurant sales after they have been open for 18 months . for comparative purposes , the calculation of the changes in comparable restaurant sales is based on a 52-week year . increases in comparable restaurant sales result primarily from an increase in guest traffic , and to a lesser extent , an increase in average check . the increase in average check is primarily driven by menu price increases . for pollo tropical , menu price increases drove an increase in restaurant sales of 2.6 % in 2012 as compared to 2011 , and 1.5 % in 2011 as compared to 2010. for taco cabana , menu price increases drove an increase in restaurant sales of 2.7 % in 2012 as compared to 2011 , and 2.9 % in 2011 as compared to 2010. franchise revenues increased to $ 2.4 million in 2012 from $ 1.7 million in 2011 due primarily to the number of new franchise locations opened during the year and an increase in sales at the franchised locations . franchise revenues in 2011 increased $ 0.2 million from $ 1.5 million in 2010 . 36 operating costs and expenses . operating costs and expenses include cost of sales , restaurant wages and related expenses , other restaurant expenses and advertising expenses . cost of sales consists of food , paper and beverage costs including packaging costs , less purchase discounts . cost of sales is generally influenced by changes in commodity costs , the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs . key commodities , including chicken and beef , are generally purchased under contracts for future periods of up to one year . restaurant wages and related expenses include all restaurant management and hourly productive labor costs , employer payroll taxes , restaurant-level bonuses and related benefits . payroll and related taxes and benefits are subject to inflation , including minimum wage increases and increased costs
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assessments of recoverability for property and casualty and short-duration health insurance are extremely sensitive to the estimates of a subsequent year 's projected losses related to the unearned premiums . projected loss estimates for a current block of business for which unearned premiums remain to be earned may vary significantly from the indicated losses incurred in any previous calendar year . 14 receivables are amounts due from reinsurers , insureds and agents , and any sales of investment securities not yet settled , and comprised 12 % of the company 's total assets at december 31 , 2019. insured and agent balances are evaluated periodically for collectibility . annually , the company performs an analysis of the creditworthiness of the reinsurers with whom the company contracts using various data sources . failure of reinsurers to meet their obligations due to insolvencies , disputes or otherwise could result in uncollectible amounts and losses to the company . allowances for uncollectible amounts are established , as and when a loss has been determined probable , against the related receivable . losses are recognized by the company when determined on a specific account basis and a general provision for loss is made based on the company 's historical experience . cash and investments comprised 75 % of the company 's total assets at december 31 , 2019. substantially all of the company 's investments are in bonds and common and preferred stocks , the values of which are subject to significant market fluctuations . the company carries all fixed maturities , which includes bonds and redeemable preferred stocks , and equity securities , which includes common and non-redeemable preferred stocks , as available for sale and , accordingly , at their estimated fair values . on occasion , the value of a fixed maturity investment may decline to a value below its amortized purchase price and remain at such value for an extended period of time . when a fixed maturity investment 's indicated fair value has declined below its cost basis for a period of time , the company evaluates such investment for an other than temporary impairment . the evaluation for an other than temporary impairment is a quantitative and qualitative process , which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary . potential risks and uncertainties include , among other things , changes in general economic conditions , an issuer 's financial condition or near term recovery prospects and the effects of changes in interest rates . in evaluating a potential impairment , the company considers , among other factors , management 's intent and ability to hold the securities until price recovery , the nature of the investment and the expectation of prospects for the issuer and its industry , the status of an issuer 's continued satisfaction of its obligations in accordance with their contractual terms , and management 's expectation as to the issuer 's ability and intent to continue to do so , as well as ratings actions that may affect the issuer 's credit status . if an other than temporary impairment is deemed to exist , then the company will write down the amortized cost basis of the investment to its estimated fair value . while any such write down does not impact the reported value of the investment in the company 's balance sheet , it is reflected as a realized investment loss in the company 's net income or other comprehensive income , depending upon the nature of the loss , in the period incurred . the company determines the fair values of certain financial instruments based on the fair value hierarchy established in accounting standards codification ( asc ) 820-10-20 , fair value measurements and disclosures ( asc 820-10-20 ) . the fair values of fixed maturities and equity securities are largely determined by either independent methods prescribed by the national association of insurance commissioners , which do not differ materially from nationally quoted market prices , when available , or independent broker quotations . see note 2 and note 3 of notes to consolidated financial statements with respect to assets and liabilities carried at fair value and information about the inputs used to value those financial instruments , by hierarchy level , in accordance with asc 820-10-20. deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for tax purposes . these deferred income taxes are measured by applying currently enacted tax laws and rates . valuation allowances are recognized to reduce the deferred tax asset to the amount that is deemed more likely than not to be realized . in assessing the likelihood of realization , management considers estimates of future taxable income and tax planning strategies . share-based transactions include employee and director share-based compensation awards . the company determines a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense , adjusted for actual forfeitures , in the consolidated statement of operations on a straight-line basis over the requisite service period for the entire award . for non-employee share-based compensation awards , the company recognizes the impact during the period of performance , and the fair value of the award is measured as of the date performance is complete , which is the vesting date . refer to note 1 of notes to consolidated financial statements for details regarding the company 's significant accounting policies . story_separator_special_tag 15 overall corporate results replace_table_token_5_th management also considers and evaluates performance by analyzing the non-gaap measure operating income or loss , and believes it is a useful metric for investors , potential investors , securities analysts and others because it isolates the core operating results of the company before considering certain items that are either beyond the control of management ( such as income tax expense , which is subject to timing , regulatory and rate changes depending on the timing of the associated revenues and expenses ) or are not expected to regularly impact the company 's operational results ( such as any realized or unrealized investment gains or losses , which are not a part of the company 's primary operations and are , to a limited extent , subject to discretion in terms of timing of realization ) . a reconciliation of net loss to operating loss is as follows : replace_table_token_6_th on a consolidated basis , the company had a net loss of $ 0.4 million , or $ 0.04 per diluted share , in 2019 , compared to net loss of $ 0.7 million , or $ 0.05 per diluted share , in 2018. operating loss was $ 7.5 million in 2019 as compared to $ 3.9 million in 2018. the increase in operating loss was primarily due to unfavorable loss experience in the life and health operations , partially offset by favorable loss experience in the property and casualty operations . total revenue was $ 198.2 million in 2019 as compared to $ 185.6 million in 2018. premium revenue increased to $ 181.9 million in 2019 from $ 172.9 million in 2018. the increase in premium revenue was primarily due to an increase in the automobile physical damage and automobile liability lines of business within the property and casualty operations . also contributing to the increase in premium revenue was an increase in the medicare supplement line of business in the life and health operations . a more detailed analysis of the operating companies and other corporate activities follows . 16 story_separator_special_tag text-align : left ; margin-right : 0px ; margin-top : 8px ; margin-bottom : 0px ; `` > contingent commissions , if contractually applicable , are ultimately payable to participating agents based on the underlying profitability of a particular insurance contract or a group of insurance contracts , and are periodically evaluated and accrued as earned . in 2019 , approximately 44 % of american southern 's earned premium provides for contractual commission arrangements which compensate the company 's agents in relation to the loss ratios of the business they write , compared to 47 % in 2018. by structuring its business in this manner , american southern provides its agents with an economic incentive to place profitable business with american southern . in periods in which loss reserves reflect favorable development from prior years ' reserves , there is generally a highly correlated increase in commission expense also related to the prior year business . accordingly , favorable loss development from prior years , while anticipated to continue in future periods , is not an indicator of significant additional profitability in the current year . 18 bankers fidelity the following summarizes , for the periods indicated , bankers fidelity 's premiums , losses and expenses : replace_table_token_9_th net earned premium revenue at bankers fidelity increased $ 4.1 million , or 3.5 % , during 2019 as compared to 2018. gross earned premiums from the medicare supplement line of business increased $ 15.1 million , or 9.2 % , in 2019 as compared to 2018 , due primarily to the implementation of rate increases on renewal business , as appropriate . other health product premiums increased $ 0.3 million , or 3.6 % , during 2019 as compared to 2018 , primarily as a result of new sales of the company 's group health products . gross earned premiums from the life insurance line of business decreased $ 0.5 million , or 5.1 % , in 2019 from 2018 due to the redemption and settlement of existing policy obligations exceeding the level of new sales activity . premiums ceded increased $ 10.8 million , or 17.6 % , in 2019 from 2018. the increase in ceded premiums was due to an increase in medicare supplement premiums subject to the reinsurance agreement . benefits and losses increased $ 5.9 million , or 6.2 % , during 2019 as compared to 2018. as a percentage of premiums , benefits and losses were 80.9 % in 2019 as compared to 78.8 % in 2018. throughout 2018 and continuing into 2019 , bankers fidelity experienced a higher than expected level of claims in the medicare supplement line of business which had an unfavorable effect on the company 's loss patterns and increased the resultant loss ratio . commissions and underwriting expenses increased $ 3.3 million , or 10.2 % , during 2019 as compared to 2018. as a percentage of earned premiums , these expenses were 28.9 % in 2019 as compared to 27.1 % in 2018. the increase in the expense ratio was primarily due to a decrease in the net amount of deferred acquisition costs ( dac ) for the years ending 2019 versus 2018. the decrease in the net change in dac during 2019 is primarily due to a lower volume of new business sales in the medicare supplement line of business . also contributing to the increase in the expense ratio was an increase in expenses related to servicing the medicare supplement line of business . net investment income and realized gains ( losses ) investment income decreased $ 0.6 million , or 6.0 % , in 2019 as compared to 2018. the decrease in investment income was primarily attributable to a decrease in the equity in earnings from investments in real estate partnerships of $ 0.4 million .
| premiums are earned ratably over their respective policy terms , and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year . the performance of an insurance company is often measured by its combined ratio . the combined ratio represents the percentage of losses , loss adjustment expenses and other expenses that are incurred for each dollar 17 of premium earned by the company . a combined ratio of under 100 % represents an underwriting profit while a combined ratio of over 100 % indicates an underwriting loss . the combined ratio is divided into two components , the loss ratio ( the ratio of losses and loss adjustment expenses incurred to premiums earned ) and the expense ratio ( the ratio of expenses incurred to premiums earned ) . net losses and loss adjustment expenses at american southern increased $ 0.7 million , or 1.8 % , during 2019 as compared to 2018. as a percentage of premiums , net losses and loss adjustment expenses were 67.4 % in 2019 as compared to 72.2 % in 2018. the decrease in the loss ratio was primarily due to more favorable loss experience in the automobile liability line of business as a result of additional writings in 2019 and rate increases on existing business . commissions and underwriting expenses increased $ 2.4 million , or 16.0 % , during 2019 as compared to 2018. as a percentage of premiums , these expenses were 29.2 % in 2019 as compared to 27.4 % in 2018. the increase in the expense ratio was primarily due to american southern 's use of a variable commission structure with certain agents , which compensates the participating agents in relation to the loss ratios of the business they write . in 2019 , variable commissions at american southern increased $ 1.6 million as compared to 2018 due to improved loss ratios from certain accounts subject to variable commissions . in establishing reserves , american southern initially reserves for losses at the higher end of the reasonable range if no other
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the 2012 effective tax rate increase of 4 % was due to increased state income taxes of $ 553,926 , partially offset by an excess percentage depletion benefit increase of $ 112,524. the 2012 state income tax increase was a result of significantly higher lease bonus income in oklahoma , combined with lower intangible drilling cost deductions from oklahoma taxable income . the company 's utilization of excess percentage depletion ( which is a permanent tax benefit ) decreases the provision for income taxes . the benefit of excess percentage depletion is not directly related to the amount of recorded income or loss . accordingly , in cases where the recorded income or loss is relatively small , the proportional effect of the excess percentage depletion on the effective tax rate may become significant . ( 28 ) fiscal year 2011 compared to fiscal year 2010 overview the company recorded net income of $ 8,493,912 , or $ 1.01 per share , in 2011 , compared to net income of $ 11,419,690 , or $ 1.36 per share , in 2010. decreased revenues in 2011 were primarily due to lower realized and unrealized gains on derivative contracts and lower lease bonuses and rentals . actual and forward looking prices were lower than the company 's derivative contracts during 2011 , resulting in net gains on derivative contracts ; however , the variation during 2011 was not as significant as in 2010 , therefore , gains on derivative contracts during 2011 were significantly less . the renewal of leases on certain of the company 's arkansas undeveloped mineral acreage generated significant lease bonuses during 2010 ; whereas there were no such renewals in 2011. expenses decreased due to lower dd & a and exploration costs in 2011 , partially offset by increases in the provision for impairment , general and administrative costs and a decrease in gain on asset sales , interest and other . the positive performance revisions recognized in the reserves reported at september 30 , 2010 , resulted in lower 2011 dd & a . oil and natural gas sales oil and natural gas sales revenues decreased $ 599,817 or 1 % for 2011 , as compared to 2010. a decline in natural gas prices of 6 % from 2010 to 2011 , partially offset by a 21 % increase in oil prices in 2011 , caused the reduction of oil and natural gas sales revenues . production from wells that came on line in 2011 offset the natural decline of existing wells such that oil and natural gas production volume in 2011 was relatively flat compared to 2010 volumes . drilling activity increased during the last quarter of 2010 and continued at a much higher rate throughout 2011 , as compared to the first nine months of fiscal 2010. this increase in drilling activity resulted in 2011 production volumes ( on an mcfe basis ) that were flat compared to those of 2010. the increased drilling activity is primarily on the company 's mineral acreage in the arkansas fayetteville shale and in the oil and natural gas liquids-rich plays such as the anadarko woodford shale , horizontal granite wash , hogshooter wash , cleveland , marmaton , tonkawa and other similar plays in western oklahoma . as of september 30 , 2011 , the company owned an average 2.6 % net revenue interest in 48 wells that were drilling or testing . production by quarter for 2011 and 2010 was as follows : replace_table_token_15_th lease bonus and rentals lease bonus and rentals decreased $ 767,917 for 2011 , as compared to 2010. lease bonus and rental revenues in 2010 included lease bonuses of approximately $ 723,000 from certain of the company 's arkansas mineral acreage , whereas there were no large leases of company acreage in 2011 . ( 29 ) gains ( losses ) on derivative contracts realized and unrealized gains and losses are scheduled below : replace_table_token_16_th the company 's natural gas fixed price swap contracts had expiration dates of october 2011 ; the oil costless collar contracts have expiration dates of december 2011 ; the natural gas basis protection swaps have expiration dates of december 2011 and december 2012. lease operating expenses ( loe ) and production taxes loe increased $ 248,435 or 3 % in 2011. loe costs per mcfe of production increased from $ .92 in 2010 to $ .95 in 2011. the total loe increase and the loe per mcfe increase were primarily related to increased field operating costs of approximately $ 276,000 in 2011 compared to 2010. field operating costs were $ .44 per mcfe in 2011 compared to $ .41 per mcfe in 2010 , a 7 % increase . these increases were principally the result of well workovers performed in 2011. handling fees ( primarily gathering , transportation and marketing costs ) on natural gas in 2011 were slightly less than those of 2010. these fees decreased loe approximately $ 28,000 in 2011. production taxes increased $ 10,210 or 1 % in 2011. some wells previously eligible for production tax credits or reductions , primarily in oklahoma and arkansas , lost their eligibility during 2011 due to meeting either time or payout thresholds stipulated in oklahoma and arkansas production tax laws . exploration costs exploration costs were $ 1,025,542 in 2011 compared to $ 1,583,773 in 2010 , a $ 558,231 decrease . during 2011 , leasehold impairment and expired leasehold totaled $ 482,491 compared to $ 1,191,598 during 2010 , a $ 709,107 decrease . the decline was driven by lower provisions for expected lease expirations in 2011 , as compared to 2010. charges on two exploratory dry holes totaled $ 543,051 during 2011 ; whereas , in 2010 the company incurred minor exploratory dry hole costs totaling $ 4,541. during 2010 , $ 387,634 was charged to exploration costs related to geological and geophysical costs paid upon the execution of a joint exploration agreement with a privately held independent operator to explore for oil in eastern oklahoma . story_separator_special_tag depreciation , depletion and amortization ( dd & a ) total dd & a decreased $ 4,509,935 or 24 % in 2011 , while dd & a per mcfe decreased to $ 1.65 in 2011 , as compared to $ 2.16 in 2010. the dd & a decrease was attributable to the $ .51 decline in the dd & a rate per mcfe . this rate decline in 2011 was due to the positive performance revisions recognized in the reserves reported at september 30 , 2010 . ( 30 ) provision for impairment the provision for impairment increased $ 1,122,547 in 2011 , as compared to 2010. during 2011 , impairment of $ 1,728,162 was recorded on nine small fields in oklahoma and texas . these fields had few wells and are more susceptible to impairment when a well in the field experiences downward reserve revisions , or when a newly completed well with little production history is added to one of these fields . on one of these fields , a new material well began production on september 27 , 2011. the well 's early production was significantly impacted by the recovery of large volumes of water utilized in the fracture treatment . since the well 's early production had been low , while at the same time producing large volumes of load water , the calculated reserves and future net cash flows were calculated to be significantly less than was previously attributed to the well , resulting in a material impairment to the field of $ 590,629. wells such as this are subject to performance revisions going forward as more is known of their production history and pattern . during the 2010 period , impairment of $ 605,615 was recorded on six small fields . included in the 2011 total above , was an impairment charge of $ 716,448 on the joiner city prospect , a horizontal woodford shale prospect in the oil and natural gas liquids-rich marietta basin in southern oklahoma . the first well was drilled and completed during the first quarter of 2011 and is currently producing commercial quantities of oil and natural gas . as of september 30 , 2011 , this well had a net book value of $ 503,960 after impairment . costs on this well were extraordinarily high due to this well being the first and only horizontal well drilled in the field . loss ( gain ) on asset sales , interest and other in 2010 , the company received $ 1,124,682 from the settlement of a lawsuit related to one well in western oklahoma . no interest expense was incurred during 2011 , compared to interest expense of $ 60,912 recorded in 2010. general and administrative costs ( g & a ) g & a increased $ 400,164 or 7 % in 2011. the increase was primarily related to increases in the following expense categories : personnel $ 346,331 ; board fees $ 92,674 ; computer consulting fees $ 20,000 ; and reservoir engineering fees $ 71,000. the above were partially offset by a decrease in legal fees of $ 228,837 in 2011. the increase in 2011 personnel related expenses was the result of annual increases in salaries and bonuses totaling approximately $ 113,000 , a restricted stock expense increase of $ 140,454 , a rise in employee insurance costs of $ 22,713 and higher esop expense of $ 20,220. the increase in board fees resulted from the addition of one director in may 2010 ( resulting in partial year retainer and meeting fees during 2010 , but a full year 's fees during 2011 ) combined with increases in annual retainer fees and meeting fees paid to directors during 2011. non-recurring legal fees of approximately $ 230,000 were expensed during 2010 related to a lawsuit on one well in western oklahoma and to the 2008 bankruptcy of semgroup , l.p. , which owed the company for crude oil they had purchased . provision ( benefit ) for income taxes the 2011 provision for income taxes of $ 3,192,000 was based on a pre-tax income of $ 11,685,912 , as compared to a provision for income taxes of $ 4,901,000 in 2010 , based on a pre-tax income of $ 16,320,690. income taxes in 2010 were reduced by the removal of the $ 278,000 valuation allowance on oklahoma nols which reduced the effective tax rate by 2 % . the effective tax rate for 2011 was 27 % , compared to an effective tax rate for 2010 of 30 % . the company 's utilization of excess percentage depletion ( which is a permanent tax benefit ) decreases the provision for income taxes . the benefit of excess percentage depletion is not directly related to the amount of recorded income or loss . accordingly , in cases where the recorded income or loss is relatively small , the proportional effect of the excess percentage depletion on the effective tax rate may become significant . ( 31 ) liquidity and capital resources at september 30 , 2012 , the company had positive working capital of $ 3,995,103 , as compared to positive working capital of $ 7,314,096 at september 30 , 2011. liquidity cash and cash equivalents were $ 1,984,099 as of september 30 , 2012 , compared to $ 3,506,999 at september 30 , 2011 , a decrease of $ 1,522,900. cash flows for the 12 months ended september 30 are summarized as follows : net cash provided ( used ) by : replace_table_token_17_th operating activities : the decrease of $ 3,912,734 in cash provided by operating activities is primarily the effect of the following : decreased collections of oil , ngl and natural gas sales ( net of withheld production taxes and handling fees ) for the 2012 period compared to the 2011 period resulted in less cash provided by operating activities of $ 2,436,566. realized gains on derivative contracts decreased $ 1,676,652 in 2012 , as compared to 2011. income tax payments in 2012 were $ 1,356,706 compared to payments of $ 2,584,172 in 2011 , a
| ( 26 ) production by quarter for 2012 and 2011 was as follows : replace_table_token_13_th lease bonus and rentals lease bonuses and rentals increased $ 6,800,234 in 2012. the increase was mainly due to the company leasing 2,743 net mineral acres in roger mills county , oklahoma , for $ 4.8 million . the rights leased were from the surface to 100 feet below the base of the virgilian ( commonly referred to as the tonkawa ) . the company also leased 2,431 net mineral acres in the horizontal mississippian play in northern oklahoma for $ 1.7 million . there were no large leases of the company 's mineral acreage in 2011. gains ( losses ) on derivative contracts realized and unrealized gains and losses are scheduled below : replace_table_token_14_th the decrease in gains was mainly due to the natural gas basis protection swaps being less beneficial in 2012 , as the basis differentials between nymex and cegt and pepl declined significantly . as of september 30 , 2012 , the company 's natural gas basis protection swaps have expiration dates of december 2012 ; the natural gas costless collar contracts have expiration dates of october 2012 and january 2013 ; the oil costless collar contracts have expiration dates of december 2012. lease operating expenses ( loe ) and production taxes loe increased $ 700,216 or 8 % in 2012. loe costs per mcfe of production decreased from $ .95 in 2011 to $ .86 in 2012. the total loe increase is primarily related to increased field operating costs of $ 487,388 in 2012 compared to 2011. field operating costs increased mainly due to the large addition of wells through acquisition and drilling in 2012. field operating costs were $ .42 per mcfe in 2012 compared to $ .44 per mcfe in 2011 , a 5 % decrease . this decrease in rate is principally the result of fewer well workovers performed in 2012. the increase in loe related to field operating costs was also coupled with an increase in handling fees ( primarily gathering , transportation and marketing costs ) on natural gas of $ 212,828 in 2012 , as compared to 2011. on a per mcfe basis , these
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as a result of these uncertainties and other factors , we believe net sales for the year ending december 31 , 2016 could increase approxima tely 1 % as co mpared to the year ended december 31 , 2015 , while commodity costs for the year ending december 31 , 2016 are expected to be flat on a constant volume/mix basis as c ompared to the year ended december 31 , 2015. refer to item 1a , `` risk factors '' of this annual report on form 10-k for additional information about risks and uncertainties facing our company . seasonality the beverage market is subject to some seasonal variations . our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays as well as weather fluctuations . segments we report our business in three operating segments : the beverage concentrates segment reflects sales of our branded concentrates and syrup to third party bottlers primarily in the u.s. and canada . most of the brands in this segment are csd brands . the packaged beverages segment reflects sales in the u.s. and canada from the manufacture and distribution of finished beverages and other products , including sales of our own brands and third party brands , through both dsd and wd . the latin america beverages segment reflects sales in mexico , the caribbean and other international markets from the manufacture and distribution of concentrates , syrup and finished beverages . segment results are based on management reports . net sales and sop are the significant financial measures used to assess the operating performance of our operating segments . 25 volume in evaluating our performance , we consider different volume measures depending on whether we sell beverage concentrates or finished beverages . beverage concentrates sales volume in our beverage concentrates segment , we measure our sales volume in two ways : ( 1 ) `` concentrate case sales '' and ( 2 ) `` bottler case sales . '' the unit of measurement for both concentrate case sales and bottler case sales equals 288 fluid ounces of finished beverage , the equivalent of 24 twelve ounce servings . concentrate case sales represent units of measurement for concentrates sold by us to our bottlers and distributors . a concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage . it does not include any other component of the finished beverage other than concentrate . our net sales in our concentrate businesses are based on our sales of concentrate cases . although net sales in our concentrate businesses are based on concentrate case sales , we believe that bottler case sales are also a significant measure of our performance because they measure sales of packaged beverages into retail channels . packaged beverages sales volume in our packaged beverages segment , we measure volume as case sales to customers . a case sale represents a unit of measurement equal to 288 fluid ounces of packaged beverage sold by us . case sales include both our owned brands and certain brands licensed to and or distributed by us . volume in bottler case sales in addition to sales volume , we measure volume in bottler case sales ( `` volume ( bcs ) '' ) as sales of packaged beverages , in equivalent 288 fluid ounce cases , sold by us and our bottling partners to retailers and independent distributors . our contract manufacturing sales are not included or reported as part of volume ( bcs ) . bottler case sales and concentrates and packaged beverage sales volumes are not equal during any given period due to changes in bottler concentrates inventory levels , which can be affected by seasonality , bottler inventory and manufacturing practices and the timing of price increases and new product introductions . 26 results of operations executive summary - 2015 financial overview and recent developments during the years ended december 31 , 2015 , 2014 , and 2013 , we repurchased 6.5 million , 6.8 million , and 8.7 million shares of our common stock , respectively , valued at approximately $ 521 million in 2015 and $ 400 million in both 2014 and 2013 . during the first quarter of 2016 , we repaid the $ 500 million 2.90 % senior notes due on january 15 , 2016 ( the `` 2016 notes '' ) at maturity . during the first quarter of 2016 , our board declared a dividend of $ 0.53 per share , which will be paid on april 5 , 2016 , to shareholders of record as of march 15 , 2016 . the dividend declared during the first quarter of 2016 increased approximately 10 % compared to the dividend declared in the previous quarter . on february 11 , 2016 , our board authorized the repurchase of an additional $ 1 billion of our outstanding common stock . the company expects to repurc hase $ 650 million to $ 700 million of its common stock during the year ended december 31 , 2016. references in the financial tables to percentage changes that are not meaningful are denoted by `` nm . '' 27 year ended december 31 , 2015 compared to year ended december 31 , 2014 consolidated operations the following table sets forth our consolidated story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; background-color : # ffffff ; '' > $ 7 million for the brand value impairment of garden cocktail . interest expense . interest expense increased $ 8 million primarily driven by the impact of the issuance of our 3.40 % senior notes due november 15 , 2025 ( the `` 2025 notes '' ) and 4.50 % senior notes due november 15 , 2045 ( the `` 2045 notes '' ) during the fourth quarter of 2015. effective tax rate . the effective tax rates for the year ended december 31 , 2015 and 2014 were 35.5 % and 34.6 % , respectively . story_separator_special_tag the current year effective tax rate was higher , compared to the prior year , as a result of an income tax benefit in 2014 of $ 4 million due to the resolution of a tax audit in a foreign jurisdiction . 29 results of operations by segment the following tables set forth net sales and sop for our segments for the years ended december 31 , 2015 and 2014 , as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with u.s. gaap : replace_table_token_4_th 30 beverage concentrates the following table details our beverage concentrates segment 's net sales and sop for the years ended december 31 , 2015 and 2014 : replace_table_token_5_th net sales . net sales in creased $ 13 million for the year ended december 31 , 2015 , compared with the year ended december 31 , 2014 . the in crease was due to favorable mix , primarily driven by our fountain business , and higher pricing . the increases were partially offset by higher discounts primarily driven by our fountain business , unfavorable foreign currency translation of $ 11 million and a slight reduction in our concentrate case sales . sop . sop in creased $ 17 million for the year ended december 31 , 2015 , compared with the year ended december 31 , 2014 , driven primarily by an increase in net sales and a decrease in cost of sales . the decrease in cost of sales was primarily driven by a favorable lifo comparison , favorable manufacturing and delivery costs , ongoing productivity improvements and lower commodity costs . volume ( bcs ) . volume ( bcs ) was flat for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 . schweppes had gains of 8 % driven by distribution gains in our seltzer water and growth in the ginger ale category . our core 4 brands increased 1 % compared to the prior year as a result of a 7 % increase in canada dry , partially offset by a 7 % decrease in 7up , a 4 % decline in sunkist soda and a 3 % decrease in a & w . these increases were fully offset by decreases in dr pepper , crush and our other brands . dr pepper decreased 1 % , driven primarily by declines in our diet products . crush decreased 1 % for the current year . our other brands declined 3 % . packaged beverages the following table details our packaged beverages segment 's net sales and sop for the years ended december 31 , 2015 and 2014 : replace_table_token_6_th volume . branded csd volumes were flat for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 . squirt increased 5 % compared to the prior year driven primarily by our hispanic strategy . volume for our core 4 brands in creased 1 % , led by a 13 % in crease in canada dry and a 1 % gain in a & w , partially offset by a 5 % decrease in 7up and a 3 % decline in sunkist soda . these increases were fully offset by 1 % declines in dr pepper , driven primarily by declines in our diet products , rc cola and our other csd brands . branded ncb volumes in creased 6 % for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 . our water category increased 22 % primarily due to distribution gains for bai brands and marketing investments behind fiji . snapple gained 6 % primarily driven by product innovation and distribution gains , while hawaiian punch increased 4 % primarily as a result of package innovation . clamato increased 6 % while mott 's was flat . our other ncb brands were 2 % higher compared to the prior year , led by venom . net sales . net sales in creased $ 183 million for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 . net sales increased due to favorable product mix , higher branded sales volumes and net pricing increases , partially offset by $ 22 million of unfavorable foreign currency translation . 31 sop . sop in creased $ 73 million for the year ended december 31 , 2015 , compared with the year ended december 31 , 2014 , as a result of an increase in net sales partially offset by increases in cost of sales and sg & a expenses . cost of sales increased as a result of higher costs associated with product mix and increased branded sales volumes . these increases in our cost of sales were partially offset by lower commodity costs , led by packaging , and ongoing productivity improvements . sg & a expenses increased due primarily to higher people costs , which were driven by inflationary increases and the impact of increased sales volumes . other drivers of the change included an increase in litigation expense and higher incentive compensation , partially offset by favorable foreign currency effects . the increase in litigation expense was the result of various settlements agreed to during the year and the unfavorable comparison of a litigation provision reversed in the prior year . the impact of the favorable foreign currency effects , which decreased cost of sales and sg & a expenses , totaled $ 6 million . latin america beverages the following table details our latin america beverages segment 's net sales and sop for the years ended december 31 , 2015 and 2014 : replace_table_token_7_th volume . sales volume in creased 8 % for the year ended december 31 , 2015 as compared with the year ended december 31 , 2014 . the in crease in sales volume was primarily driven by a 14 % in crease in peñafiel as a result of distribution gains and increased promotional activity .
| these increases were partially offset by a 1 % decrease in mott 's and a 3 % decline in our other ncb brands in total . net sales . net sales in creased $ 161 million , or approximately 3 % , for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 . the primary drivers of the in crease were favorable product and package mix , an increase in branded sales volumes , favorable segment mix and higher pricing , partially offset by $ 115 million in unfavorable foreign currency translation . 28 gross profit . gross profit in creased $ 93 million , or approximately 3 % , for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 . although the gross margin for the year ended december 31 , 2015 of 59.3 % remain unchanged year over year , the following drivers impacted the gross margin : lower commodity costs , led by packaging , and net of the change in our last-in , first-out ( `` lifo '' ) inventory provision , which increased our gross margin by 0.8 % ; ongoing productivity improvements , which increased our gross margin by 0.5 % ; decrease in our other manufacturing costs , which increased our gross margin by 0.2 % ; increase in our net pricing , which increased our gross margin by 0.1 % ; unfavorable product , package and segment mix , which decreased our gross margin by 0.7 % ; unfavorable foreign currency effects , which decreased our gross margin by 0.5 % ; and unfavorable comparison in our mark-to-market activity on commodity derivative contracts , which decreased our gross margin by 0.4 % . the unfavorable mark-to-market activity on commodity derivative contracts for the year ended december 31 , 2015 was $ 13 million in unrealized losses versus $ 11 million in unrealized gains in the prior year . selling , general and administrative expenses . selling , general and administrative ( `` sg & a '' ) expenses decreased $ 21 million for the year ended december 31 , 2015 compared with the prior
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the below table sets forth the number of paying users as of december 31 , 2018 , 2017 , and 2016 : replace_table_token_5_th average revenue per paying user we define average revenue per paying user , or arpu , as our revenue for the period presented divided by the average paying users during the same period . for interim periods , we use annualized revenue , which is calculated by dividing the revenue for the particular period by the number of days in that period and multiplying this value by 365 days . average paying users are calculated based on adding the number of paying users as of the beginning of the period to the number of paying users as of the end of the period , and then dividing by two . in 2017 , we launched our dropbox business advanced plan . at the time of launch , we grandfathered existing dropbox business teams into the dropbox business advanced plan at their legacy price . during the second quarter of 2018 , a significant portion of those grandfathered teams renewed at a higher price . as a result of these renewals , and combined with an increased 43 mix of sales towards our higher-priced subscription plans , we experienced an increase in our average revenue per paying user for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 . our arpu increased for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily due to an increased mix of sales towards our higher priced subscription plans , including our dropbox business advanced plan launched in early 2017. the below table sets forth our arpu for the years ended december 31 , 2018 , 2017 , and 2016 . replace_table_token_6_th non-gaap financial measure in addition to our results determined in accordance with u.s. generally accepted accounting principles , or gaap , we believe that free cash flow , or fcf , a non-gaap financial measure , is useful in evaluating our liquidity . free cash flow we define fcf as gaap net cash provided by operating activities less capital expenditures . we believe that fcf is a liquidity measure and that it provides useful information regarding cash provided by operating activities and cash used for investments in property and equipment required to maintain and grow our business . fcf is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with gaap . fcf has limitations as an analytical tool , and it should not be considered in isolation or as a substitute for analysis of other gaap financial measures , such as net cash provided by operating activities . some of the limitations of fcf are that fcf does not reflect our future contractual commitments , excludes investments made to acquire assets under capital leases , and may be calculated differently by other companies in our industry , limiting its usefulness as a comparative measure . our fcf increased for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily due to higher cash provided by operating activities , which was driven by increased subscription sales , as a majority of our paying users are invoiced in advance . these cash inflows were partially offset by an increase in capital expenditures primarily related to the build-out of our new corporate headquarters . our fcf increased for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily due to higher cash provided by operating activities , which was driven by increased subscription sales , as a majority of our paying users are invoiced in advance . in addition , fcf increased due to a decrease in capital expenditures related to our office and datacenter build-outs . we expect our fcf to fluctuate in future periods as we purchase infrastructure equipment to support our user base and invest in our new and existing office spaces , including our new corporate headquarters , to support our plans for growth . these activities , along with certain increased operating expenses as described below , may result in a decrease in fcf as a percentage of revenue in future periods . the following is a reconciliation of fcf to the most comparable gaap measure , net cash provided by operating activities : replace_table_token_7_th components of our results of operations 44 revenue we generate revenue from sales of subscriptions to our platform . revenue is recognized ratably over the related contractual term generally beginning on the date that our platform is made available to a customer . our subscription agreements typically have monthly or annual contractual terms , although a small percentage have multi-year contractual terms . our agreements are generally non-cancelable . we typically bill in advance for monthly contracts and annually in advance for contracts with terms of one year or longer . amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized . our revenue is driven primarily by the number of paying users and the price we charge for access to our platform , which varies based on the type of plan to which a customer subscribes . we generate over 90 % of our revenue from self-serve channels . no customer represented more than 1 % of our revenue in the periods presented . cost of revenue and gross margin cost of revenue . our cost of revenue consists primarily of expenses associated with the storage , delivery , and distribution of our platform for both paying users and free users , also known as basic users . story_separator_special_tag these costs , which we refer to as infrastructure costs , include depreciation of our servers located in co-location facilities that we lease and operate , rent and facilities expense for those datacenters , network and bandwidth costs , support and maintenance costs for our infrastructure equipment , and payments to third-party datacenter service providers . cost of revenue also includes costs , such as salaries , bonuses , employer payroll taxes and benefits , travel-related expenses , and stock-based compensation , which we refer to as employee-related costs , for employees whose primary responsibilities relate to supporting our infrastructure and delivering user support . other non-employee costs included in cost of revenue include credit card fees related to processing customer transactions , and allocated overhead , such as facilities , including rent , utilities , depreciation on leasehold improvements and other equipment shared by all departments , and shared information technology costs . in addition , cost of revenue includes amortization of developed technologies , professional fees related to user support initiatives , and property taxes related to the datacenters . in recent years , we have taken several steps to improve the efficiency of the infrastructure that supports our platform . these efforts include an initiative that focused on migrating the vast majority of user data stored on the infrastructure of third-party service providers to our own lower cost , custom-built infrastructure in co-location facilities that we directly lease and operate . in order to host user data on our own infrastructure , we leased or purchased infrastructure that is depreciated within our cost of revenue . during the migration to our internal infrastructure , we duplicated our users ' data between our internal infrastructure and that of our third-party service providers , resulting in higher storage costs . we reduced this practice over time until we completed the migration in the fourth quarter of 2016. related to this initiative , we no longer duplicate data between our internal infrastructure and that of any third-party service providers . we expect to continue to realize benefits from expanding our internal infrastructure due to our operating scale and lower unit costs . starting in 2016 , we also took measures to manage the storage footprint of certain long-inactive basic users , freeing up additional storage capacity . specifically , we closed the accounts of certain basic users who had not engaged in any activity on the dropbox platform in the last year and did not respond to multiple e-mail inquiries from us regarding their inactivity . we continue to regularly take similar measures to manage long-inactive and non-responsive basic user accounts , and our total registered user numbers do not include accounts that have been closed . this effort , along with additional usage optimizations in 2017 , enabled us to continue operating our business within our existing infrastructure base without a need for extensive incremental capital expenditures and leasing activity . these efforts are collectively referred to as our infrastructure optimization , and some are ongoing . our infrastructure optimization reduced unit costs and helped limit capital expenditures and associated depreciation . combined with the concurrent increase in our base of paying users , we experienced a reduction in our cost of revenue , an increase in our gross margins , and an improvement in our free cash flow in the periods presented . during the first quarter of 2018 , based on considerations including our asset replacement cycle and our ongoing infrastructure optimization efforts , we revisited the useful life estimates of certain infrastructure equipment . these optimization efforts include efficiencies that allow us to utilize certain infrastructure equipment for longer periods of time . as a result , we determined that the useful lives of the impacted infrastructure equipment , which are depreciated through cost of revenue , should be increased from three to four years . we accounted for this as a change in estimate that was applied prospectively , effective as of january 1 , 2018. this change in useful life resulted in a reduction in depreciation expense within cost of revenue of $ 16.1 million during the year ended december 31 , 2018 . we plan to continue increasing the capacity and enhancing the capability and reliability of our infrastructure to support user growth and increased use of our platform . we expect that cost of revenue , excluding the impact of certain stock-based compensation charges described in “ —significant impacts of stock-based compensation ” , will increase in absolute dollars in 45 future periods . in addition , as a result of certain stock-based compensation charges described in “ —significant impacts of stock-based compensation ” , our cost of revenue increased significantly in absolute dollars during the year ended december 31 , 2018 due to the completion of our initial public offering . gross margin . gross margin is gross profit expressed as a percentage of revenue . our gross margin may fluctuate from period to period based on the timing of additional capital expenditures and the related depreciation expense , or other increases in our infrastructure costs , as well as revenue fluctuations . as we continue to increase the utilization of our internal infrastructure , we generally expect our gross margin , excluding the impact of certain stock-based compensation charges described in “ —significant impacts of stock-based compensation ” , to remain relatively constant in the near term and to increase modestly in the long term . operating expenses research and development . our research and development expenses consist primarily of employee-related costs for our engineering , product , and design teams , and allocated overhead . additionally , research and development expenses include internal development-related third-party hosting fees . we have expensed almost all of our research and development costs as they were incurred . we plan to continue to hire employees for our engineering , product , and design teams to support our research and development efforts .
| cost of revenue also increased due to $ 10.1 million in credit card transaction fees due to higher sales and professional fees for user support , and $ 4.3 million in overhead-related costs . these increases were partially offset by a decrease of $ 23.3 million in our infrastructure costs primarily due to continued infrastructure usage optimization 49 efforts , which included a reduction in depreciation expense due to the change in depreciable useful life of certain of our infrastructure equipment , which was effective on january 1 , 2018. our gross margin increased from 67 % during the year ended december 31 , 2017 to 72 % during the year ended december 31 , 2018 , primarily due to a 26 % increase in our revenue during the period and a decrease in our infrastructure costs as described above . the increase in gross margin was partially offset by the increase in stock-based compensation from the achievement of the performance vesting condition related to our two-tier rsus upon the effectiveness of the registration statement related to our ipo . research and development replace_table_token_12_th research and development expenses increased $ 387.9 million or 102 % during the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 , primarily due to an increase of $ 275.1 million in stock-based compensation , which included expense recognized due to the achievement of the performance vesting condition of our two-tier rsus upon the effectiveness of the registration statement related to our ipo . further , the increase in research and development expense was due to an increase of $ 61.8 million in employee-related expenses , excluding stock-based compensation , which was due to headcount growth and employer payroll taxes related to the release of our two-tier rsus , and an increase of $ 39.9 million in overhead-related costs . sales and marketing replace_table_token_13_th sales and marketing expenses increased $ 125.6 million or 40 % during the year ended december 31 2018 , as compared to the year ended december 31 , 2017 , primarily
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positive fundamentals continue to place upward pressure on seller asking price expectations , while buyers are increasingly focused on the maturing cycle and the associated risks . as a result , the expectation gap between buyers and sellers continues to restrain transaction momentum . capital markets credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the commercial real estate market . real estate purchases are often financed with debt and , as a result , credit and liquidity impact transaction activity and prices . rapid changes in interest rates , as well as steady and protracted movements of interest rates in one direction , whether increases or decreases , could adversely or positively affect the operations and income potential of commercial real estate properties . these changes also influence the demand of investors for commercial real estate investments . recent interest rate volatility and the u.s. federal reserve 's indication that they are likely to ease the upward pressure on interest rates could favor high caliber investors with established track-records . as interest rates have declined , banks have modestly tightened their underwriting , so the lower rates may be a mixed blessing . uncertainty created by trade tensions , stock market volatility and questions surrounding international economies and monetary policy remain modest headwinds for real estate capital , but overall liquidity remains elevated . the disciplined underwriting standards should help sustain the sector over the long-term by curbing speculative investment and oversupply risk . investor sentiment and investment activity we rely on investors to buy and sell properties in order to generate commissions . investors ' desires to engage in real estate transactions are dependent on many factors that are beyond our control . the economy , supply and demand for properly positioned properties , available credit and market events impact investor sentiment and , therefore , transaction velocity . in addition , our private clients are often motivated to buy , sell and or refinance properties due to personal circumstances such as death , divorce , partnership breakups and estate planning . investor sentiment remains stable , at an elevated level by historical standards . the combination of economic momentum , elevated sentiment and positive fundamentals across most property types has raised seller 36 expectations , causing them to price assets aggressively in many cases . buyers , however , are demonstrating more caution in their underwriting as they consider the maturing growth cycle and the prospects of a recession occurring during their hold period . the resulting gap in expectations continues to be a modest but steady headwind , extending the marketing and closing timelines . nonetheless , transaction velocity has continued to nudge higher . we believe that positive economic and fundamentals performance is balancing with caution surrounding the maturing cycle and financial market volatility to deliver generally stable sales activity . this trend could be disrupted by a major economic or political event , but the baseline outlook remains stable . seasonality our real estate brokerage commissions and financing fees have tended to be seasonal and , combined with other factors , can affect an investor 's ability to compare our financial condition and results of operations on a quarter-by-quarter basis . historically , this seasonality has generally caused our revenue , operating income , net income and cash flows from operating activities to be lower in the first half of the year and higher in the second half of the year , particularly in the fourth quarter . the concentration of earnings and cash flows in the last six months of the year , particularly in the fourth quarter , is due to an industry-wide focus of clients to complete transactions towards the end of the calendar year . this historical trend can be disrupted both positively and negatively by major economic or political events impacting investor sentiment for a particular property type or location , volatility in financial markets , current and future projections of interest rates , attractiveness of other asset classes , market liquidity and the extent of limitations or availability of capital allocations for larger property buyers , among others . private client investors may accelerate or delay transactions due to personal or business-related reasons unrelated to economic events . in addition , our operating margins are typically lower during the second half of each year due to our commission structure for some of our senior investment sales and financing professionals . these senior investment sales and financing professionals are on a graduated commission schedule that resets annually , pursuant to which higher commissions are paid for higher sales volumes . our historical pattern of seasonality may or may not continue to the same degree experienced in prior years . operating segments we follow the guidance for segment reporting , which requires reporting information on operating segments in interim and annual financial statements . substantially all of our operations involve the delivery of commercial real estate services to our customers including real estate investment sales , financing and consulting and advisory services . management makes operating decisions , assesses performance and allocates resources based on an ongoing review of these integrated operations , which constitute only one operating segment for financial reporting purposes . key financial measures and indicators revenues our revenues are primarily generated from our real estate investment sales business . in addition to real estate brokerage commissions , we generate revenues from financing fees and from other revenues , which are primarily comprised of consulting and advisory fees . because our business is transaction oriented , we rely on investment sales and financing professionals to continually develop leads , identify properties to sell , market those properties and close the sale timely to generate a consistent flow of revenue . while our sales volume is impacted by seasonality factors , the timing of closings is also dependent on many market and personal factors unique to a particular client or transaction , particularly clients transacting in the $ 1- $ 10 million private client market segment . story_separator_special_tag these factors can cause transactions to be accelerated or delayed beyond our control . further , commission rates earned are generally inversely related to the value of the property sold . as a result of our expansion into the middle and larger transaction market segments , we have seen our overall commission rates fluctuate from period-to-period as a result of changes in the relative 37 mix of the number and volume of transactions closed in the middle and larger transaction market segments as compared to the $ 1- $ 10 million private client market segment . these factors may result in period-to-period variations in our revenues that differ from historical patterns . a small percentage of our transactions include retainer fees and or breakage fees . retainer fees are credited against a success-based fee paid upon the closing of a transaction or a breakage fee . transactions that are terminated before completion will sometimes generate breakage fees , which are usually calculated as a set amount or a percentage of the fee we would have received had the transaction closed . real estate brokerage commissions we earn real estate brokerage commissions by acting as a broker for commercial real estate owners seeking to sell or investors seeking to buy properties . revenues from real estate brokerage commissions are typically recognized at the close of escrow . financing fees we earn financing fees by securing financing on purchase transactions or by securing refinancing of our clients ' existing mortgage debt . we recognize financing fee revenues at the time the loan closes and we have no remaining significant obligations for performance in connection with the transaction . to a lesser extent , we also earn mortgage servicing revenue , mortgage servicing fees and ancillary fees associated with financing activities . we recognize mortgage servicing revenues upon the acquisition of a servicing obligation . we generate mortgage servicing fees through the provision of collection , remittance , recordkeeping , reporting and other related mortgage servicing functions , activities and services . other revenues other revenues include fees generated from consulting and advisory services performed by our investment sales professionals , as well as referral fees from other real estate brokers . revenues from these services are recognized as they are performed and completed . operating expenses our operating expenses consist of cost of services , selling , general and administrative expenses and depreciation and amortization . the significant components of our expenses are further described below . cost of services the majority of our cost of services expense is variable commissions paid to our investment sales professionals and compensation-related costs related to our financing activities . commission expenses are directly attributable to providing services to our clients for investment sales and financing services . most of our investment sales and financing professionals are independent contractors and are paid commissions ; however , because there are some who are initially paid a salary and certain of our financing professionals are employees , costs of services also include employee-related compensation , employer taxes and benefits for those employees . the commission rates we pay to our investment sales and financing professionals vary based on individual contracts negotiated and are generally higher for the more experienced professionals . some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual revenue thresholds . these additional commissions are recognized as cost of services in the period in which they are earned . payment of a portion of these additional commissions are generally deferred for a period of three years , at the company 's election , and paid at the beginning of the fourth calendar year . cost of services also includes referral fees paid to other real estate brokers where the company is the principal service provider . cost of services , therefore , can vary based on the commission structure of the independent contractors that closed transactions in any particular period . 38 selling , general and administrative expenses the largest expense component within selling , general and administrative expenses is personnel expenses for our management team and sales and support staff . in addition , these costs include facilities costs ( excluding depreciation and amortization ) , staff related expenses , sales , marketing , legal , telecommunication , network , data sources , transaction costs related to acquisitions , changes in fair value for contingent consideration and other administrative expenses . also included in selling , general and administrative are expenses for stock-based compensation to non-employee directors , employees and independent contractors ( i.e . investment sales and financing professionals ) under the amended and restated 2013 omnibus equity incentive plan ( 2013 plan ) and the 2013 employee stock purchase plan ( espp ) . depreciation and amortization expense depreciation expense consists of depreciation recorded on our computer software and hardware and furniture , fixture and equipment . depreciation is provided over estimated useful lives ranging from three to seven years for owned assets . amortization expense consists of ( i ) amortization recorded on our mortgage servicing rights ( msrs ) using the interest method over the period that servicing income is expected to be received and ( ii ) amortization recorded on intangible assets amortized on a straight-line basis using a useful life between one and six years . other income ( expense ) , net other income ( expense ) , net primarily consists of interest income , net gains or losses on our deferred compensation plan assets , realized gains and losses on our marketable securities , available-for-sale , foreign currency gains and losses and other non-operating gains and losses . interest expense interest expense primarily consists of interest expense associated with the stock appreciation rights ( sars ) liability , notes payable to former stockholders and our credit agreement . provision for income taxes we are subject to u.s. and canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate .
| revenues from real estate brokerage commissions increased to $ 747.4 million in 2018 from $ 649.4 million in 2017 , an increase of $ 98.0 million , or 15.1 % . the increase was primarily driven by the increase in the number of investment sales transactions ( 7.9 % ) and an increase in average transaction size ( 9.7 % ) . these factors combined generated the increase in sales volume of 18.4 % . this increase was partially offset by a decrease in average commission rates ( 6 basis points ) due to a larger proportion of our transactions that closed in the middle and larger transaction market segments , which generate lower commission rates . 41 financing fees . revenues from financing fees increased to $ 57.8 million in 2018 from $ 49.7 million in 2017 , an increase of $ 8.2 million , or 16.4 % . the increase was spurred by recent hiring and growth from acquisitions during 2018. the increase was primarily driven by growth in financing volume ( 10.7 % ) , which was generated by an increase in average transaction size ( 12.6 % ) , partially offset by a decrease in the number of financing transactions ( 1.7 % ) . other revenues . other revenues decreased to $ 9.6 million in 2018 from $ 20.7 million in 2017 , a decrease of $ 11.0 million or 53.3 % . the decrease was primarily driven by two large consulting and advisory services fees earned during 2017 with no such comparable fees in 2018. total operating expenses our total operating expenses were $ 702.5 million in 2018 compared to $ 623.6 million in 2017 , an increase of $ 79.0 million , or 12.7 % . the increase was primarily due to increases in cost of services , which are variable commissions paid to our investment sales professionals and compensation related costs in connection with our financing activities , selling , general and administrative costs and to a lesser extent depreciation and amortization , as described below . cost
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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 . 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 expect to conduct a pivotal clinical trial in support of an nda for our gem product candidate . we anticipate that our research and development expenses for the fiscal year ending september 30 , 2015 will increase as compared to the fiscal year ended september 30 , 2014 , as we continue to : conduct the development work necessary to finalize the formulation and design of our gem product candidate and undertake manufacturing activities in support of clinical trials with that product candidate ; produce validation and registration batches of our gem product candidate to support the submission of an nda with the fda ; conduct clinical trials with our gem product candidate , including at least one pivotal clinical trial required for fda approval of an nda ; 41 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 consistent 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 ultra-rapid-acting insulin program . 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 is 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 is for two years and totals $ 582 thousand . the september 2012 award is 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 is for two years and totals $ 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 . replace_table_token_3_th 42 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 product candidate and our biod-531 product candidate ; 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 and manufacturing activities necessary to support the submission of an nda for that 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 success of our formulation development work to improve the stability of our newer ultra-and rapid-acting insulin analog-based formulations while maintaining the pharmacokinetic and injection site toleration characteristics associated with earlier formulations ; the results of our real-time stability programs for our glucagon- , rhi- story_separator_special_tag , 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 glucagon- , rhi- , and insulin analog-based product candidates ; our ability to secure approval by the fda for our product candidates under section 505 ( b ) ( 2 ) of the ffdca ; 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 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 ; the emergence of competing technologies and products and other adverse market developments , such as advancements in glucagon stabilization technologies that could enable a room-temperature rescue product in a portable , easy to use presentation ; the ability of our contract manufacturing organizations or collaborators to 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 of 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 . 43 a change in the outcome of any of these variables with respect to the development of ultra-rapid-acting insulin formulations or our liquid glucagon formulation , 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 expenses in the fiscal year ending september 30 , 2015 will remain substantially the same as in the fiscal year ended september 30 , 2014 as we continue to focus our efforts on product formulation activities and begin advancing our product candidates into later stage clinical trials , including phase 3 pivotal trials . 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 . these warrants will expire on may 17 , 2016 , five years from the original issuance date of may 18 , 2011. under the terms of both the 2012 warrants and the 2011 warrants , if we enter into a merger or change of control transaction , the holders of the warrants will be entitled to receive consideration as if they had exercised the warrants immediately prior to such transaction , or they may require us to purchase the unexercised warrants at the black-scholes value ( as defined in the applicable warrant ) of the warrant on the date of such transaction . the holders have up to 30 days following any such transaction to exercise this right . as a result of this provision , we recognize the 2012 and 2011 warrants as liabilities at their fair value on each reporting date . we use the black-scholes valuation model to estimate the fair value of the warrants . the black-scholes valuation model takes into account , as of the valuation date , factors including the current exercise price , the expected life of the warrant , the current price of the underlying stock and its expected volatility , expected dividends on the stock , and the risk-free interest rate for the term of the warrant . using this model , we recorded an initial warrant liability of $ 4.8 million for the 2012 warrants and $ 9.4 million for the 2011 warrants , in each case as of the initial warrant issuance date . the significant assumptions for the model used for the 2012 warrants were remaining terms of the warrants , the common stock price of $ 3.15 per share , the warrant exercise price of $ 2.66 per share , a risk-free interest rate of 0.63 % and an expected volatility rate of 82 % . the significant assumptions for the model used for the 2011 warrants were remaining terms of the warrants , the common stock price of $ 3.15 per share , the warrant exercise price of $ 9.92 per share , a risk-free interest rate of 0.63 % and an expected volatility rate of 77 % .
| 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 . 47 for the year ended september 30 , 2013 , we reported $ 327 thousand in government grants for the high concentration ultra-rapid-insulin product candidate and $ 219 thousand for the glucagon formulation work . general and administrative expenses . replace_table_token_5_th general and administrative expenses were $ 5.6 million for the year ended september 30 , 2014 , a decrease of $ 1.2 million , or 18.2 % , from $ 6.8 million for the year ended september 30 , 2013. this decrease is primarily attributable to a decrease in personnel and stock-based compensation expenses of $ 1.1 million . general and administrative expenses for the years ended september 30 , 2014 and 2013 include $ 0.5 million and $ 0.8 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 decreased to $ 0.05 million for the year ended september 30 , 2014 , from $ 0.06 million for the year ended september 30 , 2013. the decrease is primarily due to lower 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 $ ( 1,217 ) during the year ended september 30 , 2013 was primarily due to shorter terms and reduced volatility . the change in fair value of common stock warrant liability 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 at september 30 , 2013 to $ 1.67 per share on september 30 , 2014. net loss and net loss per share . year ended september 30 , decrease 2013 2014 $ % in thousands , except per
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natural catastrophe risk while we are more casualty-focused and assume less catastrophe exposure than many of our peers , we do underwrite a limited amount of natural catastrophe risk in order to balance and diversify our underwriting portfolio . we carefully monitor our natural catastrophe risk globally for all perils and regions where we believe our underwriting portfolio might have significant exposure . limited operating history and comparability of results we were incorporated in july 2013 and completed our initial funding and began underwriting business in the first quarter of 2014. our initial underwriting activities focused on writing reinsurance . in 2015 , we began our insurance business in connection with the establishment of our u.s. and european insurance platforms . as a result , we have a limited operating history and , given our underwriting and investment strategies , are exposed to volatility in our results of operations that may not be apparent from a review of our historical results . period-to-period comparisons of our results of operations may not be meaningful . in addition , the amount of premiums written may vary from year to year and period to period as a result of any number of factors , including changes in market conditions and our view of the long-term profit potential of individual lines of business . financial measures and ratios our management and board of directors use financial indicators and ratios in evaluating our performance and measuring the overall growth in value generated for our common shareholders . the key financial measures that we believe are meaningful in analyzing our performance are : underwriting income ( loss ) , combined ratio , adjusted underwriting income ( loss ) , adjusted combined ratio , net interest income , net interest income yield on average net assets ( including the 124 non-investment grade portfolio and investment grade portfolio components thereof ) , net investment income ( loss ) , net investment income return on average net assets , net investment income return on average total investments ( including the non-investment grade portfolio and investment grade portfolio components thereof ) , book value per diluted common share , growth in book value per diluted common share and return on average equity . the table below shows the key performance indicators for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_13_th ( 1 ) net interest income yield on average net assets and net investment income return on average net assets are calculated by dividing net interest income , and net investment income ( loss ) , respectively , by average net assets . net assets is calculated as the sum of total investments , accrued investment income and receivables for securities sold , less revolving credit agreement borrowings , payable for securities purchased and payable for securities sold short . for the twelve-month period , average net assets is calculated using the averages of each quarterly period . however , for the investment grade portfolio component of these returns , the impact of the revolving credit agreement borrowings is not subtracted from net interest income , net investment income ( loss ) , or the net assets calculation . the separate components of these returns ( non-investment grade portfolio and investment grade portfolio ) are non-u.s. gaap financial measures . refer to “ -reconciliation of non-u.s. gaap financial measures ” for a reconciliation of these components of our net interest income yield on average net assets and net investment income return on average net assets . ( 2 ) net investment income return on average total investments is calculated by dividing net investment income by average total investments . for the twelve-month period , average total investments is calculated using the averages of each quarterly period . however , for the investment grade portfolio component of these returns , the impact of revolving credit agreement borrowings is not subtracted from net investment income . the separate components of these returns ( non-investment grade portfolio and investment grade portfolio ) are non-u.s. gaap financial measures . refer to “ -reconciliation of non-u.s. gaap financial measures ” for a reconciliation of these components of our net investment income return on average total investments . ( 3 ) book value per diluted common share is calculated by dividing total shareholders ' equity by the number of diluted common shares outstanding at the end of each reporting period . growth in book value per diluted common share is calculated as the percentage change in value of beginning and ending book value per diluted common share over the reporting period . ( 4 ) return on average equity represents net income ( loss ) expressed as a percentage of average total shareholders ' equity during the period . for the twelve-month period , the average total shareholders ' equity is calculated as the average of the beginning and ending total shareholders ' equity of each quarterly period . 125 underwriting income ( loss ) underwriting income ( loss ) is a non-u.s. gaap financial measure . we define underwriting income ( loss ) as net premiums earned less loss and loss adjustment expenses , acquisition expenses and general and administrative expenses . underwriting income ( loss ) is one of the ways we evaluate the performance of our underwriting segment , and does not include other underwriting income ( loss ) , net investment income ( loss ) , interest expense , net foreign exchange gains ( losses ) , income tax expenses and preference dividends . although these items are an integral part of our operations , with the exception of other underwriting income ( loss ) , they are independent of the underwriting process and result , in large part , from general economic and financial market conditions . we include other underwriting income ( loss ) in our adjusted underwriting income ( loss ) , as described in more detail below . see “ -reconciliation of non-u.s. gaap financial measures ” for a reconciliation of underwriting income to net income ( loss ) available to common shareholders . story_separator_special_tag combined ratio the combined ratio is calculated as the sum of loss and loss adjustment expenses , acquisition expenses and general and administrative expenses , divided by net premiums earned , or equivalently , as the sum of the loss ratio , acquisition expense ratio and general and administrative expense ratio . the combined ratio is a measure of underwriting profitability but does not include other underwriting income or net investment income earned on underwriting cash flows . adjusted underwriting income ( loss ) adjusted underwriting income ( loss ) is a non-u.s. gaap financial measure . we define adjusted underwriting income ( loss ) as underwriting income ( loss ) plus other underwriting income ( loss ) less certain corporate expenses . adjusted underwriting income ( loss ) is one of the ways we evaluate the performance of our underwriting segment . we include other underwriting income ( loss ) , as our underwriting strategy allows us to enter into government-sponsored enterprise credit-risk sharing transactions . certain corporate expenses are generally comprised of non-recurring costs of the holding company , such as costs associated with the initial setup of subsidiaries , as well as costs associated with the ongoing operations of the holding company such as compensation of certain executive s. see “ -reconciliation of non-u.s. gaap financial measures ” for a reconciliation of adjusted underwriting income to net income ( loss ) available to common shareholders . adjusted combined ratio adjusted combined ratio is a non-u.s. gaap financial measure . the adjusted combined ratio is calculated as the sum of loss and loss adjustment expenses , acquisition expenses and general and administrative expenses less certain corporate expenses , divided by the sum of net premiums earned and other underwriting income ( loss ) . this ratio is a measure of our underwriting and operational profitability but does not include certain corporate expenses or net investment income earned on underwriting cash flows . certain corporate expenses are generally comprised of non-recurring costs of the holding company , such as costs associated with the initial setup of subsidiaries , as well as costs associated with the ongoing operations of the holding company such as compensation of certain executive s. see “ -reconciliation of non-u.s. gaap financial measures ” for a reconciliation of our adjusted combined ratio to our combined ratio . 126 net interest income and net investment income ( loss ) net interest income and net investment income ( loss ) are important contributors to our financial results . these key investment metrics are impacted by the performance of our investment managers as well as the state of the overall financial markets . net interest income yield on average net assets net interest income yield on average net assets is calculated by dividing net interest income by average net assets . net assets is calculated as the sum of total investments , accrued investment income and receivables for securities sold , less revolving credit agreement borrowings , payable for securities purchased and payable for securities sold short . net interest income yield on average net assets is a key indicator by which we measure the performance of our investment managers . net investment income return on average net assets net investment income return on average net assets is calculated by dividing net investment income ( loss ) by average net assets . net assets is calculated as the sum of total investments , accrued investment income and receivables for securities sold , less revolving credit agreement borrowings , payable for securities purchased and payable for securities sold short . net investment income return on average net assets is a key indicator by which we measure the performance of our investment managers . net investment income return on average total investments net investment income return on average total investments is calculated by dividing net investment income ( loss ) by average total investments . net investment income return on average total investments is a key indicator by which we measure the performance of our investment managers . non-investment grade portfolio and investment grade portfolio components of certain of our investment metrics in order to provide further detail regarding our key investment metrics , we also present the non-investment grade portfolio and investment grade portfolio components of our net interest income yield on average net assets , net investment income return on average net assets and net investment income return on average total investments . in the calculation of the investment grade portfolio component of our net interest income yield on average net assets and net investment income return on average net assets , the impact of the revolving credit agreement borrowings is not subtracted from net interest income , net investment income ( loss ) or the net assets calculation . the separate components of these returns are non-u.s. gaap financial measures . see “ -reconciliation of non-u.s. gaap financial measures ” for a reconciliation of these components of our net interest income yield on average net assets , net investment income return on average net assets and net investment income return on average total investments . growth in book value per diluted common share book value per diluted common share is calculated by dividing total shareholders ' equity by the number of diluted common shares outstanding at the end of each reporting period . we calculate growth in book value per diluted common share as the percentage change in value of beginning and ending book value per diluted share over the reporting period . book value per diluted common share is impacted by , among other factors , our underwriting results , our investment returns and our share repurchase activity , which has an accretive or dilutive impact on book value per diluted common share depending on the purchase price . we measure our long-term financial success by our ability to compound growth in book value per diluted common share at an attractive rate of return .
| the decrease in net premiums earned was primarily due to the 2019 non-renewal of one multi-line quota share contract and the continued impact of reduced participations over time on one cedant 's 135 professional liability contract . reductions in earned premium were offset in part by the growth of the wsic and wic platforms . results for the year ended december 31 , 2018 versus 2017 : net premiums earned were $ 578.9 million for the year ended december 31 , 2018 , compared to $ 531.7 million for the year ended december 31 , 2017 , an increase of $ 47.1 million , or 8.9 % , over the prior year . the growth in the 2018 earned premium was due to the aggregate effect of earned premium recognition relating to net premiums written in 2018 and prior periods , as well as the growth of the wice , wsic and wic platforms . loss ratio the following table shows the components of our loss and loss adjustment expenses for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_19_th results for the year ended december 31 , 2019 versus 2018 : our loss ratio was 81.4 % for the year ended december 31 , 2019 , compared to 76.2 % for the year ended december 31 , 2018 , an increase of 5.2 points . the increase was driven by prior year loss reserve strengthening of $ 23.8 million in response to higher than projected reported losses , primarily in u.s. casualty reinsurance , and also certain casualty exposures where greater severity of losses are expected . results for the year ended december 31 , 2018 versus 2017 : our loss ratio was 76.2 % for the year ended december 31 , 2018 , compared to 82.1 % for the year ended december 31 , 2017. the 2018 loss ratio was impacted by $ 19.0 million of property catastrophe losses primarily related to the 2018 california wildfires , hurricanes michael and florence , and typhoon jebi versus $ 33.2 million of property catastrophe losses in
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in determining whether an impairment is other than temporary , the company considers the severity and duration of the decline in fair value , the length of time expected for recovery , the financial condition of the issuer , changes in the securities ' ratings and other qualitative factors , as well as whether the company either plans to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of the amortized cost . if the impairment of the available-for-sale debt security is credit-related , an otti loss is recorded in earnings . for available-for-sale debt securities , the non-credit-related impairment loss is recognized in accumulated other comprehensive income ( “ oci ” ) . if the company intends to sell an available-for-sale debt security or believes it will more-likely-than-not be required to sell a security , the company records the full amount of the impairment loss as an otti loss . available-for-sale marketable equity securities are carried at fair value with net unrealized gains and losses included in accumulated oci on an after-tax basis . if there is an other-than-temporary decline in the fair value of any individual available-for-sale marketable equity security , the cost basis is reduced and the company reclassifies the associated net unrealized loss out of accumulated oci with a corresponding charge to the consolidated income statement . the company considers available information relevant to the collectability of the security , including information about past events , current conditions , and reasonable and supportable forecasts , when developing the estimate of future cash flows in making its otti assessment for its portfolio of trust preferred securities . the company considers factors such as remaining payment terms of the security , prepayment speeds , expected defaults , the financial condition of the issuer ( s ) , and the value of any underlying collateral . purchased credit impaired loans acquired loans , in accordance with asc 805 , business combinations , are recorded at fair value as of their acquisition date . loans purchased with evidence of credit deterioration since origination , purchased credit impaired ( “ pci ” ) loans , for which it is probable that all contractually required payments will not be collected are accounted for under asc 310-30 , receivables—loans and debt securities acquired with deteriorated credit quality . under asc 310-30 , loans are recorded at fair value at their acquisition date , factoring in credit losses expected to be incurred over the life of the loan . accordingly , an allowance for loan losses is not carried over or recorded as of the acquisition date . in situations where loans have similar risk characteristics , loans were aggregated into pools to estimate cash flows under asc 310-30. a pool is accounted for as a single asset with a single interest rate , cumulative loss rate and cash flow expectation . the cash flows expected over the life of the pools are estimated using an internal cash flow model that projects cash flows and calculates the carrying values of the pools , book yields , effective interest income and impairment , if any , based on pool level events . assumptions as to cumulative loss rates , loss curves and prepayment speeds are utilized to calculate the expected cash flows . 28 at acquisition , the excess of the expected cash flows at acquisition over the recorded investment is considered to be the accretable yield and is recognized as interest income over the life of the loan or pool . the excess of the contractual cash flows over the expected cash flows is considered to be the nonaccretable difference . subsequent to the acquisition date , any increases in cash flow over those expected at purchase date in excess of the fair value that are probable are recorded as an adjustment to the accretable difference on a prospective basis . any subsequent decreases in cash flow over those expected at purchase date that are probable and significant are recognized by recording an allowance for loan losses . any disposals of loans , including sales of loans , payments in full or foreclosures result in the removal of the loan from the asc 310-30 portfolio at the carrying amount . loans acquired in fdic-assisted acquisitions that are subject to fdic shared-loss agreements ( “ shared-loss agreements ” ) are referred to as covered loans . covered loans are reported exclusive of the expected cash flow reimbursements expected to be collected from the fdic . at the date of acquisition , all covered loans were accounted for under asc 805 and asc 310-30. fdic indemnification asset/payable to fdic , net in conjunction with the fdic-assisted acquisitions of wfib and ucb , the bank entered into shared-loss agreements with the fdic . at the date of the acquisition , the amounts receivable under the shared-loss agreements with the fdic related to covered loans and covered other real estate owned ( “ oreo ” ) . the fdic indemnification asset is initially recorded at fair value , based on the discounted value of expected future cash flows under the shared-loss agreements . the company has elected to account for amounts receivable under the shared-loss agreements as an indemnification asset in accordance with asc 805. the difference between the present value and the undiscounted cash flow the company expects to collect from the fdic is accreted into noninterest income over the life of the fdic indemnification asset . the fdic indemnification asset is reviewed on a quarterly basis and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio . any increases in cash flow of the loans over those expected will reduce the fdic indemnification asset and any decreases in cash flow of the loans over those expected will increase the fdic indemnification asset . over the life of the fdic indemnification asset , increases and decreases are recorded as adjustments to noninterest income . story_separator_special_tag due to continued payoffs and improved credit performance of the covered loan portfolio as compared to our original estimates , the expected reimbursement from the fdic under the shared-loss agreements has decreased and a payable to fdic , net has been recorded . additionally , the fdic proportionately shares recoveries recognized on previously charged off covered loans . allowance for loan losses our process for determining the allowance for loan losses is discussed in the “ allowance for loan losses ” section of note 1 to the company 's consolidated financial statements and “ management 's discussion and analysis of consolidated financial condition and results of operations - allowance for loan losses ” presented elsewhere in this report . the company 's allowance for loan loss methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance for loan loss that management believes is appropriate at each reporting date . quantitative factors include our historical loss experience , delinquency and charge-off trends , collateral values , changes in nonperforming loans , and other factors . qualitative considerations include , but are not limited to , prevailing economic or market conditions , relative risk profiles of various loan segments , volume concentrations , growth trends , delinquency and nonaccrual status , problem loan trends , and geographic concentrations . as the company adds new products , increases the complexity of our loan portfolio , and expands our geographic coverage , the company will continue to enhance the methodology to keep pace with the size and complexity of the loan portfolio and the changing credit environment . changes in any of the factors cited above could have a significant impact on the loan loss calculation . the company believes that our methodologies currently employed continue to be appropriate given our size and level of complexity . this discussion should also be read in conjunction with the company 's consolidated financial statements and the accompanying notes presented elsewhere in this report . see note 8 and 9 to the company 's consolidated financial statements . 29 goodwill impairment under asc 350 , intangibles—goodwill and other , goodwill must be allocated to reporting units and tested for impairment . the company tests goodwill for impairment at least annually or more frequently if events or circumstances , such as adverse changes in the business , indicate that there may be justification for conducting an interim test . impairment testing is performed at the reporting-unit level ( which is the same level as the company 's major operating segments identified in note 20 to the company 's consolidated financial statements presented elsewhere in this report ) . the first part of the test is a comparison , at the reporting unit level , of the fair value of each reporting unit to its carrying value , including goodwill . in order to determine the fair value of the reporting units , a combined income approach and market approach was used . under the income approach , the company provided a net income projection and a terminal growth rate was used to calculate the discounted cash flows and the present value of the reporting units . under the market approach , the fair value was calculated using the current fair values of comparable peer banks of similar size , geographic footprint and focus . the market capitalizations and multiples of these peer banks were used to calculate the market price of the company and each reporting unit . the fair value was also subject to a control premium adjustment , which is the cost savings that a purchase of the reporting unit could achieve by eliminating duplicative costs . under the combined income and market approach , the value from each approach was weighted based on management 's perceived risk of each approach to determine the fair value . if the fair value is less than the carrying value , then the second part of the test is needed to measure the amount of goodwill impairment . the implied fair value of the reporting unit goodwill is calculated and compared to the actual carrying value of goodwill recorded within the reporting unit . if the carrying value of reporting unit goodwill exceeds the implied fair value of that goodwill , then the company would recognize an impairment loss for the amount of the difference , which would be recorded as a charge against net income . for complete discussion and disclosure see note 11 to the company 's consolidated financial statements presented elsewhere in this report . income taxes deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases 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 . the company examines its financial statements , its income tax provision , and its federal and state income tax returns and analyzes its tax positions , including permanent and temporary differences , as well as the major components of income and expense to determine whether a tax benefit is more likely than not to be sustained upon examination by tax authorities . in the event a tax position is not more likely than not to be sustained by the tax authorities , a reserve is established by management . the company recognizes interest and penalties related to tax positions as part of its provision for income taxes . share-based compensation the company accounts for share-based awards to employees , officers , and directors in accordance with the provisions of asc 505 , equity , and asc 718 , compensation—stock compensation . share-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized as expense over the employee 's requisite service period . the company grants nonqualified stock options and restricted share awards , which include a service condition for vesting .
| the increase in provision for loan losses on non-covered loans of was due to increased loan balances from the metrocorp acquisition and organic loan growth . for the years ended december 31 , 2014 , 2013 and 2012 , the company recorded a provision for loan losses on covered loans of $ 5.0 million , $ 4.0 million and $ 5.0 million . provisions for loan losses are charged to income to bring the allowance for credit losses as well as the allowance for unfunded loan commitments , off-balance sheet credit exposures , and recourse provisions to a level deemed appropriate by the company based on the factors discussed under the “ management 's discussion and analysis of financial condition and results of operations — allowance for loan losses ” section of this report . 35 noninterest ( loss ) income table 4 : components of noninterest ( loss ) income replace_table_token_6_th noninterest loss includes revenues earned from sources other than interest income . these sources include service charges and fees on deposit accounts , fees and commissions generated from trade finance activities and the issuance of letters of credit , ancillary fees on loans , net gains on sales of loans and investment securities available-for-sale , changes in the fdic indemnification asset and receivable/payable and other noninterest-related revenues . noninterest loss decreased $ 80.8 million or 87 % from $ 92.5 million for the year ended december 31 , 2013 to $ 11.7 million for the year ended december 31 , 2014 . this decrease was mainly due to a $ 31.3 million increase in net gains on sale of loans , a $ 27.2 million reduction in changes in fdic indemnification asset and receivable/payable , $ 9.0 million increase in other commission and fee income , $ 5.9 million increase in branch fees and $ 4.5 million increase in dividend and other investment income . noninterest loss increased $ 86.9 million from $ 5.6 million for the year ended december 31 , 2012 to $
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the uk vote to leave the european union ; and other factors , risks , and uncertainties referenced in the company 's filings with the securities and exchange commission , including the “ risk factors ” set forth in this document . all forward-looking statements speak only as of the date of this report . except as required by law , we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the 36 date of this report or to reflect the occurrence of unanticipated events . all subsequent written and oral forward-looking statements attributable to us or any person acting on the company 's behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and in our risk factors set forth in part i , item 1a of the company 's annual report on form 10-k and in other reports filed with the sec by the company . the following discussion of the financial condition and results of operations of altra industrial motion corp. and its subsidiaries should be read together with the selected historical financial data , and the consolidated financial statements of altra industrial motion corp. and its subsidiaries and related notes included elsewhere in the company 's annual report on form 10-k. the following discussion includes forward-looking statements . for a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements , see “ forward-looking statements ” and “ risk factors ” . unless the context requires otherwise , the terms “ altra , ” “ altra industrial motion corp. , ” “ the company , ” “ we , ” “ us ” and “ our ” refer to altra industrial motion corp. and its subsidiaries . general we are a leading global designer , producer and marketer of a wide range of electromechanical power transmission motion control ( “ ptmc ” ) products . our technologies are used in various motion related applications and across a wide variety of high-volume manufacturing and non-manufacturing processes in which reliability and precision are critical to avoid costly down time and enhance the overall efficiency of operations . we market our products under well recognized and established brands , which have been in existence for an average of over 85 years . we serve a diversified group of customers comprised of over 1,000 direct original equipment manufacturers ( “ oems ” ) including ge , honeywell and siemens , and also benefit from established , long-term relationships with leading industrial distributors , including applied industrial technologies , grainger , kaman corporation and motion industries . many of our customers operate globally across a large number of industries , ranging from transportation , turf and agriculture , energy and mining to factory automation , medical and robotics . our relationships with these customers often span multiple decades , which we believe reflects the high level of performance , quality and service we deliver , supplemented by the breadth of our offering , vast geographic footprint and our ability to rapidly develop custom solutions for complex customer requirements . on october 1 , 2018 , altra consummated the fortive transaction and acquired the a & s business for an aggregate purchase price of approximately $ 2,855.7 million , subject to certain post-closing adjustments , which consisted of $ 1,400.0 million of cash and debt instruments transferred to fortive and shares of altra common stock received by fortive shareholders valued at approximately $ 1,455.7 million . as of december 31 , 2018 , the initial accounting for the fortive transaction ( including the allocation of the purchase price to acquired assets and liabilities ) is not complete . business outlook our future financial performance depends , in large part , on conditions in the markets that we serve and on the u.s. , european , and global economies in general . since completing the fortive transaction on october 1 , 2018 , our focus has been on the integration of the a & s business and we have substantially completed the tactical components of that integration . in the quarter ended december 31 , 2018 , the addition of the a & s business began to have a favorable impact on our financial performance . looking forward , our strategic priorities are to continue to capitalize on our strong cash generation to de-lever our balance sheet while also implementing best practices from the altra business system to optimize sales growth and accelerate profitability , primarily through supply chain management , leveraging technology to drive innovation , and executing on organic growth and cross-selling opportunities . critical accounting policies the methods , estimates and judgments we use in applying our critical accounting policies have a significant impact on the results we report in our financial statements . we evaluate our estimates and judgments on an on-going basis . our estimates are based upon historical experience and assumptions that we believe are reasonable under the circumstances . our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what our management anticipates and different assumptions or estimates about the future could change our reported results . 37 we believe the following accounting policies are the most critical in that they are important to the financial statements and they require the mos t difficult , subjective or complex judgments in the preparation of the financial statements . inventory . inventories are generally stated at the lower of cost or market using the first-in , first-out ( fifo ) method . the cost of inventory includes direct materials , direct labor , and production overhead . market is defined as net realizable value . story_separator_special_tag we state inventories acquired through acquisitions at their fair value at the date of acquisition based on the replacement cost of raw materials , the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts , and , for work-in-process , the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete . we periodically review our quantities of inventories on hand and compare these amounts to the historical and expected usage of each particular product or product line . we record as a charge to cost of sales any amounts required to reduce the carrying value of inventories to net realizable value . business combinations . business combinations are accounted for at fair value . acquisition costs are generally expensed as incurred and recorded in selling , general and administrative expenses . the accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business , and the allocation of those cash flows to identifiable intangible assets , in determining the estimated fair value for assets and liabilities acquired . the fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management 's estimates and assumptions , as well as other information compiled by management , including valuations that utilize customary valuation procedures and techniques . if the actual results differ from the estimates and judgments used in these estimates , the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill , or require acceleration of the amortization expense of finite-lived intangible assets goodwill , intangibles and other long-lived assets . in connection with our acquisitions , goodwill and intangible assets were identified and recorded at fair value . we recorded intangible assets for customer relationships , trade names and trademarks , product technology , patents , in-process research and development ( “ ipr & d ” ) and goodwill . in valuing the customer relationships , trade names and trademarks and product technology , we utilized variations of the income approach . the income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income . the income approach relies on historical financial and qualitative information , as well as assumptions and estimates for projected financial information . projected financial information is subject to risk if our estimates are incorrect . the most significant estimate relates to our projected revenues and profitability . if we do not meet the projected revenues and profitability used in the valuation calculations then the intangible assets could be impaired . in determining the value of customer relationships , we reviewed historical customer attrition rates which were determined to be approximately 1 % to 12 % per year . most of our customers tend to be long-term customers with very little turnover . while we do not typically have long-term contracts with customers , we have established long-term relationships with customers which make it difficult for competitors to displace us . additionally , we assessed historical revenue growth within our industry and customers ' industries in determining the value of customer relationships . the value of our customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions . this could include a higher customer attrition rate or a change in industry trends such as the use of long-term contracts which we may not be able to obtain successfully . customer relationships and product technology and patents are considered finite-lived assets , with estimated lives ranging from 7 years to 29 years . the estimated lives were determined by calculating the number of years necessary to obtain 95 % of the value of the discounted cash flows of the respective intangible asset . goodwill , trade names and trademarks and ipr & d are considered indefinite lived assets . our trade names and trademarks identify us and differentiate us from competitors , and therefore competition does not limit the useful life of these assets . additionally , we believe that our trade names and trademarks will continue to generate product sales for an indefinite period . accounting standards require that an annual goodwill impairment assessment be conducted at the reporting unit level using either a quantitative or qualitative approach . the company has determined that its power transmission technologies ( “ ptt ” ) reporting segment is comprised of five reporting units . the company has also determined that its a & s business reporting segment is comprised of four reporting units . as part of the annual goodwill impairment assessment we performed a quantitative assessment and estimated the fair value of each of our five reporting units in the ptt segment using an income approach . we forecasted future cash flows by reporting unit for each of the next five years and applied a long-term growth rate to the final year of forecasted cash flows . the cash flows were then discounted using our estimated discount rate . the forecasts of revenue and profitability growth for use in the long-range plan and the discount rate were the key assumptions in our goodwill fair value analysis . our annual goodwill impairment analysis in 2018 indicated that in all instances , the fair values of our operating units exceeded their carrying values and consequently did not result in an impairment charge . given the excess fair value , we believe that a significant change in key valuation assumptions , including a decrease in revenues or profitability , or an increase in the discount rate , would not result in an indication of impairment . 38 because of the timing of the a & s acquisition and due to the fact that purchase accounting is not complete , we have performed a qualitative assessment to determine whether the fair value of the a & s reporting units are more likely than not less than the carrying value ( `` step 0 '' ) .
| this increase was partially offset by the impact of amortization of acquired inventory related to the a & s acquisition in the amount of $ 14.2 million recorded at fair value rather than cost . absent this fair value adjustment , the gross profit as a percent of net sales for the year ended december 31 , 2018 would have been 33.2 % . replace_table_token_8_th selling , general and administrative expenses . for the year ended december 31 , 2018 , sg & a as a percentage of net sales increased primarily due to costs associated with the acquisition of the a & s business . the increase was partially driven by the inclusion of $ 47.2 million of sg & a related to the a & s business including $ 15.6 million of amortization expense . in addition , the company incurred approximately $ 36.2 million in acquisition related expenses and also recorded additional stock compensation expense of $ 2.8 million . amounts in thousands , except percentage data years ended december 31 , 2018 2017 change % research and development expenses ( “ r & d ” ) $ 33,076 $ 24,434 < td
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we have received initial payments of $ 8.0 million as well as ongoing support for research and development , and we are eligible to receive up to $ 80.0 million in development 82 index to financial statements and regulatory milestone payments for product candidates directed toward each therapeutic target , for a combined total of up to $ 640 million in potential milestone payments for product candidates directed toward all eight therapeutic targets , and low- to mid-single-digit royalties on worldwide net sales of collaboration product candidates . for any two therapeutic targets , we have an option to share up to 35 % of the worldwide product candidate development costs and profits . on august 5 , 2014 , we completed our initial public offering ( ipo ) . as a result , the following transactions were recorded in our consolidated financial statements in the third quarter of 2014 : the sale of 6,900,000 shares of common stock , including 900,000 from the exercise by the underwriters of their option to purchase additional shares , at an offering price of $ 17.00 per share , for net proceeds of $ 106.5 million , after deducting the underwriters ' discounts , commissions and offering expenses ; concurrent with the ipo , the private placement of 588,235 shares of our common stock to regeneron at the offering price of $ 17.00 per share for gross proceeds of $ 10.0 million and no underwriting discounts or commissions ; immediately prior to the completion of the ipo , all the outstanding shares of our convertible preferred stock were converted into 10,689,027 shares of common stock ; and immediately prior to the completion of the ipo , all outstanding warrants for convertible preferred stock and common stock were exercised into 407,131 shares of common stock for $ 0.6 million . on january 13 , 2015 , we completed a public offering of 2,369,375 shares of our common stock ( follow-on offering ) , which includes 359,918 shares we issued pursuant to the underwriters ' exercise of their option to purchase additional shares , and we received net proceeds of approximately $ 130.5 million , after underwriting discounts , commissions and estimated offering expenses . financial overview summary we have not generated positive cash flow or net income from operations since our inception and , at december 31 , 2014 , we had an accumulated deficit of $ 36.7 million , primarily as a result of research and development and general and administrative expenses . we expect to incur substantial losses from operations in the foreseeable future as we continue our research and development efforts , advance ava-101 and other product candidates through preclinical and clinical development , manufacture clinical study materials , seek regulatory approval and prepare for , and if approved , proceed to commercialization . we are at an early stage of development and may never be successful in developing or commercializing our product candidates . see risk factorsrisks related to our financial position and need for capitalwe have incurred significant operating losses since inception , and we expect to incur significant losses for the foreseeable future . we may never become profitable or , if achieved , be able to sustain profitability. while we may in the future generate revenue from a variety of sources , including license fees , milestone and research and development payments in connection with strategic partnerships , and potentially revenue from approved product sales , we have not yet generated any revenue from approved therapeutic product candidates . prior to the ipo , we financed our operations through private placements of convertible notes and preferred stock with our investors , funding under our government grants and revenue from research collaboration and license agreements . we entered into our first license revenue generating agreement during the first quarter of 2014. we have never been profitable and have incurred net losses in each year since commencement of our operations . we have no manufacturing facilities , and all of our manufacturing activities are contracted out to a third party . additionally , we currently utilize third-party clinical research organizations ( cros ) to carry out our clinical development and we do not yet have a sales organization . 83 index to financial statements we expect to incur significant and increasing losses from operations for the foreseeable future , and we can provide no assurance that we will ever generate significant revenue or profits . in april 2014 , we received gross proceeds of $ 52.9 million from the sale of shares of series b convertible preferred stock , of which $ 4.0 million was used to repurchase outstanding shares of series a convertible preferred stock from an existing investor . we also converted the outstanding balance under our related-party convertible notes of $ 2.0 million into shares of series b convertible preferred stock . in may 2014 , we received initial payments of $ 8.0 million in connection with our collaboration with regeneron . on august 5 , 2014 , we completed our ipo of shares of our common stock , sold stock in a concurrent private placement and received net proceeds of $ 116.5 million after deducting underwriting discounts , commissions and offering expenses . as of december 31 , 2014 , we had $ 159.4 million in cash and cash equivalents . we believe we will have sufficient funds to operate through at least december 31 , 2015. we expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of ava-101 and any additional product candidates . specifically , we have incurred and we expect to continue to incur substantial expenses in connection with our existing phase 2a clinical trial and any phase 2b and phase 3 clinical trials that we may conduct for ava-101 . we will need substantial additional funding to support our operating activities as we advance ava-101 and other potential product candidates through clinical development , seek regulatory approval and prepare for , and if approved , proceed to commercialization . story_separator_special_tag adequate funding may not be available to us on acceptable terms , or at all . revenue to date we have not generated any revenue from the sale of our products . in may 2014 , we entered into a multi-year license and development agreement with regeneron . under the terms of the agreement , we received initial payments of $ 8.0 million that included payment for research license fees , prepaid collaboration research costs and the right of first negotiation for a potential license to develop and commercialize ava-101 . as the agreement provides for multiple deliverables , we account for this agreement as a multiple elements revenue arrangement . if deliverables do not appear to have a standalone fair value , they were combined with other deliverables into a unit of accounting with standalone fair value . we allocated the $ 8.0 million received to the fair values of the two units of accounting identified in the arrangement . we expect to recognize $ 6.5 million for research licenses and related research and development services ratably over the associated period of performance , which is the maximum research period of eight years . as there is no discernible pattern of performance and or objectively measurable performance measures do not exist , we will recognize revenue on a straight-line basis over the eight-year performance period . the remaining $ 1.5 million allocated to the second unit of accounting for the time-limited right of first negotiation for ava-101 is deferred and will be recognized during the period when regeneron has exclusive access to the results of phase 2a clinical trials . during the year ended december 31 , 2014 , we recognized $ 0.5 million under the regeneron agreement . prior to that period , we had previously only recognized revenue in connection with a license agreement for our technology and under government grants . our ability to generate product revenue and become profitable depends upon our ability to successfully develop and commercialize our product candidates . because of the numerous risks and uncertainties associated with product development , we are unable to predict the amount or timing of product revenue . even if we are able to generate revenue from the sale of our products , we may be unable to continue our operations at planned levels and be forced to reduce our operations . research and development expenses conducting a significant amount of research and development is central to our business model . research and development expenses include certain payroll and personnel expenses , stock-based compensation expense , laboratory supplies , consulting costs , external contract research and development expenses , including expenses 84 index to financial statements incurred under agreements with cros , the cost of acquiring , developing and manufacturing clinical study materials and overhead expenses , including rent , equipment depreciation , insurance and utilities . research and development costs are expensed as incurred . advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed . we estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and cros that conduct and manage preclinical studies and clinical trials on our behalf . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . we estimate the amounts incurred through communications with third party service providers and our estimates of accrued expenses as of each balance sheet date are based on information available at the time . if the actual timing of the performance of services or the level of effort varies from the estimate , we will adjust the accrual accordingly . as we pursue the clinical development of our lead product candidate , ava-101 , the amount of research and development expenses will continue to grow . product candidates in later stages of clinical development have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of late-stage clinical trials . accordingly , we plan to increase our research and development expenses for the foreseeable future as we seek to complete the development and commercialization of ava-101 . the successful development and commercialization of ava-101 is highly uncertain and we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of ava-101 at this time . clinical development timelines , the probability of success and development and commercialization costs can differ materially from expectations . we received refundable tax credits from the australian tax authorities in connection with certain research costs incurred by our subsidiary conducting research in australia . these refunds do not depend on our taxable income or tax position and therefore we do not account for them under an income tax accounting model . we recognize such refunds as government grants in the period when qualified expenses are incurred as a reduction of research expenses . we have recorded the reimbursement from the australian tax authorities as a reduction of research and development expense in the consolidated statements of operations and comprehensive loss for the applicable period . general and administrative expenses general and administrative expenses consist principally of personnel-related costs , stock-based compensation , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development expenses . we anticipate general and administrative expenses will increase in future periods as we invest in the infrastructure needed to support continued research and development activities and potential commercialization of our product candidates . we also anticipate increased expenses related to audit , legal and regulatory functions , as well as director and officer insurance premiums and investor relations costs associated with being a public reporting company .
| general and administrative expense general and administrative expense increased to $ 8.0 million for the year ended december 31 , 2014 from $ 1.8 million for the year ended december 31 , 2013. the increase in general and administrative expense was primarily due to increases of $ 1.8 million related in an increase in our employee headcount , $ 1.1 million in stock-based compensation expenses , $ 1.6 million in public company-related expenses and overhead and $ 2.5 million in consulting and professional service expenses , as we expanded our operations . we also recorded a $ 0.8 million non-cash one-time charge of collaboration acquisition costs in 2013 related to the issuance of 689,655 shares of series a convertible preferred stock to a potential collaborator for cash at a price per share below the fair value of such shares . we expect general and administrative costs to increase in future periods , reflecting both the increased costs in connection with the future commercialization of ava-101 and our pipeline products , as well as an expanded infrastructure and increased professional fees associated with being a public company . interest expense interest expense decreased to $ 18,000 for the year ended december 31 , 2014 from $ 73,000 for the comparable period in 2013 as outstanding convertible notes were converted into series b convertible preferred stock in april 2014. changes in fair value of embedded derivative we recorded an embedded derivative liability in connection with our 2012 notes . for the year ended december 31 , 2013 , we recorded income of $ 18,000 for the change in fair value of the embedded derivative liability . in november 2013 , upon conversion of the 2012 notes into series a convertible preferred stock , the embedded derivative was reversed . changes in fair value of warrant liabilities we recorded changes in the fair value of warrant liabilities of ( $ 0.8 ) million for the year ended december 31 , 2014 ,
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within cost of sales , product and other costs increased by $ 52.4 million , or 2 % , to $ 2.35 billion in 2016 from $ 2.30 billion in 2015 ; royalty expenses decreased $ 35.7 million , or 13 % , to $ 228.9 million in 2016 from $ 264.6 million in 2015 ; and freight and logistics expenses decreased by $ 10.7 million , or 3 % , to $ 322.7 million in 2016 from $ 333.4 million in 2015 . gross margin gross margin decreased to 46.8 % in 2016 from 49.2 % in 2015 . the decrease in gross margin was primarily due to unfavorable foreign exchange , higher sales adjustments , and higher input costs , partially offset by strategic pricing and funding our future savings . advertising and promotion expenses advertising and promotion expenses primarily consist of : ( i ) media costs , which primarily include the media , planning , and buying fees for television , print , and online advertisements , ( ii ) non-media costs , which primarily include commercial and website production , merchandising , and promotional costs , ( iii ) retail advertising costs , which primarily include consumer direct catalogs , newspaper inserts , fliers , and mailers , and ( iv ) generic advertising costs , which primarily include trade show costs . advertising and promotion expenses as a percentage of net sales decreased to 11.6 % in 2016 from 12.6 % in 2015 , primarily as a result of lower media and non-media costs . 24 other selling and administrative expenses other selling and administrative expenses were $ 1.40 billion , or 25.7 % of net sales , in 2016 , as compared to $ 1.55 billion , or 27.1 % of net sales , in 2015 . the decrease in other selling and administrative expenses was primarily due to funding our future net savings of approximately $ 60 million , lower incentive and equity compensation of approximately $ 36 million , and lower severance and restructuring charges of approximately $ 32 million . other non-operating expense ( income ) , net other non-operating expense was $ 23.5 million in 2016 , as compared to other non-operating income of $ 1.1 million in 2015 . the increase in other non-operating expense was primarily due to the change in the remeasurement rate used by mattel 's venezuelan subsidiary , which resulted in an unrealized foreign currency exchange loss of approximately $ 26 million , in the first quarter of 2016. provision for income taxes mattel 's provision for income taxes was $ 91.7 million in 2016 , compared to $ 94.5 million in 2015 . mattel 's effective tax rate on income before income taxes in 2016 was 22.4 % , as compared to 20.4 % in 2015 . the 2016 income tax provision included net tax benefits of $ 16.8 million primarily related to reassessments of prior years ' tax liabilities based on the status of audits and tax filings in various jurisdictions around the world , settlements , and enacted tax law changes , and the adoption of a new accounting pronouncement . the 2015 income tax provision included net tax benefits of $ 19.1 million primarily related to reassessments of prior years ' tax liabilities based on the status of audits and tax filings in various jurisdictions around the world , settlements , and enacted tax law changes . 25 north america segment the following table provides a summary of mattel 's gross sales by brand for the north america segment for 2016 and 2015 : replace_table_token_6_th gross sales for the north america segment were $ 3.04 billion in 2016 , a decrease of $ 47.7 million or 2 % , as compared to $ 3.08 billion in 2015 , with an unfavorable impact from changes in currency exchange rates of 1 percentage point . the decrease in the north america segment gross sales was primarily due to lower sales of other girls products , partially offset by higher sales of entertainment and barbie products . of the 51 % decrease in other girls gross sales , 47 % was due to lower sales of disney princess products . of the 19 % increase in entertainment gross sales , 12 % was due to higher sales of dc comics products and 5 % was due to initial sales of fuhu ® tablets . the 13 % increase in barbie gross sales was due to sales of the fashionistas ® and i can be ® product lines , and the new younger girl product line , barbie dreamtopia , as well as licensing revenue recorded during the second quarter . cost of sales decreased 2 % in 2016 , as compared to a 2 % decrease in net sales , primarily due to lower product and other costs and lower royalty expenses . gross margins in 2016 were flat with 2015 . north america segment income increased by 5 % to $ 564.4 million in 2016 , as compared to $ 538.2 million in 2015 , primarily due to lower advertising and promotion expenses , partially offset by lower gross profit . international segment the following table provides a summary of percentage changes in net sales within the international segment in 2016 versus 2015 : replace_table_token_7_th 26 the following table provides a summary of percentage changes in gross sales within the international segment in 2016 versus 2015 : replace_table_token_8_th the following table provides a summary of mattel 's gross sales by brand for the international segment for 2016 and 2015 : replace_table_token_9_th gross sales for the international segment were $ 2.45 billion in 2016 , a decrease of $ 155.9 million or 6 % , as compared to $ 2.60 billion in 2015 , with an unfavorable impact from changes in currency exchange rates of 7 percentage points . the decrease in the international segment gross sales was primarily due to lower sales of other girls products , partially offset by higher sales of construction and arts & crafts brands products . story_separator_special_tag of the 53 % decrease in other girls gross sales , 47 % was due to lower sales of disney princess products . of the 17 % increase in construction and arts & crafts gross sales , 14 % was due to initial sales of teenage mutant ninja turtles mega bloks products . cost of sales increased 4 % in 2016 , as compared to an 8 % decrease in net sales , primarily due to higher product and other costs , partially offset by lower royalty expenses . gross margins in 2016 decreased as a result of unfavorable foreign currency exchange rates , higher input costs , and higher sales adjustments , partially offset by strategic pricing and funding our future savings . international segment income decreased by 9 % to $ 291.2 million in 2016 , as compared to $ 321.1 million in 2015 , primarily due to lower gross profit , partially offset by lower advertising and promotion expenses and lower other selling and administrative expenses . 27 american girl segment the following table provides a summary of mattel 's gross sales by brand for the american girl segment for 2016 and 2015 : replace_table_token_10_th gross sales for the american girl segment were $ 589.9 million in 2016 , a decrease of $ 6.3 million or 1 % , as compared to $ 596.2 million in 2015 . cost of sales decreased 3 % in 2016 , as compared to a 1 % decrease in net sales , primarily due to lower product and other costs and lower freight and logistics costs . gross margins in 2016 increased as a result of higher licensing income and funding our future savings . american girl segment income increased by 52 % to $ 106.4 million in 2016 , as compared to $ 69.9 million in 2015 , primarily due to the new franchise licensing agreement to expand the brand into the middle east , lower advertising and promotion expenses , and lower other selling and administrative expenses . 2015 compared to 2014 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in 2015 , as compared to $ 459.8 million in 2014 , due to higher gross profit and lower other selling and administrative expenses . international segment the following table provides a summary of percentage changes in net sales within the international segment in 2015 versus 2014 : replace_table_token_14_th the following table provides a summary of percentage changes in gross sales within the international segment in 2015 versus 2014 : replace_table_token_15_th the following table provides a summary of mattel 's gross sales by brand for the international segment for 2015 and 2014 : replace_table_token_16_th 31 gross sales for the international segment were $ 2.60 billion in 2015 , a decrease of $ 458.0 million , or 15 % , as compared to $ 3.06 billion in 2014 , with an unfavorable impact from changes in currency exchange rates of 16 percentage points . the decrease in the international segment gross sales was primarily due to lower sales of other girls , entertainment , and barbie products . of the 30 % decrease in other girls gross sales , 27 % was due to lower sales of monster high products . of the 23 % decrease in entertainment gross sales , 12 % was due to lower sales of disney planes products and 7 % was due to lower sales of max steel products . the 19 % decrease in barbie gross sales was due to continued inventory overhang in certain european markets and increased competition within the doll category in certain international markets . cost of sales decreased 18 % in 2015 , as compared to a 14 % decrease in net sales , primarily due to funding our future savings and lower freight and logistics expenses , partially offset by higher product and other costs . gross margins increased due to funding our future savings . international segment income decreased 11 % to $ 321.1 million in 2015 , as compared to $ 359.9 million in 2014 , primarily due to lower gross profit , partially offset by lower other selling and administrative expenses and lower advertising and promotion expenses . american girl segment the following table provides a summary of mattel 's gross sales by brand for the american girl segment for 2015 and 2014 : replace_table_token_17_th gross sales for the american girl segment were $ 596.2 million in 2015 , a decrease of $ 49.1 million , or 8 % , as compared to $ 645.3 million in 2014 , with an unfavorable impact from changes in currency exchange rates of 1 percentage point . cost of sales decreased 6 % in 2015 , as compared to a 9 % decrease in net sales , primarily due to lower product and other costs . gross margins decreased due to higher product-related costs , partially offset by funding our future savings . american girl segment income decreased 38 % to $ 69.9 million in 2015 , as compared to $ 113.6 million in 2014 , primarily due to lower gross profit . cost savings programs during 2013 , mattel initiated operational excellence 3.0 , which targeted cumulative gross cost savings of approximately $ 175 million by the end of 2014. mattel exceeded its operational excellence 3.0 goal by realizing approximately $ 179 million of cumulative gross cost savings throughout the program . during 2014 , mattel realized gross cost savings before severance charges and investments of approximately $ 119 million ( or approximately $ 74 million in net cost savings ) . of the gross cost savings realized in 2014 , approximately $ 77 million was reflected within gross profit , approximately $ 35 million within other selling and administrative expenses , and approximately $ 7 million within advertising and promotion expenses .
| of the 10 % increase in wheels gross sales , 10 % was due to higher sales of hot wheels products . cost of sales cost of sales as a percentage of net sales was 50.8 % in 2015 , as compared to 50.2 % in 2014 . cost of sales decreased by $ 126.5 million , or 4 % , from $ 3.02 billion in 2014 to $ 2.90 billion in 2015 , as compared to a 5 % decrease in net sales . within cost of sales , product and other costs decreased by $ 145.0 million , or 6 % , from $ 2.44 billion in 2014 to $ 2.30 billion in 2015 ; royalty expenses increased $ 22.2 million , or 9 % , from $ 242.4 million in 2014 to $ 264.6 million in 2015 ; and freight and logistics expenses decreased by $ 3.7 million , or 1 % , from $ 337.1 million in 2014 to $ 333.4 million in 2015 . gross margin gross margin decreased from 49.8 % in 2014 to 49.2 % in 2015 . the decrease in gross margin was due to unfavorable foreign exchange , higher product-related costs , unfavorable product mix , and higher royalty expenses , partially offset by price increases and funding our future savings . advertising and promotion expenses advertising and promotion expenses primarily consist of : ( i ) media costs , which primarily include the media , planning , and buying fees for television , print , and online advertisements , ( ii ) non-media costs , which primarily include commercial and website production , merchandising , and promotional costs , ( iii ) retail advertising costs , which primarily include consumer direct catalogs , newspaper inserts , fliers , and mailers and ( iv ) generic advertising costs , which primarily include trade show costs . advertising and promotion expenses as a percentage of net sales increased from 12.2 % in 2014 to 12.6 % in 2015 , primarily as a result of mattel 's investments to support core brands throughout the year . 29 other selling and administrative
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free cash flow , a non-gaap measure defined under the caption “ review of consolidated results — free cash flow , ” was $ 1,446 million in 2018 , an increase of $ 960 million , or 198 % , from $ 486 million in 2017 , driven by an increase of $ 1,017 million in cash flow in operations , partially offset by a $ 57 million increase in capital expenditures , including investments in our operating model . story_separator_special_tag finite-lived tradenames and customer-related , contract-based , and technology assets . amortization and impairment of intangibles decreased $ 111 million , or 16 % , in 2018 compared to 2017 . the decrease was primarily driven by a net $ 204 million decrease in impairment charges , partially offset by a $ 71 million increase in accelerated amortization related to tradenames . 28 other general expenses other general expenses increased $ 228 million , or 18 % , in 2018 compared to 2017 . the increase was primarily driven by a $ 151 million increase in restructuring costs , a $ 75 million increase in legacy litigation , an $ 11 million increase in expense to support gdpr regulatory compliance , and an increase in expense associated with 5 % organic revenue growth , partially offset by a $ 28 million decrease in costs related to regulatory and compliance matters . interest income interest income represents income earned on operating cash balances and other income-producing investments . it does not include interest earned on funds held on behalf of clients . interest income was $ 5 million in 2018 , a decrease of $ 22 million , or 81 % , from 2017 , due primarily to additional income earned on the balance of cash proceeds from the divested business in the prior year period . interest expense interest expense , which represents the cost of our debt obligations , was $ 278 million in 2018 , a decrease of $ 4 million , or 1 % , from 2017 . this decrease was driven primarily by the maturity of higher interest rate term debt in q1 2018 partially offset by interest on a higher average commercial paper outstanding compared to the prior year . other income ( expense ) other expense decreased $ 100 million , or 80 % , to $ 25 million in 2018 compared to 2017 . other expense in 2018 includes , among other things , $ 49 million of losses on certain financial instruments and $ 6 million in net losses on the disposition of businesses , partially offset by a $ 25 million favorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies and $ 4 million of equity earnings . other expense in 2017 includes $ 86 million of pension and other post-retirement expense , a $ 37 million unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies , and $ 16 million in net losses on the disposition of businesses , partially offset by $ 12 million in equity earnings . income from continuing operations before income taxes due to factors discussed above , income from continuing operations before income taxes was $ 1,246 million in 2018 , an 82 % increase from $ 685 million in 2017 . income taxes from continuing operations the effective tax rate on net income from continuing operations was 11.7 % in 2018 and 36.5 % in 2017 . the primary drivers of the 2018 tax rate include the following : the geographical distribution of income including restructuring charges , legacy litigation , and the impairment of certain assets and liabilities previously classified as held for sale as well as the post-enactment date impacts of the tax reform act . certain discrete items including the tax benefit associated with the sale of certain assets and liabilities previously classified as held for sale and the impact of share-based payments offset by the net tax expense from finalizing the impact of the enactment of the tax reform act and changes in valuation allowances . the 2017 tax rate reflects changes in the geographical distribution of income including restructuring charges and the impairment and amortization of tradenames , the impact of share-based payments , and the provisional estimate of the enactment date impact of the tax reform act . income from discontinued operations , net of tax net income from discontinued operations decreased $ 754 million to $ 74 million compared to 2017 due to the execution of the sale of the divested business on may 2 , 2017. net income attributable to aon shareholders net income attributable to aon shareholders decreased to $ 1,134 million , or $ 4.59 per diluted share , in 2018 , compared to $ 1,226 million , or $ 4.70 per diluted share , in 2017 . 29 consolidated results for 2017 compared to 2016 revenue total rev enue increased by 6 % , or $ 589 million , to $ 9,998 million in 2017 , compared to $ 9,409 million in 2016 . the increase was driven by 4 % organic revenue growth and a 2 % increase related to acquisitions , net of divestitures . organic revenue growth for the year was driven by growth across every major revenue line , with particular strength in reinsurance solutions , health solutions , and data & analytic services . commercial risk solutions revenue increased $ 240 million , or 6 % , to $ 4,169 million in 2017 , compared to $ 3,929 million in 2016. organic revenue growth was 2 % in 2017 driven by growth across nearly every geography , with particular strength in u.s. retail driven by record new business generation and strong management of the renewal book portfolio . story_separator_special_tag reinsurance solutions revenue increased $ 68 million , or 5 % , to $ 1,429 million in 2017 , compared to $ 1,361 million in 2016. organic revenue growth was 6 % in 2017 driven by growth across all major product lines , highlighted by continued net new business generation in the treaty portfolio , growth in facultative placements , and strong growth in capital markets . retirement solutions revenue increased $ 48 million , or 3 % , to $ 1,755 million in 2017 , compared to $ 1,707 million in 2016. organic revenue growth was 3 % in 2017 driven by double-digit growth in investment consulting , primarily for delegated investment management , as well as solid growth in the talent , rewards , and performance practice . health solutions revenue increased $ 145 million , or 11 % , to $ 1,515 million in 2017 , compared to $ 1,370 million in 2016. organic revenue growth was 7 % in 2017 driven primarily by strong growth in health & benefits brokerage , in both the americas and internationally . data & analytic services revenue increased $ 90 million , or 9 % , to $ 1,140 million in 2017 , compared to $ 1,050 million in 2016. organic revenue growth was 6 % in 2017 driven by strong growth across affinity , with particular strength in the u.s. compensation and benefits compensation and benefits increased $ 489 million in 2017 , or 9 % , compared to 2016 . the increase was primarily driven by $ 299 million of restructuring charges , a $ 154 million increase in expenses related to acquisitions , net of divestitures , and an increase in expense associated with 4 % organic revenue growth , partially offset by $ 104 million of savings related to restructuring and other operational improvement initiatives and a $ 92 million decrease in expenses related to certain pension settlements . information technology information technology , which represents costs associated with supporting and maintaining our infrastructure , increased $ 33 million in 2017 , or 9 % , compared to 2016 . the increase was primarily driven by $ 33 million of restructuring costs , a $ 7 million increase in expenses related to acquisitions , net of divestitures , as well as investments in growth , partially offset by $ 37 million of savings related to restructuring and other operational improvement initiatives . premises premises , which represents the cost of occupying offices in various locations throughout the world , increased $ 5 million in 2017 , or 1 % , compared to 2016 . the increase was primarily driven by an $ 11 million increase in expenses related to acquisitions , net of divestitures , and $ 8 million of restructuring costs , partially offset by $ 3 million of savings related to restructuring and other operational improvement initiatives . depreciation of fixed assets depreciation of fixed assets primarily relates to software , leasehold improvements , furniture , fixtures and equipment , computer equipment , buildings , and automobiles . depreciation of fixed assets increased $ 25 million in 2017 , or 15 % , compared to 2016 . the increase was primarily driven by $ 26 million of restructuring costs and a $ 14 million increase in expenses associated with acquisitions , net of divestitures , partially offset by $ 1 million of savings related to restructuring and other operational improvement initiatives as well as a decrease as we continue to optimize our real estate and information technology portfolio . amortization and impairment of intangible assets amortization and impairment of intangibles primarily relates to finite-lived tradenames and customer-related , contract-based , and technology assets . amortization and impairment of intangibles increased $ 547 million for the year , or 348 % , compared to 2016 . the increase was primarily driven by a $ 380 million non-cash impairment charge to the indefinite lived tradenames associated with the divested business , $ 143 million of accelerated amortization related to tradenames , and an increase associated with recent acquisitions , net of divestitures . 30 other general expenses other general expenses increased $ 236 million in 2017 , or 23 % , compared to 2016 . the increase was primarily driven by $ 131 million of restructuring costs , a $ 71 million increase in expenses associated with acquisitions , net of divestitures , $ 28 million of costs related to regulatory and compliance matters , and an increase in expense associated with 4 % organic revenue growth , partially offset by $ 20 million of savings related to restructuring and other operational improvement initiatives and a $ 15 million decrease in expenses related to the sale of the divested business in the prior year period . interest income interest income represents income earned on operating cash balances and other income-producing investments . it does not include interest earned on funds held on behalf of clients . interest income was $ 27 million in 2017 , an increase of $ 18 million , or 200 % , from 2016 , due primarily to additional income earned on the balance of cash proceeds from the divested business . interest expense interest expense , which represents the cost of our debt obligations , was $ 282 million in 2017 , similar to the prior year period . other income ( expense ) other expense decreased $ 12 million from $ 137 million in 2016 to $ 125 million in 2017 . other expense in 2017 includes , among other things , $ 86 million of pension and other post-retirement expense , a $ 37 million unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies , and $ 16 million in net losses on the disposition of businesses , partially offset by $ 12 million in equity earnings .
| reinsurance solutions revenue increased $ 134 million , or 9 % , to $ 1,563 million in 2018 , compared to $ 1,429 million in 2017. organic revenue growth was 7 % in 2018 driven by net new business generation in treaty and strong growth in facultative placements , partially offset by a modest decline in capital markets transactions given the prior year period benefited from record catastrophe bond issuance during the mid-year renewal season . retirement solutions revenue increased $ 110 million , or 6 % , to $ 1,865 million in 2018 , compared to $ 1,755 million in 2017. organic revenue growth was 2 % in 2018 driven by solid growth in core actuarial retirement and in the talent practice , as well as modest growth in investment consulting . health solutions revenue increased $ 81 million , or 5 % , to $ 1,596 million in 2018 , compared to $ 1,515 million in 2017. organic revenue growth was 5 % in 2018 driven primarily by strong growth in health & benefits brokerage , in both the americas and internationally , and in the health care exchange business driven by new client wins in both the active and retiree exchanges . data & analytic services revenue decreased $ 35 million , or 3 % , to $ 1,105 million in 2018 , compared to $ 1,140 million in 2017. organic revenue growth was 3 % in 2018 driven by strong growth globally across affinity . compensation and benefits compensation and benefits increased $ 100 million , or 2 % , in 2018 compared to 2017 . the increase was primarily driven by a $ 145 million increase in expenses related to acquisitions , net of divestitures , a $ 50 million unfavorable impact from foreign currency translation , and an increase in expense associated with 5 % organic revenue growth , partially offset by a $ 184 million decrease in restructuring costs , $ 182 million of incremental savings related to restructuring and other operational improvement initiatives , and a $ 51 million decrease related to the adoption of the new revenue recognition standard in 2018. information technology information technology , which represents costs associated with supporting and maintaining our infrastructure , increased $ 65 million , or
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these statements represent projections , beliefs and expectations based on current circumstances and conditions and in light of recent events and trends , and these statements should not be construed either as assurances of performances or as promises of a given course of action . instead , various known and unknown factors are likely to cause our actual performance and management 's actions to vary , and the results of these variances may be both material and adverse . a list of the known material factors that may cause our results to vary , or may cause management to deviate from its current plans and expectations , is included in item 1a , “ risk factors , ” of this annual report on form 10-k. the following discussion should also be read in conjunction with the consolidated financial statements and notes included in item 8 , “ financial statements and supplemental data , ” of this annual report on form 10-k. business overview we are a commercial-stage company that develops and sells high performance water solutions to the medical and commercial markets . in medical markets , we sell water filtration products and waterborne pathogen detection products . our medical water filters , mostly classified as ultrafilters , are used primarily by hospitals for the prevention of infection from waterborne pathogens , such as legionella and pseudomonas , and in dialysis centers for the removal of biological contaminants from water and bicarbonate concentrate . because our ultrafilters capture contaminants as small as 0.005 microns in size , they minimize exposure to a wide variety of bacteria , viruses , fungi , parasites , and endotoxins . in commercial markets , we manufacture and sell water filters that improve the taste and odor of water and reduce biofilm , bacteria , and scale build-up in downstream equipment . marketed under both the nephros and aether brands , our products are marketed primarily to the food service , hospitality , convenience store , and health care markets . our pathogen detection systems are portable , near real-time systems designed to provide actionable data for infection control teams , biomedical engineers in dialysis clinics , and water quality teams in building management organizations . we also have a subsidiary , specialty renal products , inc. ( “ srp ” ) , a development-stage medical device company , focused primarily on developing hemodiafiltration ( “ hdf ” ) technology . srp is developing a second-generation of the nephros olpūr h2h hemodiafiltration system , the fda 510 ( k ) -cleared medical device that enables nephrologists to provide hdf treatment to patients with end stage renal disease ( “ esrd ” ) . we were founded in 1997 by healthcare professionals affiliated with columbia university medical center/new york-presbyterian hospital to develop and commercialize an alternative method to hemodialysis . we have extended our filtration technologies to meet the demand for liquid purification in other areas , in particular , water purification . recent accounting pronouncements we are subject to recently issued accounting standards , accounting guidance and disclosure requirements . for a description of these new accounting standards , see “ note 2 – summary of significant accounting policies , ” to our consolidated financial statements included in item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . the preparation of financial statements in accordance with gaap requires application of management 's subjective judgments , often requiring estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our actual results may differ substantially from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in “ note 2 – summary of significant accounting policies , ” to our consolidated financial statements included in item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k , we believe that the following accounting policies require the application of significant judgments and estimates . 28 revenue recognition accounting standard codification ( “ asc ” ) 606 prescribes a five-step model for recognizing revenue , which includes ( i ) identifying contracts with customers ; ( ii ) identifying performance obligations ; ( iii ) determining the transaction price ; ( iv ) allocating the transaction price ; and ( v ) recognizing revenue . we recognize revenue related to product sales when product is shipped via external logistics provider and the other criteria of asc 606 are met . product revenue is recorded net of returns and allowances . in addition to product revenue , we recognize revenue related to license , royalty and other agreements in accordance with the five-step model in asc 606. stock-based compensation the fair value of stock options is recognized as stock-based compensation expense in net loss . we calculate employee stock-based compensation expense in accordance with asc 718. the fair value of our stock option awards is estimated using a black-scholes option valuation model . this model requires the input of highly subjective assumptions including expected stock price volatility and the estimated life of each award . the fair value of stock-based awards is amortized over the vesting period of the award . for stock awards that vest based on performance conditions ( e.g. , achievement of certain milestones ) , expense is recognized when it is probable that the condition will be met . story_separator_special_tag warrants we account for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement . accounts receivable we provide credit terms to our customers in connection with purchases of our products . we periodically review customer account activity in order to assess the adequacy of the allowances provided for potential collection issues and returns . factors considered include economic conditions , each customer 's payment and return history and credit worthiness . adjustments , if any , are made to reserve balances following the completion of these reviews to reflect our best estimate of potential losses . inventory reserves our inventory reserve requirements are based on various factors including product expiration date and estimates for the future sales of the product . if estimated sales levels do not materialize , we will reevaluate our assumptions for inventory reserve requirements . accrued expenses we are required to estimate accrued expenses as part of our process of preparing financial statements . this process involves identifying services that have been performed on our behalf , the level of service performed , and the associated cost incurred for such service as of each balance sheet date in our consolidated financial statements . examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for the preclinical development of our products , the manufacturing of clinical materials , and clinical trials , as well as legal and accounting services provided by professional organizations . in connection with such service fees , our estimates are primarily affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers . the majority of our service providers invoice us monthly in arrears for services performed . in the event that we do not identify certain costs , which have begun to be incurred , or we under- or over-estimate the level of services performed or the costs of such services , our reported expenses for such period would be too low or too high . the date on which certain services commence , the level of services performed on or before a given date and the cost of such services are often determined based on subjective judgments . we make these judgments based upon the facts and circumstances known to us in accordance with gaap . 29 noncontrolling interest we present the noncontrolling interest in srp held by outside stockholders as stockholders ' equity on the accompanying consolidated balance sheet , as the noncontrolling interest is redeemable only upon the occurrence of events that are solely within our control . segment reporting we have three reportable segments : water filtration , pathogen detection and renal products . the water filtration segment primarily develops and sells high performance water purification filters . the pathogen detection segment develops and sells portable , real-time water testing systems designed to provide actionable data on waterborne pathogens in approximately one hour . the renal products segment is focused on the development of medical device products for patients with renal disease , including a 2 nd generation hemodiafiltration system for the treatment of patients with esrd . our chief operating decision maker evaluates the financial performance of our segments based on revenues , gross margin ( where applicable ) , research and development expenses , and sales , general , and administrative expenses . the accounting policies for our segments are the same as those described in “ note 2 – summary of significant accounting policies , ” to our consolidated financial statements included in item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k. story_separator_special_tag font-size : 10pt '' > cost of goods sold cost of goods sold was $ 3.6 million for the year ended december 31 , 2020 compared to $ 4.2 million for the year ended december 31 , 2019. the decrease of $ 0.6 million , or 15 % , was due to $ 0.7 million in decreased direct product costs as a result of decreased revenue , partially offset by increases of $ 0.1 million in inventory reserves for expiring items and physical count inventory adjustments . gross margin gross margin was approximately 57 % for the year ended december 31 , 2020 compared to approximately 59 % for the year ended december 31 , 2019. the decrease of approximately 2 percentage points is primarily due to increases of $ 0.1 million in inventory reserves for expiring items and physical count inventory adjustments . research and development expenses research and development expenses were $ 1.2 and $ 1.1 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . this increase of $ 0.1 million , or 11 % , was driven by increases in expenditures in filter research and development , partially offset by decreases in headcount expenses including stock-based compensation expense . depreciation and amortization expense depreciation and amortization expenses were $ 0.2 million for each of the years ended december 31 , 2020 and 2019. selling , general and administrative expenses selling , general and administrative expenses were $ 5.8 million for the year ended december 31 , 2020 compared to $ 6.0 million for the year ended december 31 , 2019 , representing a decrease of $ 0.2 million , or 3 % . the decrease was primarily due to decreased stock-based compensation expense of $ 0.2 million and a decrease in travel-related and marketing expenses of $ 0.3 million as a result of the covid-19 pandemic , partially offset by an increase in professional expenses of $ 0.2 million .
| cost of goods sold cost of goods sold was $ 3.6 million for the year ended december 31 , 2020 compared to $ 4.2 million for the year ended december 31 , 2019. the decrease of $ 0.6 million , or 14 % , was due to $ 0.7 million in decreased direct product costs as a result of decreased revenue , partially offset by increases of $ 0.1 million in inventory reserves for expiring items and physical count inventory adjustments . gross margin gross margin was approximately 57 % for the year ended december 31 , 2020 compared to approximately 59 % for the year ended december 31 , 2019. the decrease of approximately 2 percentage points is primarily due to increases of $ 0.1 million in inventory reserves for expiring items and physical count inventory adjustments . 31 research and development expenses research and development expenses were $ 2.8 and $ 3.1 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . this decrease of $ 0.3 million , or 11 % , was driven by decreases in headcount expenses including stock-based compensation expense , partially offset by increases expenditures in filter research and development . depreciation and amortization expense depreciation and amortization expenses were $ 0.2 million for each of the years ended december 31 , 2020 and 2019. selling , general and administrative expenses selling , general and administrative expenses were $ 6.5 million for the year ended december 31 , 2020 compared to $ 6.1 million for the year ended december 31 , 2019 , representing an increase of $ 0.4 million or 7 % . the increase was due to several factors , including increased headcount-related expenses of $ 0.9 million , partially offset by a decrease in travel and marketing related expenses of $ 0.3 million as a result of the covid-19 pandemic and a decrease in stock-based compensation expense of $ 0.2 million . change in fair value of contingent consideration change in fair value of contingent consideration of $ 0.2 million for the year ended december 31 , 2020 was due to settlement of the contingent consideration liability . change in fair value of contingent consideration of $ 0.2 million for the year ended
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the global 7000/8000 program charge resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty , higher than anticipated non-recurring costs and increased forecasted costs on recurring production . the increases in costs were driven by several factors , including : changing technical requirements , increased spending on the design and engineering phase of the program and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers . further cost increases or an inability to meet revised recurring cost forecasts on the global 7000/8000 program may result in additional forward loss reserves in future periods , while improvements in future costs compared to current estimates may result in favorable adjustments if forward loss reserves are no longer required . under our contract with embraer , we have the exclusive right to design , develop and manufacture the center fuselage section iii , rear fuselage section and various tail section components ( rudder and elevator ) for the e2-jets over the initial 600 ship sets . the contract provides for funding on a fixed amount of non-recurring costs , which will be paid over a specified number of production units . higher than expected spending on the e2-jets program has resulted in a low single digit estimated profit margin percentage , with additional potential future cost pressures as well as opportunities for improved performance . while we still estimate positive margins for this contract , risks related to additional engineering as well as the recurring cost profile remains as this program enters flight testing . we seek additional consideration for customer work statement changes throughout the development process as a standard course of business . the ability to recover or negotiate additional consideration is not certain and varies by contract . varying market conditions for these products may also impact future profitability . although none of these new programs individually are expected to have a material impact on our net revenues , they do have the potential , either individually or in the aggregate , to materially and negatively impact our consolidated results of operations if future changes in estimates result in the need for a forward loss provision . absent any such loss provisions , we do not anticipate that any of these new programs will significantly dilute our future consolidated margins . in january 2016 , boeing announced a rate reduction to the 747-8 program , which lowers production to one plane every two months . we have assessed the impact of the rate reduction and have recorded an additional $ 161.4 million forward loss during the quarter ended march 31 , 2016. this announcement follows the september 2015 decision by boeing to in-source production of the 747-8 program beginning in the second half of fiscal 2019 , effectively terminating this program with us after our current contract . additional costs associated with exiting the facilities where the 747-8 program is manufactured , such as asset impairment , supplier and lease termination charges , as well as severance and retention payments to employees and contractors have been included in the 2016 restructuring plan . as disclosed during fiscal 2015 , we also recognized a provision for forward losses associated with our long-term contract on the 747-8 program . t here is still risk similar to what we have experienced on the 747-8 program . particularly , our ability to manage risks related to supplier performance , execution of cost reduction strategies , hiring and retaining skilled production and management personnel , quality and manufacturing execution , program schedule delays and many other risks , will determine the ultimate performance of these long-term programs . consistent with our policy described in our critical accounting policies here within , we performed step 1 of the goodwill impairment test on an interim basis upon the occurrence of events or substantive changes in circumstances that indicate a reporting unit 's fair value may be less than its carrying value . during the third quarter of fiscal 2016 , we performed an interim assessment of the fair value of our goodwill and indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price during the third quarter . 23 our assessment focused on the aerostructures reporting unit since it had significant changes in its economic indicators and adjusted for select changes in the risk adjusted discount rate to consider both the current return requirements of the market and the risks inherent in the reporting unit , expected long-term growth rate and cash flow projections to determine if any decline in the estimated fair value of a reporting unit could result in a goodwill impairment . we concluded that the goodwill was not impaired as of the interim impairment assessment date . however , the excess of the fair value over the carrying value was within 5 % for the company 's aerostructures reporting unit . the amount of goodwill for our aerostructures reporting unit amounted to $ 1.42 billion as of the interim testing date . during the fourth quarter of the fiscal year ended march 31 , 2016 , consistent with our policy described herein , we performed our annual assessment of the fair value of our goodwill for each of our three reporting units . we concluded that the goodwill of our aerostructures reporting unit was impaired as of the annual testing date . we concluded that the goodwill had an implied fair value of $ 822.8 million ( level 3 ) compared to a carrying value of $ 1.42 billion . accordingly , we recorded a non-cash impairment charge during the fourth quarter of fiscal 2016 of $ 597.6 million , which is presented on the accompanying consolidated statements of operations as `` impairment of intangible assets '' . the decline in fair value is the result of continued declines in stock price and related market multiples for stock price to ebitda of both the company and our peer group . story_separator_special_tag going forward , we will continue to monitor the performance of this reporting unit in relation to the key assumptions in our analysis . in the event that market multiples for stock price to ebitda in the aerospace and defense markets decrease , or the expected ebitda and cash flows for our reporting units decreases , an additional goodwill impairment charge may be required , which would adversely affect our operating results and financial condition . if management determines that impairment exists , the impairment will be recognized in the period in which it is identified . during the third quarter of the fiscal year ended march 31 , 2016 , we performed an interim assessment of fair value on our indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price during the fiscal third quarter . we estimated the fair value of the tradenames using the relief-from-royalty method , which uses several significant assumptions , including revenue projections that consider historical and estimated future results , general economic and market conditions , as well as the impact of planned business and operational strategies . the following estimates and assumptions were also used in the relief-from-royalty method : royalty rates between 2 % and 4 % based on market observed royalty rates and profit split analysis ; and discount rates between 12 % and 13 % based on the required rate of return for the tradename assets . based on our evaluation , we concluded that the vought tradename had a fair value of $ 195.8 million ( level 3 ) compared to a carrying value of $ 425.0 million . accordingly , we recorded a non-cash impairment charge during the quarter ended december 31 , 2015 , of $ 229.2 million , which is presented on the accompanying consolidated statements of operations as `` impairment of intangible assets '' . the decline in fair value compared to carrying value of the vought tradename is the result of declining revenues from production rate reductions and the slower than previously projected ramp in bombardier global 7000/8000 and the timing of associated earnings . during the fourth quarter of the fiscal year ended march 31 , 2016 , we performed our annual assessment of fair value on our indefinite-lived intangible assets . we estimated the fair value of the tradenames using the relief-from-royalty method , which uses several significant assumptions , including revenue projections that consider historical and estimated future results , general economic and market conditions , as well as the impact of planned business and operational strategies . the following estimates and assumptions were also used in the relief-from-royalty method : royalty rates between 2 % and 4 % based on market observed royalty rates and profit split analysis ; and discount rate of 14 % based on the required rate of return for the tradename assets , which increased from our interim assessment driven by increased risk due to continued declines in stock price and related market multiples for stock price to ebitda of both the company and our peer group and increased interest rates . based on our evaluation of indefinite-lived assets , including the tradenames , we concluded that the vought and embee tradenames had a fair value of $ 163.0 million ( level 3 ) compared to a carrying value of $ 209.2 million . the decline in fair value compared to carrying value of the tradenames is the result of the increase in discount rate during the fourth quarter , which required the company to assess whether events and or circumstances have changed regarding the indefinite-life conclusion . accordingly , we revalued both the tradenames as if these intangible assets were no longer indefinite and recorded a non-cash impairment charge during the fiscal year ended march 31 , 2016 , of $ 46.2 million , which is presented on the accompanying consolidated statements of operations as `` impairment of intangible assets '' . additionally , we determined that the tradenames will be amortized over their remaining estimated useful life of 20 years . 24 in the event of significant loss of revenues and related earnings associated with the vought and embee tradenames , further impairment charges may be required , which would adversely affect our operating results . the collective bargaining agreement with our union employees with iam district 751 at our spokane , washington facility has expired . as of may 11 , 2016 , the workforce in spokane of approximately 400 employees has elected to strike . while we are currently in negotiations with the workforce , we have implemented plans to continue production in spokane with support from other locations . our union employees with uaw local 848 at our red oak , texas facility and uaw local 952 at our tulsa , oklahoma facility are currently working without a contract . if we are unable to negotiate a contract with each of those workforces , our operations may be disrupted and we may be prevented from completing production and delivery of products from those facilities , which would negatively impact our results . contingency plans have been developed that would allow production to continue in the event of an additional strike . effective december 30 , 2014 , a wholly-owned subsidiary of the company , triumph aerostructures-tulsa llc , doing business as triumph aerostructures-vought aircraft division-tulsa , completed the acquisition of the gulfstream g650 and g280 wing programs ( the `` tulsa programs '' ) located in tulsa , oklahoma , from spirit aerosystems , inc. the acquisition of the tulsa programs establishes the company as a leader in fully integrated wing design , engineering and production and advances its standing as a strategic tier one capable aerostructures supplier . the acquired business operates as triumph aerostructures-vought aircraft division-tulsa and its results are included in the aerostructures group from the date of acquisition .
| we have outlined below the type and scope of these exclusions and the material limitations on the use of these non-gaap financial measures as a result of these exclusions . adjusted ebitda is not a measurement of financial performance under gaap and should not be considered as a measure of liquidity , as an alternative to net ( loss ) income , ( loss ) income from continuing operations , or as an indicator of any other measure of performance derived in accordance with gaap . investors and potential investors in our securities should not rely on adjusted ebitda as a substitute for any gaap financial measure , including net ( loss ) income or ( loss ) income from 25 continuing operations . in addition , we urge investors and potential investors in our securities to carefully review the reconciliation of adjusted ebitda to ( loss ) income from continuing operations set forth below , in our earnings releases and in other filings with the sec and to carefully review the gaap financial information included as part of our quarterly reports on form 10-q and our annual reports on form 10-k that are filed with the sec , as well as our quarterly earnings releases , and compare the gaap financial information with our adjusted ebitda . adjusted ebitda is used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that , when viewed with our gaap results and the accompanying reconciliation , we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business . we have spent more than 20 years expanding our product and service capabilities partially through acquisitions of complementary businesses . due to the expansion of our operations , which included acquisitions , our ( loss ) income from continuing operations has included significant charges for depreciation and amortization . adjusted ebitda excludes these charges and provides meaningful information about the operating performance of our business , apart from charges for depreciation and amortization .
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please refer to the `` forward-looking statements '' section above and part i , item 1a “ risk factors ” of this annual report on form 10-k for additional information regarding the potential impacts of covid-19 on our business . 29 other cyclical and seasonal trends impacting our business the industries in which we operate are cyclical in nature . weaknesses in certain sectors of the north american and global economy may make it more difficult to sell or lease certain types of railcars . additionally , adverse changes in commodity prices , including continued depressed prices in the crude oil market , or lower demand for certain commodities , could result in a decline in customer demand for various types of railcars . as noted previously , declines in crude oil prices and production have left the frac sand industry financially vulnerable . we continuously assess demand for our products and services and take steps to rationalize and diversify our leased railcar portfolio and align our manufacturing capacity appropriately . we diligently evaluate the creditworthiness of our customers and monitor performance of relevant market sectors , including the crude oil and frac sand markets ; however , additional weaknesses in any of these market sectors could affect the financial viability of our underlying leasing group customers , which could continue to negatively impact our recurring leasing revenues and operating profits . additionally , current economic conditions within the industries in which our customers operate have resulted in reduced demand for railcars . these factors , combined with declining railcar loading volumes and a growing supply of underutilized railcar assets in north america , are pressuring railcar lease rates and utilization , as well as orders for new railcar equipment . while we currently expect this trend to continue in the near term , we believe that our integrated rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle . due to their transactional nature , railcar sales from the lease fleet are the primary driver of fluctuations in results in the leasing group . results in our all other group are affected by seasonal fluctuations , with the second and third quarters historically being the quarters with the highest revenues . asset impairments and restructuring activities as described above , we recorded an impairment of long-lived assets of $ 396.4 million during the year ended december 31 , 2020 , primarily related to our small cube covered hopper railcars , the planned divestiture of certain non-strategic maintenance facilities , and our investments in certain emerging technologies . see note 11 of the consolidated financial statements for more information , including a description of the key assumptions and other significant management judgments utilized in the impairment analysis . during the year ended december 31 , 2020 , and in connection with our continued assessment of future needs to support our go-forward business strategy , we recognized restructuring charges of approximately $ 11.0 million , consisting of $ 7.8 million for severance costs , $ 5.3 million of non-cash charges primarily from the write-down of our corporate headquarters campus and certain other assets , and $ 0.6 million in contract termination costs , partially offset by a $ 2.7 million net gain on the disposition of a non-operating facility and certain related assets . we expect to identify additional streamlining and cost savings opportunities in the near term . 30 story_separator_special_tag style= '' margin-bottom:6pt ; text-indent:9pt '' > operating profit ( loss ) by segment for the years ended december 31 , 2020 and 2019 was as follows : replace_table_token_7_th discussion of consolidated results revenues – our revenues for the year ended december 31 , 2020 were $ 1,999.4 million , representing a decrease of $ 1,005.7 million , or 33.5 % , over the prior year , primarily related to lower deliveries in the rail products group and fewer railcars sold from our lease fleet . cost of revenues – our cost of revenues for the year ended december 31 , 2020 were $ 1,508.4 million , representing a decrease of $ 857.3 million , or 36.2 % , over the prior year , primarily due to lower deliveries in the rail products group and a lower volume of railcars sales in the leasing group . selling , engineering , and administrative expenses – selling , engineering , and administrative expenses decreased by 13.1 % for the year ended december 31 , 2020 , when compared to the prior year , primarily due to lower employee-related costs , including headcount reductions and adjustments to incentive-based compensation , and lower litigation-related expenses . impairment of long-lived assets – impairment of long-lived assets for the year ended december 31 , 2020 were $ 396.4 million , primarily related to our small cube covered hopper railcars , the planned divestiture of certain non-strategic maintenance facilities , and investments in certain emerging technologies . see note 11 of the consolidated financial statements for more information . we had no impairment of long-lived assets during the year ended december 31 , 2019 . 35 restructuring activities , net – our restructuring activities for the year ended december 31 , 2020 totaled $ 11.0 million , primarily as a result of employee transition costs , asset write-downs related to our corporate headquarters facility and certain other assets , and contract termination costs , partially offset by a net gain on the disposition of a non-operating facility and certain related assets . our restructuring activities for the year ended december 31 , 2019 totaled $ 14.7 million , primarily as a result of write-downs related to underutilized assets in our manufacturing footprint and employee transition costs . story_separator_special_tag operating profit ( loss ) – operating loss for the year ended december 31 , 2020 totaled $ 124.5 million , representing a decrease of 129.9 % , compared to an operating profit of $ 416.3 million from the prior year , primarily from the impairment of long-lived assets , lower deliveries in the rail products group , and a lower volume of railcar sales in the leasing group , partially offset by lower selling , engineering , and administrative expenses . for further information regarding the operating results of individual segments , see `` segment discussion '' below . interest expense , net – interest expense , net for the year ended december 31 , 2020 totaled $ 216.0 million , compared to $ 214.5 million for the year ended december 31 , 2019 , primarily driven by higher debt obligations in the leasing group in connection with the company 's efforts to optimize its capital structure , as well as a $ 4.7 million early redemption premium associated with the redemption of trl v 's debt , partially offset by lower variable interest rates associated with tilc 's warehouse loan facility and our revolving credit facility . pension plan settlement – pension plan settlement charges associated with the termination of our pension plan totaled $ 151.5 million for the year ended december 31 , 2020. see note 10 of the consolidated financial statements for further information . income taxes – our effective tax rate was a benefit of 54.3 % for the year ended december 31 , 2020 , which differed from the u.s. statutory rate of 21.0 % primarily due to the impact of the coronavirus aid , relief , and economic security act ( the `` cares act '' ) , partially offset by the portion of the non-cash small cube covered hopper railcar impairment charge that is not tax-effected because it is related to the noncontrolling interest . our effective tax expense rate for the year ended december 31 , 2019 was 30.6 % . this differed from the u.s. statutory rate of 21.0 % for the year ended december 31 , 2019 primarily due to the impacts of state income tax expense , foreign branch taxes , and changes in state tax laws and apportionment . on march 27 , 2020 , the cares act was enacted . the cares act was a stimulus package and part of a series of bills meant to address the economic uncertainties associated with covid-19 . due to the enactment of the cares act , trinity filed a carryback claim for the 2018 and 2019 tax losses to the 2013-2015 tax years , allowing us to recover taxes that were previously paid . the income taxes associated with the carryback claims were paid at a federal rate of 35.0 % , rather than the current rate of 21.0 % in effect beginning with the 2018 tax year . the net deferred tax liability was remeasured and a federal income tax receivable was set up to account for the net operating losses permitted to be carried back under the cares act , resulting in a tax benefit of $ 180.4 million for the year ended december 31 , 2020. accordingly , the effective tax benefit rate for the year ended december 31 , 2020 includes a benefit of 36.5 % due to the cares act . income tax refunds received , net of payments , differ from the current provision primarily based on when estimated tax payments were due as compared to when the related income was earned and taxable . our income tax receivable from federal , state , and foreign jurisdictions was $ 445.8 million and $ 14.7 million at december 31 , 2020 and 2019 , respectively . income tax refunds received , net of payments , during the years ended december 31 , 2020 and 2019 totaled $ 62.5 million and $ 16.7 million , respectively . 36 segment discussion railcar leasing and management services group replace_table_token_8_th ( 1 ) includes revenues associated with sales-type leases of $ 160.5 million for the year ended december 31 , 2019 . ( 2 ) beginning in the fourth quarter of 2020 , we made a prospective change in the presentation of sales of railcars from the lease fleet . see note 1 of the consolidated financial statements for more information . ( 3 ) operating profit includes : depreciation ; maintenance and compliance ; rent ; and selling , engineering , and administrative expenses . amortization of deferred profit on railcars sold from the rail products group to the leasing group is included in the operating profits of the leasing group , resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars . interest expense is not a component of operating profit and includes the effect of hedges . ( 4 ) effective january 1 , 2020 , we revised the estimated useful lives and salvage values of certain railcar types in our lease fleet . this change in estimate resulted in a decrease in depreciation expense in the year ended december 31 , 2020 of approximately $ 30.8 million . this decrease was partially offset by higher depreciation associated with growth in the lease fleet . see note 1 of the consolidated financial statements for further information . ( 5 ) as a result of the impairment of long-lived assets related to our small cube covered hopper railcars recorded in the second quarter of 2020 , our quarterly depreciation expense beginning in the third quarter of 2020 has decreased by approximately $ 3.5 million , for a total reduction of $ 7.0 million for the year ended december 31 , 2020. total revenues for the railcar leasing and management services group decreased by 28.2 % for the year ended december 31 , 2020 , compared to prior year . revenues related to sales of leased railcars owned one year or less decreased primarily due to a lower volume of railcars sold from the fleet .
| % ( 1 ) , respectively , for the year ended december 31 , 2019. for the year ended december 31 , 2020 , we generated operating cash flows from continuing operations and total free cash flow after investments and dividends ( `` free cash flow '' ) of $ 651.8 million and $ 112.8 million ( 1 ) , respectively , in comparison to $ 396.7 million and $ 144.8 million ( 1 ) , respectively , for the year ended december 31 , 2019 . ( 1 ) non-gaap financial measure . see the non-gaap financial measures section within this form 10-k for a reconciliation to the most directly comparable gaap measure and why management believes this measure is useful to management and investors . see `` consolidated results of operations '' and `` segment discussion '' below for additional information regarding our operating results for the year ended december 31 , 2020. see part ii , item 7 of our 2019 annual report on form 10-k for a discussion of our results of operations and liquidity and capital resources as of and for the year ended december 31 , 2019 , including a comparison to the year ended december 31 , 2018 . 31 long-term enterprise key performance indicators our key performance indicators for long-term performance are operating and free cash flow * growth , pre-tax roe * , dividend growth , and book value per share growth . we believe when evaluated over time , these indicators collectively drive long-term sustainable value creation and measure the effectiveness of our value proposition for stockholders . * non-gaap financial measure . see the non-gaap financial measures section within this form 10-k for a reconciliation to the most directly comparable gaap measure and why management believes this measure is useful to management and investors . ( 1 ) dividend yield is calculated as annual dividends paid per share divided by the closing stock price on the last trading day of each respective year . ( 2 ) book value per share is calculated as total stockholders ' equity
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during fiscal year 2015 , however , the share price of central significantly declined from aud $ .32 to aud $ .14 per share , coinciding with the significant drop in commodity prices and the prices of shares of other companies operating in the energy sector over the same period . during fiscal 2015 , central acquired 50 % of the mereenie field in australia and based on the potential development of a pipeline to connect the northern territory and new south wales gas pipeline networks , central may benefit from the higher priced gas markets of eastern australia and unlock significant reserves . as a result of the company 's currently constrained liquidity position , we currently consider the shares of central as a source of liquidity to finance the operations of the company . the reduction in commodity prices has negatively affected our efforts to farmout our interests in nt/p82 , a block offshore in the bonaparte basin , australia . in july 2015 , we engaged a financial adviser to assist in obtaining a farmout during fiscal year 2016 . 38 following the sale of the company 's assets onshore australia during fiscal year 2014 , the subsequent closing of our office in brisbane , australia , and various cost reductions other efforts at the corporate level , magellan now has limited indebtedness , cost commitments , and contingent liabilities . the cash general and administrative expenses for fiscal year ended june 30 , 2015 , amounted to approximately $ 7.1 million , and we estimate that excluding certain transaction related expenses , the company 's cash general and administrative expense level could be approximately $ 5.5 million for the upcoming twelve month period . we believe that the public status of the company carries intrinsic value for shareholders and in the context of the strategic alternative review process . significant developments in fiscal year 2015 during fiscal year 2015 , the company achieved a number of key milestones in the strategy of creating value from our existing assets . progress on key projects poplar co 2 -eor pilot project . during fiscal year 2015 , the company continued to monitor , collect data , and develop the five-well co 2 -eor pilot program at poplar that began in fiscal year 2014 . in may 2015 , the company determined that co 2- eor is a technically viable technique for recovery of hydrocarbons from the charles formation at poplar . based on the results of the co 2 -eor pilot project to date and our analysis of the data from the pilot as integrated into our reservoir simulation model , we believe that utilization of the co 2 -eor technique on a full field basis at poplar could provide access to substantial additional hydrocarbon resources that could result in attractive financial returns from production over a 40 year period . the co 2 -eor pilot project consisted of drilling four producer wells and one co 2 injection well to a total depth of approximately 5,800 feet , completing the wells in the b-2 zone of the charles formation , performing water shut-off treatments in all five wells , and installing the necessary surface facilities and co 2 injection equipment . in august 2014 , the company commenced the continuous injection of volumes of co 2 into the b-2 zone of the charles formation through the injector well , epu 202-iw . in early october 2014 , the company opened for production the four producer wells . initial production from these wells was mainly water with negligible traces of oil . in early january 2015 , two of the four pilot producer wells began to exhibit oil production with improving oil cuts . since then , oil production has increased in three of the four producer wells in response to co 2 injection , with a peak oil production rate of approximately 50 bopd . in june 2015 , the company stopped injecting co 2 and started injecting water , pursuant to a water alternating gas process ( the “ wag ” process ) . the purpose of a wag process is to optimize the sweep efficiency of the co 2 by reducing the total volume of co 2 required to mobilize the oil that remains in the reservoir . throughout the year , all data gathered by the company from the pilot has been continuously integrated into the company 's reservoir simulation model and reviewed by third party consultants . based on the reservoir simulation model , the company then created a potential development plan for the charles formation of poplar using co 2 -eor , which forms the basis of the company 's estimate of substantial additional hydrocarbons that may be produced from co 2 -eor . the development plan details the various phases of drilling activity , including the number of production and injection wells necessary , the amount of co 2 required to “ sweep ” the charles formation and the estimated resulting oil production over approximately a forty year period . the results of the reservoir simulation model also suggest that the utilization rate of co 2 , which represents the amount of co 2 required to recover volumes of oil from poplar on a unit basis , and which represents the sweep efficiency of the co 2 -eor technique , is in line with several other projects to which co 2 -eor technique has been applied . in addition , during fiscal 2015 , the company evaluated the availability , feasibility and costs of certain key aspects of the potential development plan of poplar using co 2 -eor , including the sources of co 2 which could be available to the project within a reasonable distance , the pipeline to transport the co 2 from its potential sources to poplar , and the surface facilities and their ancillary requirements , and integrated this information in the development plan of poplar . story_separator_special_tag as regards to sources of co 2 , we identified two potential suppliers and initiated discussions with each , and believe that a long term , reliable source of co 2 at a reasonable price could be available to the company . the company then integrated all the information available to analyze the potential development plan for poplar using co 2 -eor and concluded that the development of poplar using co 2 -eor will require significant capital to invest , the amount of which we estimate at several hundreds of millions of dollars and that the economic viability will depend on a recovery of oil prices . considering that the development of poplar is expected to span over several decades and the incremental volume of oil potentially recoverable from poplar using co 2 -eor , we believe that this asset should be attractive to potential investors that would have a long term view of the oil industry and commodity prices . also considering the significant capital requirement of the potential development plan of poplar and in light of the current capitalization of the company , we believe that a significant partner is needed to support the development of this project both financially and operationally , which led the company to initiate the strategic alternative review process in june , 2015. utah co2 . during fiscal 2015 , magellan formed utah co2 a majority owned subsidiary focused on the acquisition of sources of co 2 in utah and identification of potential candidate fields for co 2 eor projects . on december 1 , 2014 , magellan , 39 through utah co2 , entered into an option agreement ( the `` utah co2 option agreement '' ) to either i ) acquire a large co 2 reservoir called farnham dome located in carbon county , utah or ii ) enter into an agreement to purchase uncontracted co 2 volumes at a fixed price ( the “ co 2 purchase agreement ” ) . in may 2015 , utah co2 elected to exercise the right to enter into the co2 purchase agreement , the key terms of which are to be consistent with the terms detailed in the option agreement , which included a fifty year term , an attractive co 2 price per mcf , the exclusive access to co 2 volumes recoverable from farnham dome for co 2 -eor projects in utah , and no co 2 purchase obligations for the first three years . based on our preliminary analysis , several oil fields located within approximately a 100 mile radius of farnham dome could be attractive candidates to become co 2 -eor projects . considering that long term , cost competitive access to co 2 is a critical component to enable the development of oil fields using the co 2 -eor technique , the co 2 purchase agreement , if finalized and executed , is expected to provide utah co2 with exposure to and an investment opportunity with several potential co 2 -eor projects in utah . we believe that the investment in this new venture is complementary to the poplar asset , and since no co 2 purchase obligations are expected to be required for at least three years under the terms of the co 2 purchase agreement , utah co2 is expected to provide a cost effective way to grow the company 's activities in co 2 -eor . uk - horse hill . magellan currently maintains non-operating interests in pedls 137 and 246 , representing approximately 12 thousand net acres , that may be prospective for conventional oil and gas targets . pedls 137 and 246 cover the horse hill structure . magellan is encouraged by the technical analysis performed on the horse hill prospect by its partner , hhdl , a 65 % interest owner of the horse hill-1 well ( `` hh-1 '' ) and ukog , which through its direct and indirect investments controls approximately 20.4 % of hh-1 . hh-1 , spud in august 2014 , confirmed that the upper jurassic section is thermally mature ( i.e. , in the oil window ) and contains two thick limestone intervals that may act as conventional reservoirs for a significant oil play in the weald basin . this confirmation suggests that the upper jurassic throughout the greater weald basin is also thermally mature , and therefore serves as an important data point in evaluating the potential of the company 's central weald licenses . hh-1 is expected to be put on a production test from the portland sandstone section in the first half of fiscal year 2016 , pending regulatory approvals . pursuant to a farmout agreement executed in december 2013 , magellan owns a 35 % working interest in the hh-1 well and is being carried for its share of well costs through testing and completion . uk - central weald basin licenses story_separator_special_tag which encumbers potential sale or farmout process of some of our uk assets . co 2 -eor pilot project during fiscal year 2016 , the company intends to continue collecting data from the co 2 -eor pilot and refine its technical evaluation , and seek a partner to enable the development of poplar using co 2 -eor technique . based on the data collected from , and the initial results of the company 's evaluation of the co 2 -eor pilot , we have been able to conclude that co 2 -eor is a technically effective technique at poplar to recover incremental volumes of oil . the company now intends to focus its efforts on refining its evaluation . in june 2015 , the company stopped injecting co 2 and started injecting water , pursuant to a wag process . the purpose of a wag process is to optimize the sweep efficiency of the co 2 by reducing the total volume of co 2 required to mobilize the oil that remains in the reservoir .
| by selling the license and the wellbore , the company eliminated approximately $ 346 thousand of asset retirement obligations related to mw-1 . following the sale of its interest in pedl 126 , the company continues to hold a 23 % interest in pedl 1916 , located offshore southern uk , near the isle of wight . australia nt/p82 . during the fiscal year 2015 , the company sought a suitable farmout partner experienced in offshore drilling to drill and carry magellan for the work commitment obligation in exchange for a portion of its working interest and operatorship of the nt/p82 exploration block in the bonaparte basin . however , the company was unable to complete a farmout agreement during the year . in june 2015 , the national offshore petroleum titles administrator ( “ nopta ” ) approved the variation of the minimum work requirements to be conducted by may 12 , 2016 from the drilling of a well in the block to a 600 km 2 3-d seismic program . nopta also advised that a suspension and extension of the work requirement for the permit year ending may 12 , 2015 , and a potential delay of the 3-d seismic program to be conducted during the permit year ending may 12 , 2016 , may be considered . this variation is expected to allow the company greater flexibility in obtaining partner ( s ) and executing a farmout of this exploration block . outlook for fiscal year 2016 2016 will be a year of transition and transformation for magellan . over the past four years , we have focused our efforts on establishing the potential value of poplar , by demonstrating the technical viability of recovering incremental volumes of oil 40 using the co 2 -eor technique . although continuing the co 2 -eor pilot could further refine our technical evaluation of the project , we believe that considering i ) we estimate that the development of poplar on a full field
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we are implementing a corporate center of excellence for supply chain management , through which we will transition our supply chain efforts from being run by our individual operating companies to being managed on a corporation-wide basis , in order to leverage efficiencies , savings opportunities , and relationships with vendors . one key aspect of this strategy is the establishment of a global trading company in asia , through which we expect to gain procurement , logistics , and quality control benefits . we expect to realize the benefits of optimizing our supply chain in future years as we execute this multi-year project . our reportable operating segments are the upholstery segment , the casegoods segment and the retail segment . upholstery segment . our upholstery segment is our largest business and mainly consists of two operating units : la-z-boy , our largest operating unit , and our england subsidiary . our upholstery segment manufactures , imports , and exports upholstered furniture such as recliners and motion furniture , sofas , loveseats , chairs , sectionals , modulars , ottomans and sleeper sofas . the upholstery segment sells directly to la-z-boy furniture galleries® stores , operators of comfort studio® and england custom comfort center locations , major dealers and other independent retailers . casegoods segment . our casegoods segment is an importer , marketer and distributor of casegoods ( wood ) furniture such as bedroom sets , dining room sets , entertainment centers and occasional pieces , and also manufactures some coordinated upholstered furniture . the casegoods segment consists of three brands : american drew , hammary , and kincaid . the casegoods segment sells primarily to major dealers , as well as la-z-boy furniture galleries® stores , along with a wide cross-section of other independent retailers . retail segment . our retail segment consists of 110 company-owned la-z-boy furniture galleries® stores . the retail segment primarily sells upholstered furniture , in addition to some casegoods and other accessories , to the end consumer through our retail network . 24 significant operational events in fiscal 2015 during fiscal 2015 , we increased sales by $ 68.1 million , or 5.0 % , increased operating income by $ 13.9 million , or 15.5 % , and generated $ 86.8 million in cash from operating activities . we returned value to shareholders during the year through $ 51.9 million of share purchases and $ 14.5 million of dividend payments , and we continued to invest in our business , including technology improvements to our erp system and our website and e-commerce platform . in addition , we invested $ 70.3 million in capital spending , which includes spending to complete construction of our new world headquarters , and paid down debt of $ 7.6 million during the year . as part of our 4-4-5 initiative , during fiscal 2015 we opened eight stores and closed four stores in our company-owned retail segment . additionally , we acquired five stores from independent la-z-boy furniture galleries® dealers during the year , bringing our total company-owned la-z-boy furniture galleries® store count to 110 at the end of fiscal 2015 , compared to 101 at the end of fiscal 2014. we also moved into our new world headquarters during the fourth quarter of fiscal 2015. also during fiscal 2015 , we executed our plan to restructure our casegoods business , including transitioning to an all-import model for our wood furniture . as a result of this restructuring , we ceased casegoods manufacturing at our hudson , north carolina facility during the second quarter of fiscal 2015 , and we transitioned our remaining kincaid and american drew bedroom product lines to imported product and exited the hospitality business as we manufactured those products in our hudson facility . we have completed the consolidation of our casegoods showrooms and will complete the consolidation of our casegoods corporate offices in fiscal 2016. we transitioned our warehouse and repair functions from two north wilkesboro , north carolina facilities to hudson . we sold both of our north wilkesboro facilities and most of the wood-working equipment from our hudson plant during fiscal 2015. we marketed for sale our youth furniture business , lea industries , in connection with the restructuring , as it did not align with our long-term strategic objectives . we were unable to find a buyer for our lea industries business , and instead we liquidated all the assets , consisting mostly of inventory , and ceased operations of lea industries during fiscal 2015. these items are all discussed in more detail throughout this management 's discussion and analysis . story_separator_special_tag an unfavorable impact on our sales volume during fiscal 2015 compared to fiscal 2014. our product mix in fiscal 2015 included a shift to more recliners and stationary units , including a shift from motion sofas to stationary sofas and occasional chairs , as well as a shift to more fabric units and fewer leather units . motion sofas and leather units have a higher average selling price compared to stationary units and fabric units . this was a change from the prior year , when product mix had a favorable impact on sales in fiscal 2014 compared to fiscal 2013. our product mix in fiscal 2014 included a higher number of recliners and more powered motion units as compared to fiscal 2013. powered motion units have higher average selling prices than motion units without power . operating margin our upholstery segment 's operating margin was 10.5 % in fiscal 2015 , a decrease of 0.2 percentage point compared to fiscal 2014. the segment 's operating margin was 10.7 % in fiscal 2014 , an increase of 1.4 percentage point over fiscal 2013. the segment 's gross margin increased 0.3 percentage point during fiscal 2015 compared to fiscal 2014 , following a 1.4 percentage point increase in fiscal 2014 as compared to fiscal 2013. the increase in our gross margin rate in fiscal 2015 was due to several factors . story_separator_special_tag higher unit volume and selling prices , as well as operational efficiencies in our supply chain , together provided a 1.1 percentage point benefit to the segment 's gross margin . in addition , a legal settlement in fiscal 2015 provided a 0.5 percentage point improvement in the gross margin rate . partly offsetting these items were raw material cost increases of 0.8 percentage point , as well as inefficiencies in our manufacturing operations of 0.9 percentage point , partly caused by the ongoing implementation of our erp system . the improvement in our gross margin rate in fiscal 2014 was due to a combination of factors . higher unit volume , selling price , product mix changes , and operational efficiencies amounted to a 2.1 percentage point benefit . these items more than offset the impact of raw material cost increases of 0.8 percentage point . the segment 's sg & a expense as a percentage of sales increased 0.5 percentage point during fiscal 2015 compared to fiscal 2014 , after remaining flat in fiscal 2014 compared to fiscal 2013 . 27 the increase in sg & a expense as a percentage of sales in fiscal 2015 was mainly a result of spending for investment in our business . the investments include higher costs for technology improvements , including our erp system and our website and e-commerce platform of 0.4 percentage point . partly offsetting this increased investment spending was lower incentive compensation costs during fiscal 2015. sg & a expenses as a percentage of sales were flat in fiscal 2014 compared to fiscal 2013. our sales increase in fiscal 2014 led to improved absorption of fixed costs , and we reduced the provision for doubtful accounts by $ 3.8 million , or 0.4 percentage point , due to the improvement in the financial condition of our customer base , especially our independent la-z-boy furniture galleries® dealers . partly offsetting these items were incentive compensation costs that increased 0.2 percentage point during fiscal 2014. casegoods segment replace_table_token_13_th sales our casegoods segment 's sales increased $ 3.0 million in fiscal 2015 over fiscal 2014 , after declining $ 5.8 million in fiscal 2014 compared to fiscal 2013. increased unit volume for our three continuing brands , american drew , hammary , and kincaid , drove a 2.8 % increase in sales in fiscal 2015 compared to fiscal 2014. we believe the increased unit volume in fiscal 2015 was a result of new collections we introduced as part of our product refresh program , through which we are shifting our product styling to more transitional and casual styles to appeal to a wider consumer base , as well as continued strength in our occasional business . partly offsetting the increased sales volume was the impact of higher promotional activity , as we reduced our mix of traditional product through the product refresh program . in addition , we had $ 1.9 million lower sales of hospitality product in fiscal 2015 compared to fiscal 2014 , because our hospitality product line was eliminated in fiscal 2015 when we ceased domestic production of our wood furniture . decreased unit volume in fiscal 2014 compared to fiscal 2013 drove the majority of the 5.1 % decrease in sales . we believe our product line in fiscal 2014 did not adequately reflect a shift in consumer preference from formal and traditional product styling to more transitional and casual styles . operating margin our casegoods segment 's operating margin was 5.8 % in fiscal 2015 , an increase of 2.6 percentage points over fiscal 2014. the segment 's operating margin was 3.2 % in fiscal 2014 , a decrease of 0.1 percentage point as compared to fiscal 2013. the segment 's gross margin increased 2.5 percentage points during fiscal 2015 compared to fiscal 2014 , primarily due to a $ 2.1 million reduction in our lifo reserve associated with a portion of our domestically manufactured inventory which was liquidated in fiscal 2015. we ceased manufacturing product domestically during fiscal 2015 , and we reduced our lifo reserve since the stream of domestically manufactured inventory will not be replaced . the remainder of the improvement in 28 gross margin was due to the transition to an all-import model for our wood furniture and the higher margin we receive on imported product . the segment 's sg & a expense as a percentage of sales decreased 0.1 percentage point during fiscal 2015 compared to fiscal 2014 , mainly due to improved leverage of fixed sg & a costs resulting from the higher sales volume . this decrease was somewhat offset by higher incentive compensation costs due to the segment 's improved financial performance . the 0.1 percentage point decrease in operating margin in fiscal 2014 compared to fiscal 2013 was driven by the decline in sales and our inability to absorb fixed manufacturing costs quickly within the segment . retail segment replace_table_token_14_th sales our retail segment 's sales increased $ 35.3 million in fiscal 2015 over fiscal 2014 , and increased $ 33.9 million in fiscal 2014 over fiscal 2013. in fiscal 2015 , we were able to convert lower traffic into an increase in ticket count and units per ticket , which resulted in a 3.0 % sales increase for our active stores that have been open for a minimum of 12 months . in addition , sales were higher in fiscal 2015 compared to the prior year due to the sales volume of our new and acquired stores , our live life comfortably marketing campaign , the strength of our stationary product introductions and our improved product value and styling . in fiscal 2014 , we experienced flat traffic compared to the prior year but were able to increase our average ticket sales , which resulted in a 6.0 % sales increase for our active stores that had been open for a minimum of 12 months .
| operating margin our operating margin was 7.2 % in fiscal 2015 , an increase of 0.6 percentage point over fiscal 2014. our operating margin was 6.6 % in fiscal 2014 , an increase of 1.3 percentage point over fiscal 2013. our gross margin improved 1.2 percentage point during fiscal 2015 compared to fiscal 2014 , following a 1.5 percentage point increase in fiscal 2014 as compared to fiscal 2013. the improvement in our gross margin in both years was driven by higher unit volume and selling prices , partly offset by raw material cost increases in both fiscal 2015 and fiscal 2014. the higher weighting of sales in our retail segment , which carry a higher gross margin than our wholesale segments , positively impacted our gross margin during both fiscal 2015 and fiscal 2014. the transition to an all-import model in our casegoods segment for our wood furniture provided a benefit to the gross margin rate during fiscal 2015. additionally , our gross margin was positively impacted by a reduction to our lifo reserves . our selling , general , and administrative ( `` sg & a '' ) expense as a percentage of sales increased 0.6 percentage point during fiscal 2015 compared to fiscal 2014 , following a 0.2 percentage point increase in fiscal 2014 as compared to fiscal 2013. the increase in sg & a expense as a percentage of sales in fiscal 2015 was primarily due to spending for investment in our business . technology improvements to our erp system and replacement of our website and e-commerce platform resulted in a 0.3 percentage point increase during fiscal 2015. distribution costs , primarily from expanding our regional distribution centers network , resulted in a 0.3 percentage point increase during fiscal 2015. additionally , the growth of our retail segment , which has a higher level of sg & a expense as a percent of sales than our wholesale segments , also contributed to the increase in sg & a expense . these items were offset by lower incentive compensation costs of 0.5 percentage point during the fiscal year because our fiscal 2014 results were stronger against our incentive-based targets than our fiscal 2015 results . the increase in sg & a expense as a percentage of sales in fiscal 2014 was mainly due to higher advertising costs of 0.2 percentage point , primarily due to increased spending related to our live life comfortably marketing campaign , and higher incentive compensation costs of 0.2 percentage point . the main drivers of the increase in incentive compensation costs during fiscal 2014 were the improvement in our consolidated financial performance and the increase
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we have addressed , and will continue to address , these market pressures by modifying our diagnostic services business models , and by assisting our healthcare customers in complying with new regulations and requirements . in our star building & construction division , we continue to see a greater adoption of offsite or prefab construction in single-family and multi-family residential building projects , our target market . our modular units and structural wall panels offer builders a number of benefits over traditional onsite or “ stick built ” construction . these include shorter time to market , higher quality , reduced waste , readily available labor and potential cost savings , among others . 3d bim software modeling and developments in engineered wood products offers greater design flexibility for higher-end applications . the need for more affordable housing solutions also presents a great opportunity for the continued emergence of factory built housing . covid-19 pandemic on march 11 , 2020 , the world health organization declared the outbreak of a novel strain of coronavirus , covid-19 , a global pandemic , which continues to spread throughout the united states and around the world . governmental authorities in the states in which we operate issued social distancing orders , which orders have required businesses in subject jurisdictions to cease non-essential operations at physical locations in those locations , unless exempted , rescinded , or amended . accordingly , to comply with applicable regulations and to safeguard the health and safety of our employees and customers , we have temporarily modified our business operations . during the twelve months ended december 31 , 2020 , we experienced an $ 12.4 million decrease in the digirad health revenue compared to 2019 related to a decrease in our diagnostic services due to the covid-19 pandemic . the decrease was offset by a $ 17.6 million increase respectively , in building and construction revenue , as compared to the same period of the prior year . as the covid-19 pandemic affected the results of segments of our business during the twelve months ended december 31 , 2020 , we took steps to contain the impact of the covid-19 pandemic on our business . on april 1 , 2020 , we announced that in response to the covid-19 pandemic , matthew g. molchan , our then president and chief executive officer , david j. noble , our chief financial officer and chief operating officer , and martin b. shirley , the president of our diagnostic imaging solutions inc. subsidiary , had each agreed to have their base salaries reduced by 20 % . these reductions were effective as of april 6 , 2020 , and remained in effect until may 15 , 2020. on april 1 , 2020 , we also announced that in response to the covid-19 pandemic , we planned to furlough certain employees and that we would institute a 20 % salary reduction for most of our salaried employees and reduce the number of working hours of most of our hourly employees by 20 % . these reductions , which applied to our digirad health division , were effective as of april 6 , 2020 , and remained in effect until may 15 , 2020. throughout the covid-19 pandemic , our building and construction division has furloughed employees or reduced employee hours based on fluctuations in demand for our products . in september , 2020 , kbs brought back furloughed employees and increased its work force by over 20 % to meet the higher manufacturing requirements for two commercial projects as well as the future growth we expect . this partial disruption , although expected to be temporary , may impact our operations and overall business . the impact of covid-19 is evolving rapidly and its future effects are uncertain . given the uncertainty caused by the covid-19 pandemic , the duration of the disruption and related financial impact can not be reasonably estimated at this time . as a result of the evolving impact of covid-19 on the economy , on april 7 , 2020 , we withdrew our 2020 full-year guidance . at star equity , our highest priority remains the safety , health and well-being of our employees , their families and our communities and we remain committed to serving the needs of our customers . the covid-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results . we will continue to evaluate the impact of the covid-19 pandemic on our business as we learn more and the impact of covid-19 on our industry becomes clearer . 35 discontinued operations on october 30 , 2020 , we entered into the dms purchase agreement for the dms sale transaction . the purchase price for the dms sale transaction is $ 18.75 million in cash , subject to certain adjustments , including a working capital adjustment . we deem the contemplated disposition of the mobile healthcare business unit to represent a strategic shift that will have a major effect on our operations and financial results . as of december 31 , 2020 , in accordance with the provisions of fasb authoritative guidance , the mobile healthcare business met the criteria to be classified as held for sale . this segment is reported on the consolidated statement of operations as discontinued operations and on the consolidated balance sheet as assets and liabilities held for sale . prior to december 31 , 2020 we operated in five reportable segments , which included three in our healthcare business , known as digirad health . these included diagnostic services , diagnostic imaging , and mobile healthcare . we now have two reportable segments in continuing operations for the healthcare business going forward , diagnostic service and diagnostic imaging . for additional details related to the company 's reportable segments , see item i. business – business segments and note 17. segments within the notes to our accompanying consolidated financial statements . story_separator_special_tag our building & construction segment , called star building & construction , arose upon completion of the atrm merger in september of 2019 , and 2020 is the first full-year that its operations will be reflected in our financials . 2020 financial highlights as noted above , during the twelve months ended december 31 , 2020 , we reclassified our mobile healthcare segment to assets held for sale and discontinued operations . when held for sale criteria have been met , revenue , expenses , depreciation and amortization of those assets is suspended and the profits and losses are presented on the consolidated statements of operations as discontinued operations . the operating results presented below are segregated between continuing operations and discontinued operations . results from prior year comparative period have been reclassified to conform with the current year presentation . in addition , we would note that 2020 was the first full year in which we owned the building & construction businesses as they were acquired in september 2019 and financials in the prior year were only inclusive of that stub period in 2019. revenues for continuing operations were $ 78.2 million for the year ended december 31 , 2020. this is an increase of $ 5.2 million , or 7.2 % , compared to the prior year due to the following : the increase was mainly due to $ 17.6 million revenue generated by the building and construction segment and offset by the following reasons . diagnostic imaging segment revenue decreased $ 3.9 million , or 28.2 % , primarily due to decrease in the number of cameras sold , reflecting covid-19 impact . diagnostic services segment revenue decreased $ 8.5 million , or 17.7 % , primarily due to decrease in scanning service performed , reflecting covid-19 impact . gross profit from continuing operations decreased by $ 3.2 million , or 18.5 % , compared to the prior year , mainly due to a $ 5.2 million decrease in the diagnostic imaging and diagnostic services segments caused by the covid-19 pandemic . this was partially offset by a $ 2.0 million increase in building and construction gross profit , as we owned this business for the entire year in 2020. additionally , we experienced lower health insurance expenses year over year , which was partially offset by higher lease expenses from an increase in sublease revenue and operating leases . total operating expenses increased $ 2.1 million , or 11.1 % , for the year ended december 31 , 2020 compared to the prior year , primarily due to additional $ 3.0 million sales , marketing and general and administrative expenses , $ 1.3 million of amortization expenses and a $ 0.4 million goodwill impairment from the building and construction segment , which were mainly offset by a $ 2.3 million savings in merger and acquisition expenses . net loss for continuing operations for the year ended december 31 , 2020 was $ 5.3 million , which is an increase of $ 2.5 million compared to our net loss of $ 2.7 million during the prior year . this was driven primarily by additional net loss of $ 2.7 million in the star building & construction division during the year ended december 31 , 2020 , despite a $ 0.2 million increase in net income from the digirad health division . as a result of the recent acquisition of the building & construction businesses , we are experiencing a considerable increase in the amortization of intangibles in our income statement . for the year ended december 31 , 2020 , diagnostic services operated 90 nuclear gamma cameras and 46 ultrasound imaging systems . we measure efficiency by tracking system utilization , which is based on the percentage of days that our cameras , equipment and imaging systems are used to deliver services to customers out of the total number of days that they are available to deliver such services . system utilization for diagnostic services for the year ended december 31 , 2020 , was 59 % compared to 60 % of the prior year . 36 use of ebitda ( non-gaap measure ) management believes ebitda is a meaningful indicator of the company 's performance that provides useful information to investors regarding the company 's financial condition and results of operations . ebitda is also considered by management as an indicator of operating performance and the most comparable measure across the regions in which we operate . management also uses this measurement to evaluate capital needs and working capital requirements . similar to constant currency , ebitda is a non-gaap financial measure that is not intended to be considered in isolation from , as substitute for , or as superior to , the corresponding financial measure prepared in accordance with gaap or as a measure of the company 's profitability . because of these and other limitations , ebitda should be considered along with gaap based financial performance measures , including operating income or net income prepared in accordance with gaap . ebitda is derived from net ( loss ) income adjusted for the provision for ( benefit from ) income taxes , interest expense ( income ) , and depreciation and amortization . the reconciliation of ebitda from continuing operations to the most directly comparable gaap financial measure is provided in the table below : replace_table_token_4_th 37 story_separator_special_tag in 2019 , resulting in an increase in net cash used in operating activities of $ 5.5 million . the increase in net cash used in operating activities resulted primarily from working capital investments made in our building & construction businesses during 2020 , principally into kbs , as well as a higher net loss caused by reduced revenues due to the covid-19 impact on our businesses , particularly on our digirad health division .
| gross profit healthcare healthcare gross profit and gross margin is summarized as follows ( in thousands ) : replace_table_token_9_th the decrease in diagnostic services and diagnostic imaging gross profit is mainly due to the covid-19 pandemic impact and the associated public health measures in place , which directly reduced scanning revenue and camera sales . while management proactively applied measures to contain costs during the pandemic , there were fixed costs which resulted in the decrease in gross margin . star building & construction star building & construction gross profit and margin is summarized as follows ( in thousands ) : replace_table_token_10_th 39 the increase in building and construction gross profit is mainly due to the fact that 2020 includes a full year of operational data from this segment as compared to a portion of the year in 2019 and increased revenue from kbs ' two large commercial projects . gross profit of our star building & construction business for q4 2020 decreased by 12.8 % , from prior year same period , due to the negative effect of higher raw material prices . star real estate & investments star real estate & investments gross profit and margin is summarized as follows ( in thousands ) : replace_table_token_11_th star real estate & investments manages three manufacturing facilities which it leases to kbs and investment vehicles through lsvm . its negative gross profit relates to depreciation expense and the write-off of some of the assets included with the three manufacturing facilities acquired in april 2019. operating expenses operating expense are summarized as follows ( in thousands ) : replace_table_token_12_th total operating expenses increased $ 2.1 million , or 11.1 % , for the year ended december 31 , 2020 compared to the prior year . the increase was due in part to the additional $ 3.0 million sales , marketing and general and administrative expenses from the building and construction segment . we also recognized an additional $ 1.3 million in amortization of intangibles and a $ 0.4 million write-down of goodwill . much of the total increase in operating expenses was offset by $ 2.3 million worth of savings in merger and acquisition expenses . we also experienced a $ 0.3 million savings
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no other significant changes were made to management 's overall methodology for evaluating the allowance for loan losses during the periods presented in the financial statements of this report . in addition , the company considers that the determination of the valuations of foreclosed assets held for sale involves a high degree of judgment and complexity . the carrying value of foreclosed assets reflects management 's best estimate of the amount to be realized from the sales of the assets . while the estimate is generally based on a valuation by an independent appraiser or recent sales of similar properties , the amount that the company realizes from the sales of the assets could differ materially from the carrying value reflected in the financial statements , resulting in losses that could adversely impact earnings in future periods . carrying value of loans acquired in fdic-assisted transactions and indemnification asset the company considers that the determination of the carrying value of loans acquired in the fdic-assisted transactions and the carrying value of the related fdic indemnification assets involve a high degree of judgment and complexity . the carrying value of the acquired loans and the fdic indemnification assets reflect management 's best ongoing estimates of the amounts to be realized on each of these assets . the company determined initial fair value accounting estimates of the assumed assets and liabilities in accordance with fasb asc 805 , business combinations . however , the amount that the company realizes on these assets could differ materially from the carrying value reflected in its financial statements , based upon the timing of collections on the acquired loans in future periods . because of the loss sharing agreements with the fdic on certain of these assets , the company should not incur any significant losses related to these assets . to the extent the actual values realized for the acquired loans are different from the estimates , the indemnification asset will generally be impacted in an offsetting manner due to the loss sharing support from the fdic . subsequent to the initial valuation , the company continues to monitor identified loan pools and related loss sharing assets for changes in estimated cash flows projected for the loan pools , anticipated credit losses and changes in the accretable yield . analysis of these variables requires significant estimates and a high degree of judgment . see note 4 of the accompanying audited financial statements for additional information regarding the teambank , vantus bank , sun security bank , interbank and valley bank fdic-assisted transactions . goodwill and intangible assets goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually and more frequently if circumstances indicate their value may not be recoverable . goodwill is tested for impairment using a process that estimates the fair value of each of the company 's reporting units compared with its carrying value . the company defines reporting units as a level below each of its operating segments for which there is discrete financial information that is regularly reviewed . as of december 31 , 2014 , the company has one reporting unit to which goodwill has been allocated – the bank . if the fair value of a reporting unit exceeds its carrying value , then no impairment is recorded . if the carrying value amount exceeds the fair value of a reporting unit , 71 further testing is completed comparing the implied fair value of the reporting unit 's goodwill to its carrying value to measure the amount of impairment . intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair values of those assets to their carrying values . at december 31 , 2014 , goodwill consisted of $ 1.2 million at the bank reporting unit . goodwill increased $ 790,000 during 2014 , due to the acquisition of certain loans , deposits and other assets of boulevard bank . other identifiable intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years . at december 31 , 2014 , the amortizable intangible assets consisted of core deposit intangibles of $ 6.3 million , including $ 2.6 million related to the valley bank transaction in june 2014 and $ 763,000 related to the boulevard bank transaction in march 2014. these amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value . see note 1 of the accompanying audited financial statements for additional information . for purposes of testing goodwill for impairment , the company used a market approach to value its reporting unit . the market approach applies a market multiple , based on observed purchase transactions for each reporting unit , to the metrics appropriate for the valuation of the operating unit . significant judgment is applied when goodwill is assessed for impairment . this judgment may include developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables and incorporating general economic and market conditions . based on the company 's goodwill impairment testing , management does not believe any of its goodwill or other intangible assets are impaired as of december 31 , 2014. while the company believes no impairment existed at december 31 , 2014 , different conditions or assumptions used to measure fair value of the reporting unit , or changes in cash flows or profitability , if significantly negative or unfavorable , could have a material adverse effect on the outcome of the company 's impairment evaluation in the future . current economic conditions changes in economic conditions could cause the values of assets and liabilities recorded in the financial statements to change rapidly , resulting in material future adjustments in asset values , the allowance for loan losses , or capital that could negatively impact the company 's ability to meet regulatory capital requirements and maintain sufficient liquidity . the previous economic downturn elevated unemployment levels and negatively impacted consumer confidence . story_separator_special_tag it also had a detrimental impact on industry-wide performance nationally as well as the company 's midwest market areas . since 2012 , improvement in several economic indicators have been noted , including increasing consumer confidence levels , increased economic activity and a continued decline in unemployment levels . the national unemployment rate declined from 6.7 % as of december 2013 to 5.6 % in december 2014. in 2014 , job growth averaged 246,000 per month , compared to an average monthly gain of 194,000 in 2013. unemployment levels in our market areas decreased during 2014 in all states in which the company has offices , with all but one state at unemployment levels lower than the national unemployment rate . unemployment rates at december 31 , 2014 were : missouri at 5.4 % , arkansas at 5.7 % , kansas at 4.2 % , iowa at 4.1 % , nebraska at 2.9 % , minnesota at 3.6 % , oklahoma at 4.2 % and texas at 4.6 % . three out of these eight states had unemployment rates among the ten lowest in the country . of the metropolitan areas in which great southern bank does business , the st. louis market area continues to carry the highest level of unemployment at 5.6 % , which is an improvement over the 6.5 % rate reported as of december 2013. the unemployment rate at 4.3 % for the springfield market area was below the national and state average for december 2014. metropolitan areas in iowa , nebraska and minneapolis boasted unemployment levels ranging from 3.2 % - 4.2 % , ranking them among the lowest unemployment levels in the nation . sales of newly built , single-family homes were at a seasonally adjusted annual rate of 481,000 units in december 2014 , according to the u.s. department of housing and urban development and the u.s. census bureau . this level compares favorably to the level at december 2013. the median sales price of new houses sold in december 2014 was $ 298,100 , with an average sale price of $ 377,800. the seasonally adjusted estimate of new houses for sale at the end of december 2014 was 219,000 , which represented a supply of 5.5 months at the sales rate at that time . an estimated 435,000 new homes were sold in 2014 , which is 1.2 % above the 2013 level of 429,000. foreclosure filings have decreased to their lowest level since 2007. building permits have increased across our market areas . however , builders continue to be constrained by tighter credit conditions for home buyers and a limited supply of labor and buildable lots . the performance of commercial real estate markets also improved substantially in the company 's market areas as shown by increased real estate sales activity and financing of those activities . according to real estate services firm costar group , retail , office and industrial types of commercial real estate properties continue to show improvement in occupancy , absorption and rental income both nationally and in our market areas . while current economic indicators for the midwest show improvement in employment , housing starts and prices , commercial real estate occupancy , absorption and rental income , bank management will continue to closely monitor regional , national and global economic conditions as these could have significant impacts on our market areas . 72 general the profitability of the company and , more specifically , the profitability of its primary subsidiary , the bank , depends primarily on its net interest income , as well as provisions for loan losses and the level of non-interest income and non-interest expense . net interest income is the difference between the interest income the bank earns on its loans and investment portfolio , and the interest it pays on interest-bearing liabilities , which consists mainly of interest paid on deposits and borrowings . net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances . when interest-earning assets approximate or exceed interest-bearing liabilities , any positive interest rate spread will generate net interest income . in the year ended december 31 , 2014 , great southern 's total assets increased $ 391.1 million , or 11.0 % , from $ 3.56 billion at december 31 , 2013 , to $ 3.95 billion at december 31 , 2014. full details of the current year changes in total assets are provided in the `` comparison of financial condition at december 31 , 2014 and december 31 , 2013 '' section of this annual report on form 10-k. loans . in the year ended december 31 , 2014 , great southern 's net loans increased $ 599.3 million , or 24.6 % , from $ 2.44 billion at december 31 , 2013 , to $ 3.04 billion at december 31 , 2014. partially offsetting the increases in loans were decreases of $ 49.6 million in the fdic-covered loan portfolios . the net carrying value of the loans acquired in the valley bank transaction ( acquired non-covered loans ) was $ 122.0 million at december 31 , 2014 , down from $ 165.1 million at the acquisition date of june 20 , 2014. excluding acquired covered loans , acquired non-covered loans and mortgage loans held for sale , total loans increased $ 525.5 million from december 31 , 2013 to december 31 , 2014 , with increases in almost all loan types . the increase was primarily due to loan growth in our existing banking center network , as well as loans originated through our new commercial loan production offices in tulsa , okla. , and dallas , texas . as loan demand is affected by a variety of factors , including general economic conditions , and because of the competition we face and our focus on pricing discipline and credit quality , we can not be assured that our loan growth will match or exceed the level of increases achieved in 2014 or prior years .
| interest income from investment securities and other interest-earning assets decreased during the year ended december 31 , 2013 due to lower average rates of interest and lower average balances . the lower average investment yields were primarily a result of lower yields on mortgage-backed securities as 91 interest rates reset downward . prepayments on the mortgages underlying these securities resulted in amortization of premiums which also reduced yields . in addition , investments had lower average balances in 2013 as a result of increased prepayments and normal monthly payments on mortgage-backed securities . cash flows from investments were used to fund loans and reduce certain deposit types . in 2013 , few investment securities were purchased to offset these reductions . interest income on loans is affected by variations in the adjustments to accretable yield due to increases in expected cash flows to be received from the fdic-acquired loan pools as discussed below in `` interest income – loans '' and in note 4 of the accompanying audited financial statements , which are included in item 8 of this report . in 2013 , many higher yielding loans matured or were repaid . these loans were replaced with new loans that were generally at rates lower than those that repaid during the year , resulting in lower overall yields in the loan portfolio . higher average balances of loans partially offset the lower interest income on loans . interest income - loans during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , interest income on loans decreased due to lower average interest rates , partially offset by higher average balances . interest income decreased $ 11.8 million as the result of lower average interest rates on loans . the average yield on loans decreased from 7.31 % during the year ended december 31 , 2012 to 6.82 % during the year ended december 31 , 2013. this decrease was due to lower overall loan rates , and a lower amount of accretion income in the current
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reorganizations , partnering opportunities and joint ventures , and our ability to maintain or develop relationships with independently owned offices in our real estate services business , the anticipated benefits of any such transactions or relationships and the future impact of any such transactions or relationships on our financial results for current or future periods , the integration of any completed acquisitions and the use of proceeds of any completed dispositions , and the value of any hedging entered into in connection with consideration received or to be received in connection with such dispositions ; our estimates or determinations of potential value with respect to various assets or portions of our businesses , including with respect to the accuracy of the assumptions or the valuation models or multiples used ; our ability to hire and retain personnel , including brokers , salespeople , managers , and other professionals ; our ability to expand the use of technology for hybrid and fully electronic trading in our product offerings ; our ability to effectively manage any growth that may be achieved , while ensuring compliance with all applicable financial reporting , internal control , legal compliance , and regulatory requirements ; our ability to identify and remediate any material weaknesses in our internal controls that could affect our ability to prepare financial statements and reports in a timely manner , control our policies , practices and procedures , operations and assets , assess and manage our operational , regulatory , and financial risks , and integrate our acquired businesses and brokers , salespeople , managers and other professional ; the effectiveness of our risk management policies and procedures , and the impact of unexpected market moves and similar events ; information technology risks , including , capacity constraints , failures , or disruptions in our systems or those of the clients , counterparties , exchanges , clearing facilities , or other parties with which we interact , including cybersecurity risks and incidents ; the fact that the prices at which shares of our class a common stock are sold in one or more of our controlled equity offerings or in other offerings or other transactions may vary significantly , and purchasers of shares in such offerings or transactions , as well as existing stockholders , may suffer significant dilution if the price they paid for their shares is higher than the price paid by other purchasers in such offerings or transactions ; our ability to meet expectations with respect to payments of dividends and distributions and repurchases of shares of our class a common stock and purchases or redemptions of limited partnership interests of bgc holdings , l.p. ( bgc holdings ) or other equity interests in our subsidiaries , including from cantor , our executive officers , other employees , partners , and others , and the net proceeds to be realized by us from offerings of our shares of class a common stock ; and the effect on the market for and trading price of our class a common stock of various offerings and other transactions , including our controlled equity and other offerings of our class a common stock and convertible or exchangeable debt securities , our repurchases of shares of our class a common stock and purchases of bgc holdings limited partnership interests or other equity interests in our subsidiaries , any exchanges or redemptions of limited partnership units and issuances of shares of class a common stock in connection therewith , including in partnership 88 restructurings , our payment of dividends on our class a common stock and distributions on bgc holdings limited partnership interests , convertible arbitrage , hedging , and other transactions engaged in by holders of our 4.50 % convertible notes and counterparties to our capped call transactions , and resales of shares of our class a common stock by cantor or by others of shares acquired from us or cantor , including pursuant to our employee benefit plans , unit exchanges and redemptions , partnership restructurings , acquisitions , conversions of our convertible notes , conversions or exchanges of our convertible or exchangeable debt securities , and distributions from cantor pursuant to cantor 's distribution rights obligations and other distributions to cantor partners , including deferred distribution rights shares . this discussion summarizes the significant factors affecting our results of operations and financial condition during the years ended december 31 , 2014 and 2013. this discussion is provided to increase the understanding of , and should be read in conjunction with , our consolidated financial statements and the notes thereto included elsewhere in this report . overview and business environment we are a leading global brokerage company servicing the financial and real estate markets through our financial services and real estate services businesses . our financial services business specializes in the brokerage of a broad range of products , including fixed income securities , interest rate swaps , foreign exchange , equities , equity derivatives , credit derivatives , commodities , futures and structured products . our financial services business also provides a wide range of services , including trade execution , broker-dealer services , clearing , processing , information , and other back-office services to a broad range of financial and non-financial institutions . our integrated platform is designed to provide flexibility to customers with regard to price discovery , execution and processing of transactions , and enables them to use voice , hybrid , or in many markets , fully electronic brokerage services in connection with transactions executed either over-the-counter ( otc ) or through an exchange . through our bgc trader and bgc market data brands , we offer financial technology solutions , market data , and analytics related to select financial instruments and markets . we entered into the commercial real estate business in october 2011 with the acquisition of newmark & company real estate , inc. ( newmark ) , a leading u.s. commercial real estate brokerage and advisory firm primarily serving corporate and institutional clients . newmark was founded in 1929 in new york city . story_separator_special_tag in 2000 , newmark embarked upon a national expansion and in 2006 entered into an agreement with london-based knight frank to operate jointly in the americas as newmark knight frank. in the second quarter of 2012 , we completed the acquisition of substantially all of the assets of grubb & ellis company and its direct and indirect subsidiaries , which we refer to as grubb & ellis. grubb & ellis was formed in 1958 and built a full-service national commercial real estate platform of property management , facilities management and brokerage services . we have completed the integration of grubb & ellis with newmark knight frank to form the resulting brand , newmark grubb knight frank ( ngkf ) . ngkf is a full-service commercial real estate platform that comprises our real estate services segment , offering commercial real estate tenants , owners , investors and developers a wide range of services , including leasing and corporate advisory , investment sales and financial services , consulting , project and development management , and property and facilities management . our customers include many of the world 's largest banks , broker-dealers , investment banks , trading firms , hedge funds , governments , corporations , property owners , real estate developers and investment firms . we have offices in dozens of major markets , including new york and london , as well as in atlanta , beijing , boston , charlotte , chicago , copenhagen , dallas , denver , dubai , hong kong , houston , istanbul , johannesburg , los angeles , mexico city , miami , moscow , nyon , paris , philadelphia , rio de janeiro , san francisco , santa clara , são paulo , seoul , singapore , sydney , tokyo , toronto , washington , d.c. and zurich . we remain confident in our future growth prospects as we continue to increase the scale and depth of our real estate platform and continue to seek market driven opportunities to expand our business in numerous financial asset classes . in our real estate services business , on august 13 , 2014 we acquired cornish & carey commercial ( cornish & carey or cornish ) and on december 15 , 2014 we announced an agreement to acquire apartment realty advisers ( ara ) and its members . by adding the leading commercial real estate services company in the bay area and silicon valley , and the nation 's largest privately held , multi-housing brokerage , we have greatly broadened the scope and depth of services we can provide to clients across the u.s. during the year we made a number of key acquisitions across our financial services business . in december 2014 we acquired r.p . martin , a market-leading interdealer brokerage focusing on european interest rates and foreign exchange products . in may 2014 , we acquired remate lince , a leading mexican inter-dealer broker focusing on interest rate derivatives and fixed income . and in february 2014 we purchased the assets of heat energy group , which specializes in east coast u.s. power brokerage . we also continued to make key hires around the world . we expect these additions to increase our earnings per share going forward . these investments underscore bgc 's ongoing commitment to make accretive acquisitions and profitably hire . as of december 31 , 2014 , our liquidity , which we define as cash and cash equivalents , marketable securities and securities owned was in excess of $ 825 million , the majority of which we are free to deploy to increase stockholder and bondholder value , including as an example , the successful completion ( on february 26 , 2015 ) of our tender offer to acquire the shares of gfi . we expect to issue payment for the tendered shares on march 3 , 2015 in the aggregate amount of $ 332.8 million . we also expect to receive approximately $ 625 million in nasdaq omx over the next 13 years , based on the february 10 , 2015 price of that company 's shares . we believe that this provides us with significant amount of capital with which to pay dividends , profitably hire , and make accretive acquisitions , all while maintaining our investment grade rating . 89 successful completion of tender offer to acquire gfi group , inc. on february 27 , 2015 bgc and gfi group inc. ( nyse : gfig ) ( gfi ) , announced the successful completion of bgc 's tender offer for gfi shares . as of the expiration of the tender offer at 5:00 pm on february 26 , 2015 , approximately 54.6 million shares were tendered pursuant to the offer . the 54.6 million tendered shares , together with the 17.1 million shares of gfi common stock already owned by bgc , represent approximately 56.3 % of gfi 's outstanding shares . bgc has accepted the shares and expects to issue payment for the shares tendered on march 3 , 2015. in addition , gfi employees holding rsus will receive $ 6.10 per rsu in cash , based on their pre-existing vesting schedules . all outstanding conditions of the tender offer have been met . gfi will be a controlled company and operate as a division of bgc , reporting to shaun lynn , president of bgc , and its financial results will be consolidated as part of bgc . going forward , bgc and gfi are expected to remain separately branded divisions . gfi 's current executive chairman , michael gooch , and its current chief executive officer , colin heffron , will remain as executives and directors of gfi group and shall continue as chairman and ceo , respectively , of the gfi division . we believe the combination of bgc and gfi will create a strong and diversified company , well positioned to capture future growth opportunities . through this combination , we expect to deliver substantial benefits to customers of the combined company , and we expect to become the largest and most profitable wholesale brokerage company .
| real estate brokerage revenues increased by $ 129.9 million for the year ended december 31 , 2014. this increase was primarily driven by growth in the leasing and consulting businesses , increased operating efficiencies resulting from the successful integration of acquisitions and continued improvements in broker productivity . our brokerage revenues from equities and other asset classes increased $ 25.6 million , or 17.0 % , to $ 176.3 million for the year ended december 31 , 2014. this increase was primarily driven by strong gains in our energy and commodities businesses , due to organic growth and the acquisition of heat energy group in the first quarter of 2014. real estate management services real estate management services revenue was relatively flat at $ 163.2 million for the year ended december 31 , 2014. fees from related parties fees from related parties decreased by $ 12.8 million , or 31.0 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. the decrease was primarily due to decreased revenues related to elx ( as a result of the sale of the espeed business ) and lower technology service fees . market data market data revenues decreased by $ 3.5 million , or 34.1 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. the decrease was primarily due to the sale of the espeed business in june 2013. software solutions software solutions revenues decreased by $ 3.4 million , or 54.8 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 , primarily due to the sale of our kleos managed services , dedicated network access and disaster recovery business to nasdaq omx in june 2013. interest income interest income increased by $ 0.5 million , or 7.0 % , to $ 7.3 million for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. other revenues other revenues increased
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our nickel-based powder alloy expansion in north carolina was completed and is expected to be commercially qualified in early 2018 , and we recently announced plans for a titanium powder expansion to be located on the same site . continuing to reposition ati as a growth-oriented aerospace & defense company . 49 % of ati 's 2017 sales were to the aerospace & defense market , led by an 11 % increase in 2017 sales of products for commercial aerospace jet engines , including a 35 % increase in product sales for next-generation engine applications . through recent acquisitions , alloy development , internal growth strategies , and long-term supply agreements on current and next-generation aero-engines and airframes , we are well positioned with a fully qualified asset base to meet the expected multi-year growth in demand from the commercial aerospace market . our hpmc segment 's isothermal and hot-die forge press utilization continues to improve to meet aerospace demand growth , including new market share gains . de-levering the balance sheet in the fourth quarter 2017 through a common stock offering . in november 2017 , we issued 17 million shares of common stock at $ 24.00 per share before expenses , and received proceeds of $ 397.8 million , net of transaction costs . proceeds from the stock offering were used to redeem all $ 350 million aggregate principal amount of our 9.375 % senior notes due 2019. maintaining a solid liquidity position , with $ 142 million in cash on hand , and $ 305 million of available borrowing capacity under our domestic asset based lending ( abl ) facility . in 2017 , we extended the duration of abl , including the $ 100 million abl term loan , to 2022 , and improved the funded position of the ati pension plan , the company 's u.s. qualified defined benefit pension plan , with a $ 135 million cash contribution . as a result of the redemption of our 2019 notes and these abl actions , we have no significant debt maturities until 2021. continuing to make capital investments to support our growth initiatives , with $ 123 million of capital expenditures in 2017 , including the previously-mentioned nickel alloy powder expansion , and the ongoing construction of our third precision rolled strip manufacturing facility at our stal joint venture in china . we are at the end of a significant , multi-year period of capital expansions , and expect our capital expenditures to be well below depreciation expense for the next several years . 20 outlook we expect continued revenue growth and operating margin improvement in our hpmc segment resulting from ongoing aerospace market demand growth and improved asset utilization . we expect 2018 hpmc segment sales growth to increase by a high single digit percentage compared to 2017 , including double-digit sales growth in sales to the commercial jet engine market . our focus continues to be on operational execution , continuous improvement initiatives , and on meeting the aerospace production expansion requirements . in addition , we anticipate that the 2017 financial challenges experienced in our castings business and expenses associated with the start-up and qualification of our new nickel alloys powder facility will provide meaningful hpmc segment operating profit improvement opportunities in 2018. we expect the frp segment to build on the operational improvements and product mix benefits achieved in 2017 and to improve operating margins year over year , however quarterly results may be volatile due to out-of-phase raw material surcharge impacts , timing of large project orders , and competitive market conditions . we expect the production ramp-up of the planned allegheny & tsingshan stainless joint venture to meaningfully benefit second half 2018 frp results . we expect 2018 to be another step in our continuing journey toward our goals of long-term profitable growth and consistently earning a premium to our cost of capital . cash generation from operations will remain a key focus throughout 2018. we do not expect to pay any significant u.s. federal or state taxes in 2018 due to net operating loss carryforwards , and we intend to carefully balance our working capital and other cash needs with the pace of our capital expenditure requirements and other obligations . following the common stock offering and redemption of our 2019 notes , we expect 2018 interest expense to be lower by approximately $ 32 million versus 2017. defined benefit pension and postretirement benefit plan expenses for 2018 are expected to be lower by approximately $ 19 million compared to 2017. story_separator_special_tag whitney subsidiaries with isothermal forgings and powder alloys for next-generation jet engines , as well as for structural components for airframe applications . we also supply products to other important parts of the aviation market such as helicopters and rotary engine fixed wing aircraft . the commercial aerospace market is transitioning to the next generation of single aisle and large twin aisle aircraft , and next-generation jet engines . new airframe designs contain a larger percentage of titanium alloys , and the jet engines that power them use newer nickel-based alloys and titanium-based alloys , in both cases for improved performance and more economical operating costs , compared to legacy airframe and engine designs . boeing and airbus have multi-year backlogs of orders for both legacy models and next-generation aircraft , and there are over 26,000 jet engines with firm orders ( aero engine news , february 2018 ) . both boeing and airbus have implemented production increases , and announced additional production increases over the next several years , which is expected to positively impact the demand for titanium-based alloys , nickel-based alloys and superalloys for jet engine and airframe applications . due to manufacturing cycle times , demand for our specialty materials leads the deliveries of new aircraft by approximately 6 to 12 months . our 2017 hpmc results reflect this demand growth , as the next-generation of aircraft and engines use significantly more of the products we make . sales of differentiated nickel-based superalloy mill products increased 35 % in 2017 compared to 2016 . story_separator_special_tag 23 use of these newer materials , particularly for jet engine applications , is expected to continue to increase for several years , with strong growth expected in powder metal alloys , including increased usage of isothermal forging and additive manufacturing production processes . additionally , new entrants to the commercial jet aircraft market for single aisle and regional jets are expected to increase demand for titanium- and nickel-based alloys over the next few years . in addition , as our specialty materials are used in rotating components of jet engines , demand for our products for spare parts is impacted by aircraft flight activity and engine refurbishment requirements of u.s. and foreign aviation regulatory authorities . as the number of aircraft in service increases , the need for our materials associated with engine refurbishment is expected to increase . our hpmc segment produces , converts and distributes a wide range of high performance materials , including titanium and titanium-based alloys , nickel- and cobalt-based alloys and superalloys , zirconium and related alloys including hafnium and niobium , advanced powder alloys and other specialty materials , in long product forms such as ingot , billet , bar , rod , wire , shapes and rectangles , and seamless tubes , plus precision forgings , castings , components , and machined parts . precision forgings , castings and components sales increased 17 % in 2017 , reflecting improved commercial aerospace demand . sales of nickel-based alloys increased 14 % compared to 2016 , while sales of titanium mill products were 6 % lower in 2017. comparative information for the segment 's major product categories , based on their percentages of 2017 and 2016 segment revenues is as follows : replace_table_token_15_th hpmc segment operating profit for 2017 increased 46 % compared to 2016 , to $ 246.4 million , or 12 % of sales , reflecting higher productivity from increasing aerospace & defense sales , a richer mix of products for next-generation jet engines , which represented 39 % of hpmc jet engine product sales in 2017 , and the benefit of our 2016 titanium operations restructuring activities , including the rowley , ut titanium sponge operations idling . through the fourth quarter of 2017 , where hpmc segment operating profit was 12.7 % of sales , the hpmc segment has achieved six quarters of improvement in segment operating margin of 140 basis points or greater versus the prior year quarter . segment results for 2016 included $ 5.3 million of non-recurring work stoppage and return to work costs for represented employees at two hpmc facilities . hpmc segment results exclude the rowley , ut titanium sponge operations beginning with the third quarter 2016. during 2016 , we completed significant restructuring actions involving certain titanium manufacturing operations in the hpmc segment , which are excluded from segment results . these actions included the indefinite idling of the rowley , ut titanium sponge production facility , as well as the closure of a small unprofitable titanium wire production facility in frackville , pa , and the idling of certain titanium manufacturing operations in albany , or . we anticipate significant industry demand growth for advanced powder materials required to satisfy expanding aerospace and defense market production requirements , and for emerging additive manufacturing of parts and components . to proactively meet this growing demand for complex powder alloy products , ati designed and built an all-new nickel and super alloy powder production facility in north carolina , which is in the final stages of industry and customer qualifications . hpmc 2017 results include $ 8 million of start-up costs for this facility . we recently announced an expansion of our titanium alloys powder production capabilities at the same north carolina site , which is expected to be completed in early 2019. additionally , in july 2017 , we formed next gen alloys , a joint venture with ge aviation , for the development of a new meltless titanium alloy powder manufacturing process that eliminates the traditional melt step used prior to converting base material to powder form . the jv will construct a new r & d pilot production facility to focus on increasing the scale of this ge-developed manufacturing process . competition continues to be very strong across most key end markets , particularly within the aerospace & defense , oil & gas , and medical market supply chains . we believe that our hpmc segment is very well-positioned for profitable growth , especially in the next-generation jet engine platforms . our hpmc segment is expected to continue sustained profitable growth , supported by long-term agreements that provide significant growth and share gains for ati on next-generation airplanes and the jet engines that power them . we have sufficient available capacity for the forecasted growth in aerospace demand over the next several years , as well as the ability to meet higher demand for products to other key end markets such as oil & gas and electrical energy , when conditions for these markets improve . 24 2016 compared to 2015 sales for the hpmc segment in 2016 decreased 3 % , to $ 1.93 billion , compared to 2015. sales to the aerospace & defense market , which is the largest end market for hpmc at 75 % of total segment sales in 2016 , were 5 % higher in 2016 compared to 2015 , driven by a 16 % increase in commercial jet engine sales . however , other hpmc end markets continued to have weak demand in 2016 , with lower year-over-year sales . sales to the oil & gas market declined 57 % in 2016 compared to 2015 , as the continuing impact of low oil prices led to reduced demand for products to this market throughout the year .
| total revenues and segment operating profit ( loss ) of our two business segments were as follows ( in millions ) : replace_table_token_10_th business segment results in 2017 exclude a $ 114.4 million pre-tax goodwill impairment charge for our ati cast products business , and a $ 37.0 million debt extinguishment charge for the early redemption of our 2019 notes . business segment results in 2016 exclude $ 538.5 million in pre-tax charges for significant restructuring actions involving hpmc titanium operations and right-sizing actions across the frp business . these restructuring charges were comprised of $ 471.3 million of long-lived asset impairments , primarily for the indefinitely idled rowley , ut titanium sponge production facility , $ 43.0 million of facility closure costs and related inventory revaluations , and $ 24.2 million of severance charges and other employee benefit costs . business segment results in 2015 exclude $ 347.8 million of pre-tax charges , which included a $ 126.6 million charge for goodwill impairment , $ 54.5 million of long-lived asset impairment charges , $ 131.5 million of net realizable value ( nrv ) inventory reserve charges , a $ 25.4 million charge to revalue non-pq titanium sponge inventory based on current market prices , and $ 9.8 million of charges for severance actions and idling costs . pre-tax results were losses of $ 86.5 million in 2017 , $ 734.0 million in 2016 and $ 478.0 million in 2015. the 2017 net loss attributable to ati was $ 91.9 million , or $ ( 0.83 ) per share , compared to a 2016 net loss attributable to ati of $ 640.9 million , or 21 $ ( 5.97 ) per share , and a 2015 loss attributable to ati of $ 377.9 million , or $ ( 3.53 ) per share . we recorded a $ 4.1 million tax benefit in 2017 as a result of the u.s. federal tax law changes in december 2017 , and we continue to maintain valuation allowances for u.s. federal and state deferred taxes . results in 2016 and 2015 include $ 171.5 million and $ 74.5 million , respectively , of charges for income tax valuation allowances on deferred tax assets . as a result of these factors and other tax attributes , our net-of-tax losses for all periods do not reflect the typical tax benefits that
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each month the company 's senior loan committee reviews each business unit 's allowance , and the aggregate allowance for the company and , on a quarterly basis , adjusts and approves the appropriateness of the allowance . in addition , annually or more frequently as needed , the senior loan committee evaluates and establishes the loss percentages used in the estimates of the allowance based on historical loss data , and giving consideration to their assessment of current economic and environmental conditions and reasonable and supportable forecasts . to facilitate the senior loan committee 's evaluation , the company 's asset quality department performs periodic reviews of each of the company 's business units and reports on the adequacy of management 's identification of collateral dependent and adversely classified loans , and their adherence to the company 's loan policies and procedures . the process of evaluating the appropriateness of the allowance for credit losses necessarily involves the exercise of judgment and consideration of numerous subjective factors and , accordingly , there can be no assurance that the estimate of expected losses will not change in light of future developments and economic conditions . changes in assumptions and conditions could result in a materially different amount for the allowance for credit losses . income taxes the company files a consolidated income tax return . deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities , using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized . the amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future . changes in these accruals are reported as tax expense , and involve estimates of the various components included in determining taxable income , tax credits , other taxes and temporary differences . changes periodically occur in the estimates due to changes in tax rates , tax laws and regulations and implementation of new tax planning strategies . the process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors . management performs an analysis of the company 's tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years . 30 intangible assets and goodwill core deposit intangibles are amortized on a straight-line basis over the estimated useful lives of seven to ten years and customer relationship intangibles are amortized on a straight-line basis over the estimated useful life of three to eighteen years . goodwill is not amortized , but is evaluated at a reporting unit level at least annually for impairment or more frequently if other indicators of impairment are present . at least annually in the fourth quarter , intangible assets , are evaluated for possible impairment . impairment losses are measured by comparing the fair values of the intangible assets with their recorded amounts . any impairment losses are reported in the statement of comprehensive income . the evaluation of remaining core deposit intangibles for possible impairment involves reassessing the useful lives and the recoverability of the intangible assets . the evaluation of the useful lives is performed by reviewing the levels of core deposits of the respective branches acquired . the actual life of a core deposit base may be longer than originally estimated due to more successful retention of customers , or may be shorter due to more rapid runoff . amortization of core deposit intangibles would be adjusted , if necessary , to amortize the remaining net book values over the remaining lives of the core deposits . the evaluation for recoverability is only performed if events or changes in circumstances indicate that the carrying amount of the intangibles may not be recoverable . the evaluation of goodwill for possible impairment is performed by comparing the fair values of the related reporting units with their carrying amounts including goodwill . the fair values of the related business units are estimated using market data for prices of recent acquisitions of banks and branches . the evaluation of intangible assets and goodwill for the year ended december 31 , 2019 resulted in an impairment of customer relationship intangibles of approximately $ 353,000 related to bancfirst insurance services , inc. the evaluation of intangible assets and goodwill for the year ended december 31 , 2020 resulted in no impairments . fair value of financial instruments debt securities that are being held for indefinite periods of time , or that may be sold as part of the company 's asset/liability management strategy , to provide liquidity or for other reasons , are classified as available for sale and are stated at estimated fair value . unrealized gains or losses on debt securities available for sale are reported as a component of stockholders ' equity , net of income tax . the company reviews its portfolio of debt securities in an unrealized loss position at least quarterly . the company first assesses whether it intends to sell , or it is more-likely-than-not that it will be required to sell , the securities before recovery of the amortized cost basis . if either of these criteria is met , the securities amortized cost basis is written down to fair value as a current period expense . if either of the above criteria is not met , the company evaluates whether the decline in fair value is the result of credit losses or other factors . in making this assessment , the company considers , among other things , the period of time the security has been in an unrealized loss position , and performance of any underlying collateral and adverse conditions specifically related to the security . story_separator_special_tag at december 31 , 2020 and december 31 , 2019 approximately 95 % of the available for sale debt securities held by the company were issued by the u.s. treasury , or u.s. government-sponsored entities and agencies . the company does not consider the unrealized position of these securities to be the result of credit factors , because the decline in fair value is attributable to changes in interest rates and illiquidity , and not credit quality , and the company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery . therefore , the company has not recorded an allowance for credit losses against its debt securities portfolio , as the credit risk is not material . the estimates of fair values of debt securities and other financial instruments are based on a variety of factors . in some cases , fair values represent quoted market prices for identical or comparable instruments . in other cases , fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk . accordingly , the fair values may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future . future application of accounting standards see note ( 1 ) of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements and their expected impact on the company 's financial statements . segment information see note ( 22 ) of the notes to consolidated financial statements for disclosure regarding the company 's operating business segments . 31 results of operations average balances , income expenses and rates the following table depicts , for the periods indicated , certain information related to our average balance sheet and our average yields on assets and average costs of liabilities . such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities . average balances are derived from daily averages . consolidated average balance sheets and interest margin analysis taxable equivalent basis ( dollars in thousands ) december 31 , 2020 december 31 , 2019 december 31 , 2018 interest average interest average interest average average income/ yield/ average income/ yield/ average income/ yield/ balance expense rate balance expense rate balance expense rate assets earning assets : loans ( 1 ) $ 6,432,455 $ 312,514 4.85 % $ 5,273,632 $ 292,152 5.54 % $ 4,966,965 $ 263,577 5.31 % debt securities – taxable 556,931 8,591 1.54 588,207 13,308 2.26 448,271 8,808 1.96 debt securities – tax exempt 28,969 616 2.12 20,219 580 2.87 25,677 771 3.00 federal funds sold and interest-bearing deposits with banks 1,562,383 6,049 0.39 1,455,799 31,372 2.15 1,609,030 30,694 1.91 total earning assets 8,580,738 327,770 3.81 7,337,857 337,412 4.60 7,049,943 303,850 4.31 nonearning assets : cash and due from banks 220,995 180,339 185,380 interest receivable and other assets 611,966 500,487 405,730 allowance for credit losses ( 76,501 ) ( 53,975 ) ( 52,087 ) total nonearning assets 756,460 626,851 539,023 total assets $ 9,337,198 $ 7,964,708 $ 7,588,966 liabilities and stockholders ' equity interest-bearing liabilities : transaction deposits $ 744,632 $ 940 0.13 % $ 751,140 $ 2,573 0.34 % $ 790,587 $ 2,461 0.31 % savings deposits 3,273,903 9,385 0.29 2,782,086 39,170 1.41 2,513,244 29,462 1.17 time deposits 695,637 8,147 1.17 690,636 10,995 1.59 746,189 8,539 1.14 short-term borrowings 2,745 8 0.30 1,458 32 2.19 5,159 95 1.84 long-term borrowings 1,107 — — — — — — — — junior subordinated debentures 26,804 1,966 7.31 26,804 1,966 7.34 31,747 2,171 6.84 total interest-bearing liabilities 4,744,828 20,446 0.43 4,252,124 54,736 1.29 4,086,926 42,728 1.05 interest-free funds : noninterest-bearing deposits 3,503,187 2,709,510 2,605,280 interest payable and other liabilities 46,048 42,219 34,198 stockholders ' equity 1,043,135 960,855 862,562 total interest free funds 4,592,370 3,712,584 3,502,040 total liabilities and stockholders ' equity $ 9,337,198 $ 7,964,708 $ 7,588,966 net interest income $ 307,324 $ 282,676 $ 261,122 net interest spread 3.38 % 3.31 % 3.26 % effect of interest free funds 0.19 % 0.54 % 0.44 % net interest margin 3.57 % 3.85 % 3.70 % for these computations , information is shown on a taxable-equivalent basis assuming a 21 % tax rate . ( 1 ) nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis . 32 the following table depicts , for the periods indicated , s elected income statement data and other selected data : replace_table_token_1_th net interest income net interest income , which is the company 's principal source of operating revenue , increased in 2020 by $ 24.7 million , to a total of $ 306.7 million , compared to an increase of $ 21.4 million in 2019. net interest income increased in 2020 due to a full year of net interest income from pegasus bank , loan growth , ppp fee income of approximately $ 15.6 million and a decrease in interest rates paid on deposits . in 2019 , net interest income increased primarily due to the higher average rates on federal funds and loans throughout 2019 compared to 2018 and loan growth during 2019 , slightly offset by higher deposit rates throughout 2019 compared to 2018. net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period . the company 's net interest margin decreased to 3.57 % for 2020 , compared to 3.85 % for 2019 and 3.70 % for 2018. the decrease in the net interest margin in 2020 is primarily due to the lower average rates on federal funds and securities during the year . the increase in the net interest margin in 2019 is due to the increase in net interest income described above .
| the ratio of net charge-offs to average loans for 2020 was 0.35 % , compared to 0.10 % for 2019 and 0.08 % for 2018. noninterest income totaled $ 137.2 million in 2020 compared to $ 137.2 million in 2019 and $ 125.2 million in 2018. noninterest expense was $ 257.7 million in 2020 compared to $ 241.3 million in 2019 and $ 222.1 million in 2018. the increase in noninterest expense in 2020 was due to a full year of noninterest expenses of pegasus bank , which added approximately $ 9.0 million . in addition , noninterest expense increased in 2020 due to covid-19 pandemic related salary expenses , net occupancy and depreciation from the company 's new corporate headquarters , and acquisition expense related to the purchase of assets from citizens , partially offset by $ 2.4 million in gains on sales of property carried in other real estate owned and a decrease in marketing and business promotions . the company 's assets at year-end 2020 totaled $ 9.2 billion , compared to $ 8.6 billion at december 31 , 2019. debt securities were $ 555.2 million , an increase of $ 63.6 million from december 31 , 2019. loans totaled $ 6.4 billion compared to $ 5.7 billion for 2019. total deposits were $ 8.1 billion for 2020 compared to $ 7.5 billion for 2019. the increase in assets , loans and deposits were primarily related to the ppp and other government stimulus . at december 31 , 2020 , the company had ppp loans held for investment of $ 652.7 million , net of unamortized processing fees of $ 14.5 million . the company 's total stockholders ' equity was $ 1.1 billion , an increase of $ 62.9 million over december 31 , 2019. nonaccrual loans represented 0.58 % of total loans at december 31 , 2020 , up from 0.32 % at year-end 2019. non-performing assets represented 0.90 % of total assets at december 31 , 2020 , up from 0.63 % at december 31 , 2019 as a result of a migration from loans to other real estate owned during 2020. the allowance for credit losses to total
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we anticipate that our expenses will increase substantially as we : prepare and initiate our planned phase 1 and phase 1/2 clinical trials of gmi-1271 , beginning in 2014 ; continue the research and development of our other drug candidates ; seek to discover and develop additional drug candidates ; seek regulatory approvals for any drug candidates other than gmi-1070 that successfully complete clinical trials ; ultimately establish a sales , marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any drug candidates other than gmi-1070 for which we may obtain regulatory approval ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , quality control and scientific personnel ; and add operational , financial and management information systems and personnel , including personnel to support our drug development and potential future commercialization efforts . to fund further operations , we will need to raise capital in addition to the net proceeds we received from our ipo . we may obtain additional financing in the future through the issuance of our common stock , through other equity or debt financings or through collaborations or partnerships with other companies . we may not be able to raise additional capital on terms acceptable to us , or at all , and any failure to raise capital as and when needed could compromise our ability to execute on our business plan . although it is difficult to predict future liquidity requirements , we believe that our existing cash and cash equivalents , together with interest thereon , will be sufficient to fund our operations for at least the next 12 months . however , our ability to successfully transition to profitability will be dependent upon achieving a level of revenues adequate to support our cost structure . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . our collaboration with pfizer in october 2011 , we entered into the license agreement with pfizer under which we granted pfizer an exclusive worldwide license to develop and commercialize products containing gmi-1070 for all fields and uses . the license also covers specified back-up compounds along with modifications of and improvements to gmi-1070 that meet defined chemical properties . pfizer is required to use commercially reasonable efforts , at its expense , to develop , obtain regulatory approval for and commercialize gmi-1070 for sickle cell disease in the united states . under the terms of the agreement , we received a $ 22.5 million upfront payment . we are also eligible to earn potential milestone payments of up to $ 115.0 million upon the achievement of specified development milestones , including the dosing of the first patients in phase 3 clinical trials for up to two indications and the first commercial sale of a licensed product in the united states and selected european countries for up to two indications , up to $ 70.0 million upon the achievement of specified regulatory milestones , including the acceptance of our filings for regulatory approval by regulatory authorities in the united states and europe for up to two indications , and up to $ 135.0 million upon the achievement of specified levels of annual net sales of licensed products . we are also eligible to receive tiered royalties for each licensed product , with percentages ranging from the low double digits to the low teens , based on net sales worldwide , subject to reductions in specified circumstances . the first potential milestone payment that we might be entitled to receive under the pfizer agreement is $ 35.0 million upon the initiation of dosing of the first patient in a phase 3 trial of gmi-1070 by pfizer . in some specified circumstances , if pfizer has not initiated dosing by april 2014 , pfizer is obligated to make an advance payment to us of $ 15.0 million against the first milestone payment . pfizer has advised us through the joint steering committee established under the agreement that they intend to begin enrolling patients for a phase 3 trial of gmi-1070 in the second half of 2014 , pending approval through 63. pfizer 's governance process . pfizer has also informed us through the joint steering committee that activities necessary to support the initiation of a phase 3 trial in the second half of 2014 are currently underway pending approval through pfizer 's governance process . the steps that pfizer has taken and is taking to prepare for a phase 3 trial include manufacturing of the drug substance to be used in the phase 3 trial , completion of toxicology studies that would support a phase 3 trial and an nda , engagement with regulatory authorities in the united states and overseas to discuss plans for the conduct of a phase 3 trial , planning and preparation for a so-called tqtc clinical trial to evaluate cardiac safety that would support a phase 3 trial , contracting with a cro to provide services in the conduct of a phase 3 trial and convening clinical investigators in the united states and overseas to discuss plans for a phase 3 trial . although pfizer has taken and is taking a number of steps to prepare for phase 3 initiation in the second half of 2014 , there can be no assurance that pfizer will proceed on that schedule , or at all . there also can be no assurance that , if pfizer does not initiate dosing by april 2014 , the conditions to its obligation to make the $ 35.0 million milestone payment or the $ 15.0 million advance will be satisfied . story_separator_special_tag we have a research services agreement with the university of basel , or the university , under which university personnel have performed research services for us on an as-requested basis since 2004. the agreement includes one-year research terms , and we have no affirmative obligation to purchase any minimum amount of services in any year beyond what we commit to at the beginning of each term , if any . for each of the research terms ended in february 2013 and 2014 , we paid the university approximately $ 150,000. as part of the original consideration for entering into this agreement , we granted to the university the right to receive payments from us under specified circumstances . if we receive any future milestone payments or royalties from pfizer with respect to gmi-1070 , we have agreed to pay 10 % of those amounts to the university . 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 generally accepted accounting principles in the united states , or gaap . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods . in accordance with gaap , we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made . actual results may differ materially from our estimates and judgments under different assumptions or conditions . we periodically review our estimates in light of changes in circumstances , facts and experience . the effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate . we define our critical accounting policies as those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report , we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments . revenue recognition research grant contracts from time to time , we are awarded reimbursement contracts for services and development grant contracts with government and non-government entities and philanthropic organizations . under these contracts , we are typically reimbursed for our costs in connection with specific research or development activities . we recognize revenue as and to the extent we incur costs in connection with performance under these arrangements . 64. license and collaboration agreements we have entered into a license agreement with pfizer . under the agreement , pfizer made a nonrefundable $ 22.5 million upfront payment to us in 2011 and may become obligated to make potential milestone payments to us upon the achievement of significant clinical development milestones , regulatory approvals and sales-based events . the agreement also contemplates royalty payments to us on any future net sales of gmi-1070 worldwide . collaborative research and development agreements can provide for one or more of upfront license fees , research payments and milestone payments . agreements with multiple components , such as deliverables or similar items , are referred to as multi-element revenue arrangements and are evaluated according to the provisions of accounting standards codification , or asc , topic 605-25 , revenue recognition multiple-element arrangements , which we adopted effective as of january 1 , 2011 , to determine whether the deliverables can be separated into more than one unit of accounting . an item can generally be considered to be a separate unit of accounting if both of the following criteria are met : the delivered item ( s ) has value to our customer on a standalone basis ; and the arrangement includes a general right of return relative to the delivered item ( s ) , and delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . items that can not be divided into separate units are combined with other units of accounting , as appropriate . consideration received is then allocated among the separate units based on a selling price hierarchy . the selling price hierarchy for each deliverable is based on vendor-specific objective evidence , or vsoe , if it is available ; third-party evidence of selling price , or tpe , if vsoe is not available ; or an estimated selling price , if neither vsoe nor tpe is available . our license agreement with pfizer represents a multiple-element revenue arrangement . to account for this transaction , we determined the elements , or deliverables , included in the arrangement and allocated arrangement consideration to the various elements based on each element 's relative selling price . the identification of individual elements in a multiple-element arrangement and the estimation of the selling price of each element involve significant judgment , including consideration as to whether each delivered element has standalone value to our collaborator . the primary deliverable under our license arrangement with pfizer is an exclusive worldwide license to gmi-1070 , which is currently being developed to treat people experiencing voc . the arrangement also includes deliverables related to research and preclinical development activities to be performed by us on pfizer 's behalf and our participation on a joint steering committee .
| research and development costs are expensed as incurred . non-refundable 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 . research and development activities are central to our business model . drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later stage clinical trials . we expect our research and development expenses to increase over the next several years as we seek to progress gmi-1271 and our other drug candidates through clinical development . however , it is difficult to determine with certainty the duration and completion costs of our current or future preclinical studies and clinical trials of our drug candidates , or if , when or to what extent we will generate revenues from the commercialization and sale of any of our drug candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our drug candidates . the duration , costs and timing of clinical trials and development of our drug candidates will depend on a variety of factors that include , but are not limited to : per patient trial costs ; the number of patients that participate in the trials ; the number of sites included in the trials ; the countries in which the trial is conducted ; the length of time required to enroll eligible patients ; 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 ; and the safety and efficacy profile of the drug candidate . in addition , the probability of success for each drug candidate will depend on
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our revenue has grown from $ 22.8 million in 2012 to $ 149.9 million in 2018 , representing a 558 % period-over-period growth rate . historically , our revenues have been primarily generated in the united states , however , as a result of acquisitions made over the past three years of companies with more international presence , domestic revenue as a percentage of total revenue has decreased . during the year ended december 31 , 2018 domestic revenue as a percent of total revenue decreased to 78 % compared to 84 % during the year ended december 31 , 2016 . we expect this trend to continue in 2019 as a result of the acquisitions of rant & rave and adestra during the fourth quarter of 2018 , as a majority of each company 's operations reside outside the united states . see note 12 revenue recognition in the notes to consolidated financial statements for more information regarding our revenue as it relates to domestic and foreign operations . our operating results in a given period can fluctuate based on the mix of subscription and support , perpetual license and professional services revenue . for the years ended december 31 , 2018 , 2017 and 2016 , our subscription and support revenue accounted for 91 % , 87 % , and 88 % , respectively of our total revenue . historically , we have sold certain of our applications under perpetual licenses , which also are paid in advance . for the years ended december 31 , 2018 , 2017 and 2016 , our perpetual license revenue accounted for 3 % , 4 % , and 2 % of our total revenue , respectively . the support agreements related to our perpetual licenses are one-year in duration and entitle the customer to support and unspecified upgrades . the revenue related to such support agreements is included as part of our subscription and support revenue . professional services revenue consists of fees related to implementation , data extraction , integration and configuration and training on our applications . for the years ended 39 december 31 , 2018 , 2017 and 2016 , our professional services revenue accounted for 6 % , 9 % , and 10 % , respectively . to support continued growth , we intend to pursue acquisitions of complementary technologies , products and businesses . this will expand our product families , customer base , and market access , resulting in increased benefits of scale . we will prioritize acquisitions within our current enterprise solution categories as described in item 1. business herein . consistent with our growth strategy , we have made a total of sixteen acquisitions in the six years ending december 31 , 2018 . 2018 acquisitions interfax . on march 21 , 2018 , the company 's wholly owned subsidiary , powersteering software limited , a limited liability company organized and existing under the laws of england and wales ( “ powersteering uk ” ) , completed its purchase of the shares comprising the entire issued share capital of interfax communications limited ( “ interfax ” ) , an irish-based software company providing secured cloud-based messaging solutions , including enterprise cloud fax and secure document distribution . in connection with this acquisition , the company also acquired certain assets related to interfax 's business from a united states based reseller of interfax 's products . the purchase price consideration paid for interfax was $ 33.6 million in cash at closing , net of cash acquired of $ 1.4 million , and a $ 5.0 million cash holdback payable over 18 months ( subject to reduction for indemnification claims ) . revenues recorded since the acquisition date through december 31 , 2018 were approximately $ 12.1 million . in addition , in connection with the acquisition of interfax , certain assets and customer relationships of their u.s. reseller ( “ marketech ” ) were purchased for $ 2.0 million , excluding potential future earn-out payments valued at $ 0.3 million tied to additional performance-based goals . ro innovation . on june 28 , 2018 , the company completed its purchase of ro innovation , inc. ( “ ro innovation ” ) , a cloud-based customer reference solution for creating , deploying , managing , and measuring customer reference and sales enablement content . the purchase price consideration paid was approximately $ 12.3 million in cash payable at closing , net of cash acquired of $ 0.2 million , a $ 1.8 million cash holdback payable in 12 months ( subject to reduction for indemnification claims ) and potential future earn-out payments for up to $ 7.5 million valued at $ 0.0 million as of the acquisition date based on the probability of attainment of future performance-based goals . revenues recorded since the acquisition date through december 31 , 2018 were approximately $ 3.0 million . rant & rave . on october 3 , 2018 , the company 's wholly owned subsidiary , powersteering uk , completed its purchase of the shares comprising the entire issued share capital of rapide communication ltd , a private company limited by shares organized and existing under the laws of england and wales doing business as rant & rave ( “ rant & rave ” ) , a leading provider of cloud-based customer engagement solutions . the purchase price paid for rant & rave was $ 58.5 million in cash at closing , net of cash acquired , and a $ 6.5 million cash holdback payable in 12 months ( subject to indemnification claims ) . revenues recorded since the acquisition date through december 31 , 2018 were approximately $ 5.4 million . adestra . on december 12 , 2018 , the company completed its purchase of adestra ltd. ( “ adestra ” ) , a leading provider of enterprise-grade email marketing , transaction and automation software . the purchase price paid was $ 56.0 million in cash paid at closing , net of cash acquired , and a $ 4.2 million cash holdback payable in 12 months ( subject to indemnification claims ) . story_separator_special_tag revenues recorded since the acquisition date through december 31 , 2018 were approximately $ 0.6 million . 2017 acquisitions omtool . on january 11 , 2017 , upland completed its acquisition of omtool , ltd. ( “ omtool ” ) , an enterprise document capture , fax , and workflow solution company . the purchase price paid for omtool was $ 19.3 million ( net of cash acquired ) . rightanswers . on april 21 , 2017 , the company acquired rightanswers , inc. ( “ rightanswers ” ) , a cloud-based knowledge management system . the purchase price was $ 17.4 million , in cash at closing ( net of $ 0.1 million cash acquired ) and a $ 2.5 million cash holdback payable in one year ( subject to indemnification claims ) , and excludes potential future earn-out payments valued at $ 4.0 million tied to additional performance-based goals , towards which $ 1.0 million was paid in september 2017 and an additional final payment of $ 2.0 million was paid during the year ended december 31 , 2018 . 40 waterfall . on july 13 , 2017 , the company acquired waterfall international inc. ( “ waterfall ” ) , a cloud-based mobile messaging platform . the purchase price consideration paid was approximately $ 24.4 million in cash at closing ( net of $ 0.4 million of cash acquired ) and a $ 1.5 million cash holdback payable in 18 months ( subject to indemnification claims ) . the foregoing excludes an additional potential $ 3.0 million in earnout payments tied to performance-based conditions , towards which $ 2.2 million was paid during the year ended december 31 , 2018 based on the final earn-out calculation . qvidian . on november 16 , 2017 , the company acquired qvidian corporation ( “ qvidian ” ) , a provider of cloud-based rfp and sales-proposal automation software . the purchase price consideration paid by the company was $ 50 million , of which $ 30 million came from cash on-hand and $ 20 million from our credit facility . 2016 acquisitions leadlander . on january 7 , 2016 , upland completed its purchase of substantially all of the assets of leadlander , inc. ( “ leadlander ” ) , a website analytics provider . the purchase price consideration paid was approximately $ 8.0 million in cash payable at closing ( net of $ 0.4 million of cash acquired ) and a $ 1.2 million cash holdback payable in 12 months ( subject to indemnification claims ) . in addition to the cash consideration described above , the asset purchase agreement included a contingent share consideration component pursuant to which upland issued an aggregate of $ 2.4 million in common stock on july 25 , 2016. the company also paid additional consideration of $ 2.4 million in march 2017 in cash to the selling shareholders of leadlander based on the achievement of certain revenue targets during 2016 and 2017 and no further payments are expected to be made as of december 31 , 2018. hipcricket . on march 14 , 2016 , upland completed its purchase of substantially all of the assets of hipcricket , inc. ( “ hipcricket ” ) , a cloud-based mobile messaging software provider . the consideration paid to the seller consisted of our issuance of one million shares of our common stock and the transfer of our epm live product business . the value of the shares on the closing date of the transaction was approximately $ 5.7 million , and the fair value of our epm live product business was approximately $ 5.9 million . prior to the transaction , hipcricket was owned by an affiliate of esw capital , llc , which is a shareholder of upland . raymond james & co. provided a fairness opinion to upland in connection with the transaction . advanced processing & imaging . on april 27 , 2016 , upland acquired advanced processing & imaging , inc. , a content management platform driving workflow in governments and schools . the purchase price consideration consisted of $ 4.1 million in cash payable at closing ( net of $ 0.1 million of cash acquired ) , and a $ 0.8 million cash holdback payable in 12 months ( subject to indemnification claims ) . key metrics in addition to the gaap financial measures described below in “ components of operating results , ” we regularly review the following key metrics to evaluate and identify trends in our business , measure our performance , prepare financial projections and make strategic decisions ( in thousands of dollars , except % ) : replace_table_token_7_th ( 1 ) annualized recurring revenue value at year-end . the value as of december 31 equals the monthly value of our recurring revenue contracts measured as of december 31 multiplied by 12. this measure excludes the revenue value of uncontracted overage fees and on-demand service fees . see “ management 's discussion and analysis of financial condition and results of operations-key metrics ” for additional discussion of this key metric . 41 ( 2 ) annual net dollar retention rate . we define annual net dollar retention rate as of december 31 as the aggregate annualized recurring revenue value at december 31 from those customers that were also customers as of december 31 of the prior fiscal year , divided by the aggregate annualized recurring revenue value from all customers as of december 31 of the prior fiscal year . this measure excludes the revenue value of uncontracted overage fees and on-demand service fees . see “ management 's discussion and analysis of financial condition and results of operations-key metrics ” for additional discussion of this key metric . ( 3 ) adjusted ebitda . we monitor our adjusted ebitda to help us evaluate the effectiveness and efficiency of our operations . adjusted ebitda is a non-gaap financial measure .
| million in 2017 , a decrease of $ 0.5 million , or 10 % . the acquisitions we closed after january 11 , 2017 contributed a $ 0.3 million increase in perpetual license revenue . the organic perpetual revenue declined by $ 0.8 million , or 19 % . professional services revenue was $ 9.4 million in 2018 , compared to $ 8.1 million in 2017 , an increase of $ 1.3 million , or 16 % . the acquisitions we closed after january 11 , 2017 contributed a $ 2.8 million increase to professional services revenue . the organic professional services revenue declined by $ 1.5 million , or 21 % . cost of revenue and gross profit percentage replace_table_token_11_th cost of subscription and support revenue was $ 42.9 million in 2018 , compared to $ 28.5 million in 2017 , an increase of $ 14.4 million , or 51 % . the acquisitions closed after january 11 , 2017 contributed to a $ 15.6 million increase in cost of subscription and support revenue . of the $ 15.6 million increase , $ 6.8 million was due to mobile messaging costs associated with the waterfall and rant & rave acquisitions , $ 2.8 million increase in personnel and related costs , $ 2.1 million increase in depreciation and amortization costs , $ 1.7 million was due to telephony costs 47 related to the acquisition of interfax , $ 1.1 million was due to hosting and infrastructure costs , and the remaining $ 1.1 million from miscellaneous costs . the organic portion of our business contributed to a $ 1.2 million decrease . of the $ 1.2 million decrease , $ 0.4 million was due to a decrease in depreciation and amortization expense primarily due to a decrease in amortization expense of acquired intangible assets created from our purchase business combinations accounting , $ 0.3 million was related to personnel and related costs , most of which were the result
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in addition , we are looking to make significant enhancements in the overall e-commerce experience to make it easier for our customer to find the fashion looks , as well as the basics , they desire . e-commerce sales represented 15 % of our total net sales in 2013 . expand internationally in 2013 , we made steady progress on our international expansion strategy with additional franchise store openings in the middle east and in latin america.we also entered into a new franchise arrangement to bring the express brand to south africa . at year end , we were earning revenue from 26 franchise locations , a net increase of 11 stores from year end 2012 . in 2014 , we plan to open 3 to 6 franchise store locations . how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . these key measures include net sales , comparable sales and other individual store performance factors , gross profit , and selling , general , and administrative expenses . net sales . net sales reflects revenues from the sale of our merchandise , less returns and discounts , as well as shipping and handling revenue related to e-commerce , sell-off revenue , gift card breakage , and revenue earned from our franchise agreements . comparable sales and other individual store performance factors . comparable sales are calculated based upon stores that were open at least thirteen full months as of the end of the reporting period . we include e-commerce in our comparable sales , as this is the way we manage our business internally . we also believe it provides a more comprehensive view of our year over year performance . in 2013 , comparable sales were calculated based upon the 52-week period ended february 1 , 2014 compared to the 52-week period ended february 2 , 2013 . 2012 comparable sales were calculated based on the 53-week period ended february 2 , 2013 compared to the 53-week period ended february 4 , 2012. a store is not considered a part of the comparable sales base if the square footage of the store changed by more than 20 % due to remodel or relocation activities or if we execute a phased remodel whereby a portion of the store is under construction and , therefore , that portion of the store is not productive selling space . under the latter scenario , the store is excluded from comparable sales during the construction period only , and is then considered a comparable store when construction is complete . we also review sales per gross square foot , average unit retail price , units per transaction , dollars per transaction , traffic , and conversion , among other things , to evaluate the performance of individual stores and on a company-wide basis . gross profit . gross profit is equal to net sales minus cost of goods sold , buying and occupancy costs . gross margin measures gross profit as a percentage of net sales . cost of goods sold , buying and occupancy costs include the direct cost of purchased merchandise , inventory shrinkage , inventory adjustments , inbound freight to our distribution center , outbound freight to get merchandise from our distribution center to stores , merchandising , design , planning and allocation and manufacturing/production costs , occupancy costs related to store operations ( such as rent and common area maintenance , utilities , and depreciation on assets ) , and all logistics costs associated with our e-commerce business . our cost of goods sold , buying and occupancy costs increase in higher volume quarters because the direct cost of purchased merchandise is tied to sales . buying and occupancy costs related to stores are largely fixed and do not necessarily increase as volume increases . changes in the mix of our products , such as changes in the proportion of accessories , which are higher margin , may also impact our overall cost of goods sold , buying and occupancy costs . we review our inventory levels on an on-going basis in order to identify slow-moving merchandise and generally use markdowns to clear such merchandise . the timing and level of markdowns are driven primarily by seasonality and customer acceptance of our merchandise . during 2013 we used third-party vendors and company-owned outlet stores to dispose of marked-out-of-stock merchandise . the primary drivers of 26 the costs of individual goods are raw materials , labor in the countries where our merchandise is sourced , and logistics costs associated with transporting our merchandise . selling , general , and administrative expenses . selling , general , and administrative expenses include all operating costs not included in cost of goods sold , buying and occupancy costs , with the exception of any proceeds received from insurance claims and gain/loss on disposal of assets , which are included in other operating expense , net . these costs include payroll and other expenses related to operations at our corporate home office , store expenses other than occupancy , and marketing expenses , which include production , mailing , and print advertising costs . with the exception of store payroll and marketing , these expenses generally do not vary proportionally with net sales . as a result , selling , general , and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters . story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:8pt ; font-weight : bold ; '' > 2013 2012 2011 ( in thousands ) interest expense , net $ 19,522 $ 19,552 $ 35,792 interest expense , net in 2013 remained substantially unchanged from 2012. the $ 16.2 million decrease in interest expense , net in 2012 compared to 2011 resulted primarily from a $ 9.6 million loss on extinguishment related to the repurchases of $ 49.2 million of our senior notes in the first and second quarters of 2011 , the amendment of our $ 200 million revolving credit facility in the second quarter of 2011 , and the full prepayment of our term loan in the fourth quarter of 2011. the remaining reduction in expense relates to a lower debt balance in 2012 compared to 2011 due to the previously-mentioned repurchases and prepayment . income tax expense the following table shows income tax expense in dollars for the stated periods : year ended 2013 2012 2011 ( in thousands ) income tax expense $ 76,627 $ 92,704 $ 94,868 the effective tax rate was 39.7 % for 2013 compared to 40.0 % for 2012 . we anticipate our effective tax rate will be approximately 40.0 % in 2014. the effective tax rate for 2012 was 40.0 % compared to 40.3 % for 2011 . adjusted net income the following table presents adjusted net income and adjusted earnings per diluted share for the stated periods : replace_table_token_11_th * these are reported gaap numbers because no adjustments were made to net income or earnings per diluted shares for 2013 or 2012. we supplement the reporting of our financial information determined under united states generally accepted accounting principles ( `` gaap '' ) with certain non-gaap financial measures : adjusted net income and adjusted earnings per diluted share . we believe that these non-gaap measures provide meaningful information to assist the readers of our financial information in understanding our financial results and assessing our prospects for future performance . management believes adjusted net income and adjusted earnings per diluted share are important indicators of our operations because they exclude items that may not be indicative of , or are unrelated to , our core operating results , and provide a better baseline for analyzing trends in our underlying business . because non-gaap financial measures are not standardized , it may not be possible to compare these financial measures with other companies ' non-gaap financial measures having the same or similar names . these adjusted financial measures should not be considered in isolation or as a substitute for reported net income and reported earnings per diluted share . these non-gaap financial measures reflect an additional way of viewing our operations that , when viewed with our gaap results and the following reconciliations to the most directly comparable gaap financial measures , provide a more complete understanding of our business . 29 we strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure . the following table reconciles the non-gaap financial measures , adjusted net income and adjusted earnings per diluted share , with the most directly comparable gaap financial measures , net income and earnings per diluted share . no adjustments were made to net income or earnings per diluted share for 2013 or 2012 , and , therefore , no tabular reconciliation has been included for those years . replace_table_token_12_th ( a ) includes transaction costs related to the secondary offerings completed in april 2011 and december 2011 . ( b ) includes premium paid and accelerated amortization of debt issuance costs and debt discount related to the repurchases of $ 49.2 million of senior notes and the amendment of our $ 200 million revolving credit facility , and the full prepayment of our $ 125.0 million term loan . * items were tax affected at our statutory rate of approximately 39 % for 2011. liquidity and capital resources general our business relies on cash flows from operations as our primary source of liquidity . we do , however , have access to additional liquidity , if needed , through borrowings under our revolving credit facility . our primary cash needs are for merchandise inventories , payroll , store rent , and capital expenditures , primarily associated with opening new stores , remodeling existing stores , and information technology projects . the most significant components of our working capital are merchandise inventories , accounts payable , and other accrued expenses . our liquidity position benefits from the fact that we generally collect cash from sales to customers the same day or , in the case of credit or debit card transactions , within 3 to 5 days of the related sale , and have up to 75 days to pay certain merchandise vendors and 45 days to pay the majority of our non-merchandise vendors . our cash position is seasonal as a result of building up inventory for the next selling season and , as a result , our cash flows from operations during the spring are usually lower when compared to the rest of the year . our cash balances generally increase during the summer selling season and then decrease in the fall as we build our inventory for the holiday selling season . cash then builds again during holiday selling season . we believe that cash generated from operations and the availability of borrowings under our revolving credit facility will be sufficient to meet working capital requirements , anticipated capital expenditures , and scheduled interest payments for at least the next 12 months . 30 cash flow analysis a summary of cash provided by or used in operating , investing and financing activities are shown in the following table : replace_table_token_13_th net cash provided by operating activities the majority of our operating cash inflows are derived from sales . our operating cash outflows generally consist of payments to merchandise vendors , employees for wages , salaries , and other employee benefits , and landlords for rent .
| gross profit the following table shows cost of goods sold , buying and occupancy costs , and gross profit in dollars for the stated periods : replace_table_token_10_th the 210 basis point decrease in gross margin , or gross profit as a percentage of net sales , in 2013 compared to 2012 was comprised of a 120 basis point deterioration in merchandise margin and a 90 basis point increase in buying and occupancy costs . the decrease in merchandise margin was primarily driven by increased promotional activity throughout the year , which continued through the holiday selling season . the increase in buying and occupancy costs was primarily driven by rent , including the incremental impact of approximately $ 9.0 million of pre-opening rent expense associated with the construction of two flagship stores , as well as increased e-commerce fulfillment costs resulting from additional e-commerce sales . from 2011 to 2012 , we had a 180 basis point decrease in gross margin . the decrease was comprised of a 140 basis point deterioration in merchandise margin and a 40 basis point increase in buying and occupancy costs . the decrease in merchandise margin was primarily driven by higher product costs and increased promotional activity in the latter part of the second quarter and into the fall season . the increase in buying and occupancy costs was primarily driven by increased rent , including the impact of $ 7.8 million of pre-opening rent expense for the 2 flagship stores under construction . selling , general , and administrative expenses the following table shows selling , general , and administrative expenses in dollars for the stated periods : year ended 2013 2012 2011 ( in thousands ) selling , general , and administrative expenses $ 504,277 $ 491,599 $ 483,823 the $ 12.7 million increase in selling , general , and administrative expenses in 2013 compared to 2012 was driven by a $ 12.4 million increase in payroll primarily related to increased stock compensation expense , merit increases , and additional headcount at our home office to support our outlet business and our international expansion and e-commerce growth pillars . there was also a $ 1.9
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to date , these restrictions have not had a material impact on the company 's operations , as the company operates in industries that are deemed “ critical ” and “ essential ” under the rules imposing these restrictions ; however , the company did incur approximately $ 7.5 million of covid-19 related charges globally in fiscal year 2020. the company has implemented operational guidelines throughout the company 's organization consistent with the applicable governmental and regulatory policies in the geographies the company operates intended to protect the company 's employees and prevent the spread of the virus in the company 's workplace , and to date , all of the company 's facilities are operational . the company believes the severity and duration of the covid-19 pandemic is uncertain and such uncertainty will likely continue . among the items that could have a significant impact on the company 's future results is a reduction in the company 's raw material supply due to disruptions in the operations of the company 's third-party suppliers . accordingly , while to date the company has experienced no material negative effects on the company 's business and results of operations as a result of the current covid-19 outbreak , the situation remains dynamic and subject to rapid and possibly material change , including but not limited to changes that may materially affect the operations of the company 's supply chain partners and finished product customers , which ultimately could result in material negative effects on the company 's business and results of operations . additionally , the company 's raw material supplies are globally diverse . during the second quarter of 2020 , the company experienced various disruptions in raw material supplies and sales of its specialty collagens and gelatins , both of which returned to more normalized levels during the third quarter of 2020. however , it is possible that covid-19 might cause similar disruptions to the company 's business and operations in the future . dgd has also implemented operational guidelines in its organization , and to date , covid-19 has not had a material impact on dgd 's operations . we expect that biofuel regulations and mandates will continue supporting renewable diesel demand ; however , a prolonged or significant decline in overall fuel demand could negatively impact the sales and profitability of dgd 's business . the extent to which covid-19 impacts the company 's and dgd 's results will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity of covid-19 and any actions to contain the virus or treat its impact , among others . for additional information regarding the risks associated with covid-19 , see the important information in item 1a . risk factors , under the caption “ pandemics , epidemics or disease outbreaks , such as the novel coronavirus ( “ covid-19 ” ) , may disrupt our business , including , among other things , our supply chain and production processes , each of which could materially affect our operations , liquidity , financial condition and results of operations . ” operating performance indicators the company monitors the performance of its business segments using key financial metrics such as results of operations , non-gaap measurements ( adjusted ebitda ) , segment operating income , raw material processed , gross margin percentage , foreign currency translation , and corporate activities . the company 's operating results can vary significantly due to changes in factors such as the fluctuation in energy prices , weather conditions , crop harvests , government policies and programs , changes in global demand , changes in standards of living , protein consumption , and global production of competing ingredients . due to these unpredictable factors that are beyond the control of the company , forward-looking financial or operational estimates are not provided . the company is exposed to certain risks associated with a business that is influenced by agricultural-based commodities . these risks are further described in item 1a of this report under the heading “ risk factors. ” the company 's feed ingredients segment animal by-products , bakery residuals , used cooking oil recovery , and blood operations are each influenced by prices for agricultural-based alternative ingredients such as corn oil , soybean oil , soybean meal , and palm oil . in these operations , the costs of the company 's raw materials change with , or in certain cases are indexed to , the selling price or the anticipated selling price of the finished goods produced from the acquired raw materials and or in some cases , the price spread between various types of finished products . the company believes that this methodology of procuring raw materials generally establishes a relatively stable gross margin upon the acquisition of the raw material . although the costs of raw materials for the feed ingredients segment are generally based upon actual or anticipated finished goods selling page 49 prices , rapid and material changes in finished goods prices , including competing agricultural-based alternative ingredients , generally have an immediate and often times , material impact on the company 's gross margin and profitability resulting from the brief lapse of time between the procurement of the raw materials and the sale of the finished goods . in addition , the volume of raw material volume acquired , which has a direct impact on the amount of finished goods produced , can also have a material effect on the gross margin reported , as the company has a substantial amount of fixed operating costs . the company 's food ingredients segment collagen and natural casings products are influenced by other competing ingredients including plant-based and synthetic hydrocolloids and artificial casings . in the collagen operation , the cost of the company 's animal-based raw material moves in relationship to the selling price of the finished goods . the processing time for the food ingredients segment collagen and casings is generally 30 to 60 days , which is substantially longer than the company 's feed ingredients segment animal by-products operations . story_separator_special_tag consequently , the company 's gross margin and profitability in this segment can be influenced by the movement of finished goods prices from the time the raw materials were procured until the finished goods are sold . the company 's fuel ingredients segment converts fats into renewable diesel , organic sludge and food waste into biogas , and fallen stock into low-grade energy sources . the company 's gross margin and profitability in this segment are impacted by world energy prices for oil , electricity , natural gas and governmental subsidies . the reporting currency for the company 's financial statements is the u.s. dollar . the company operates in over 15 countries and therefore , certain of the company 's assets , liabilities , revenues and expenses are denominated in functional currencies other than the u.s. dollar , primarily in the euro , brazilian real , chinese renminbi , canadian dollar and polish zloty . to prepare the company 's consolidated financial statements , assets , liabilities , revenues , and expenses must be translated into u.s. dollars at the applicable exchange rate . as a result , increases or decreases in the value of the u.s. dollar against these other currencies will affect the amount of these items recorded in the company 's consolidated financial statements , even if their value has not changed in the functional currency . this could have a significant impact on the company 's results , if such increase or decrease in the value of the u.s. dollar relative to these other currencies is substantial . in 2019 , the company continued to evaluate operational developments and the impact of anticipated significant expansion of the dgd joint venture . this evaluation was impactful to the consideration of how the company most appropriately reflects its share of equity income from the dgd joint venture . based on the company 's analysis , it was determined that the dgd joint venture has evolved into an integral and integrated part of the company 's ongoing operations . the company determined this justifies a more meaningful and transparent presentation of equity in net income of the dgd joint venture as a component of the company 's operating income . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > page 53 segment operating income . the company 's fuel ingredients segment operating income ( inclusive of the equity contribution from dgd joint venture ) for fiscal year 2020 was $ 317.3 million , a decrease of $ 81.5 million or ( 20.4 ) % as compared to fiscal year 2019. the decrease in earnings was primarily due to the reinstated fiscal year 2018 and fiscal year 2019 blenders tax credits recorded in the fourth quarter of fiscal 2019 as compared to one year of blenders tax credits recorded in fiscal 2020 and $ 38.2 million restructuring and asset impairment charges due to the shut down of processing operations at the company 's biodiesel facilities located in the united states and canada . foreign currency during fiscal year 2020 , the euro strengthened against the u.s. dollar as compared to fiscal year 2019. using actual results for fiscal year 2020 and the prior year 's average foreign currency rates for fiscal year 2019 would result in a decrease in operating income of approximately $ 6.4 million . the average rates assumption used in this calculation was the actual average rate for fiscal year 2020 of 1.00 : usd $ 1.14 and cad $ 1.00 : usd $ 0.75 as compared to the average rate for fiscal year 2019 of 1.00 : usd $ 1.12 and cad $ 1.00 : usd $ 0.75 , respectively . corporate activities selling , general and administrative expenses . selling , general and administrative expenses were $ 55.3 million during fiscal year 2020 , a $ 2.6 million decrease from $ 57.9 million during fiscal year 2019. the decrease was primarily due to lower legal fees , and lower travel related costs that more than offset an increase in insurance costs . depreciation and amortization . depreciation and amortization charges increased $ 0.6 million to $ 11.0 million during fiscal year 2020 as compared to $ 10.4 million during fiscal year 2019. the increase was primarily due to the increased leasehold improvement and office equipment depreciation expense at the company 's corporate office in fiscal year 2020. interest expense . interest expense was $ 72.7 million for fiscal year 2020 , compared to $ 78.7 million for fiscal year 2019 , a decrease of $ 6.0 million . the decrease was primarily due to lower term loan b debt outstanding and lower interest rates that were partially offset by an increase in deferred loan costs from the pay down of the term loan b and a decrease in capitalized interest . debt extinguishment costs . there were no debt extinguishment costs in fiscal year 2020 as compared to $ 12.1 million for fiscal year 2019 , which were related to the termination of the 5.375 % senior notes . foreign currency losses . foreign currency losses were $ 2.3 million during fiscal year 2020 , as compared to a loss of approximately $ 1.3 million for fiscal year 2019. the increase is due primarily to higher losses on the revaluation of non-functional currency liabilities as compared to the same period in fiscal 2019. gain ( loss ) on disposal of subsidiaries . there were no gains or losses on disposal of subsidiaries in fiscal year 2020 as compared to a $ 3.0 million gain incurred in fiscal year 2019. other expense , net . other expense was $ 5.5 million for fiscal year 2020 , compared to $ 6.7 million in fiscal year 2019. the decrease in other expense was primarily due to a decrease in pension expense , a decrease in insurance proceeds on fire and casualty losses and a decrease in interest income . equity in net income in investment of other unconsolidated subsidiaries .
| although the jacobsen and reuters provide useful metrics of performance , the company 's finished products are commodities that compete with other commodities such as corn , soybean oil , palm oil complex , soybean meal and heating oil on nutritional and functional values . therefore , actual pricing for the company 's finished products , as well as competing products , can be quite volatile . in addition , neither the jacobsen nor reuters provides forward or future period pricing for the company 's commodities . the jacobsen and reuters prices quoted below are for delivery of the finished product at a specified location . although the company 's prices generally move in concert with reported jacobsen and reuters prices , the company 's actual sales prices for its finished products may vary significantly from the jacobsen and reuters because of production and delivery timing differences and because the company 's finished products are delivered to multiple locations in different geographic regions which utilize alternative price indexes . in addition , certain of the company 's premium branded finished products may sell at prices that may be higher than the closest product on the related jacobsen or reuters index . during fiscal year 2020 , the company 's actual sales prices by product trended with the disclosed jacobsen and reuters prices . average jacobsen and reuters prices ( at the specified delivery point ) for fiscal year 2020 , compared to average jacobsen and reuters prices for fiscal year 2019 are : replace_table_token_4_th the following table shows the average jacobsen and reuters prices for the fourth quarter of fiscal year 2020 , compared to the average jacobsen and reuters prices for the third quarter of fiscal year 2020. replace_table_token_5_th page 51 segment results segment operating income for the fiscal year ended january 2 , 2021 was $ 430.9 million , which reflects a decrease of $ 44.9 million or ( 9.4 ) % as compared to the fiscal year ended december 28 , 2019. replace_table_token_6_th replace_table_token_7_th feed ingredients segment raw material volume . in fiscal year 2020 , the raw material processed by the company 's feed ingredients segment totaled 8.95 million metric tons . compared to fiscal year 2019 , overall raw material volume processed in the feed ingredients segment increased approximately
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while this can result in variability in quarterly product sales on a sequential basis , these effects have generally not been significant when comparing product sales in the three months ended march 31 with product sales in the corresponding period of the prior year . in addition , general economic conditions may affect , or in some cases amplify , certain of these factors with a corresponding impact on our product sales . see item 1. business marketed products for a discussion of our principal products and their approved indications . 72 neulasta ® /neupogen ® total neulasta ® /neupogen ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_8_th the increase in u.s. sales of neulasta ® /neupogen ® for 2011 was driven principally by an increase in the average net sales price and neulasta ® unit growth . the decrease in neulasta ® /neupogen ® international sales was driven by a decline in neupogen ® sales due , in part , to biosimilar competition , offset partially by an increase in neulasta ® sales due , in part , to continued conversion from neupogen ® . the increase in u.s. sales of neulasta ® /neupogen ® for 2010 was driven principally by an increase in the average net sales price and , to a lesser extent , favorable changes in wholesaler inventories . the increase in international neulasta ® /neupogen ® sales for 2010 reflects primarily growth in neulasta ® , principally from the continued conversion from neupogen ® , offset partially by a decline in neupogen ® sales due , in part , to biosimilar competition . in addition to other factors mentioned in the product sales section above , future neulasta ® /neupogen ® sales will depend , in part , on the development of new protocols , tests and or treatments for cancer and or new chemotherapy treatments or alternatives to chemotherapy that may have reduced and may continue to reduce the use of chemotherapy in some patients . see item 1. business marketed products and item 1a . risk factors for further discussion of certain of the above factors that could impact our future product sales . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_9_th the increase in enbrel sales for 2011 reflects primarily an increase in the average net sales price . the increase in enbrel sales for 2010 reflects an increase in the average net sales price , offset partially by a low single-digit percentage point unit decline , resulting primarily from share declines in dermatology . enbrel continues to maintain a leading position in both the rheumatology and dermatology segments . see item 1. business marketed products and item 1a . risk factors for further discussion of certain of the above factors that could impact our future product sales . 73 aranesp ® total aranesp ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_10_th the decrease in u.s. aranesp ® sales for 2011 was due principally to a high-teens percentage point unit decline , offset partially by an increase in the average net sales price . the unit decline reflects segment contraction resulting from changes to reimbursement in 2011 and the june 2011 esa label changes . the decrease in international aranesp ® sales for 2011 was due to a decrease in the average net sales price and a unit decline , reflecting segment contraction . the decrease in u.s. aranesp ® sales for 2010 was due primarily to a unit decline , reflecting segment contraction . the decrease in international aranesp ® sales for 2010 was due primarily to a unit decline . in addition to other factors mentioned in the product sales section above , future aranesp ® sales will depend , in part , on such factors as : regulatory developments , including the june 2011 esa label changes and any other product label changes ; reimbursement developments , including lcds ; changes in dose utilization as healthcare providers continue to refine their treatment practices in accordance with approved labeling ; and development of new protocols , tests and or treatments for cancer and or new chemotherapy treatments or alternatives to chemotherapy that may have reduced and may continue to reduce the use of chemotherapy in some patients . certain of the above factors may have a material adverse impact on future sales of aranesp ® . see item 1. business significant developments , item 1. business marketed products and item 1a . risk factors for further discussion of certain of the above factors that could impact our future product sales . epogen ® total epogen ® sales were as follows ( dollar amounts in millions ) : replace_table_token_11_th the decrease in epogen ® sales for 2011 was due primarily to a decrease in dose utilization related to changes to reimbursement in 2011 and the june 2011 esa label changes , offset partially by an increase in the average net sales price and patient population growth . the decrease in epogen ® sales for 2010 was due primarily to a unit decline and certain changes in accounting estimates . the unit decline reflects a decrease in dose utilization , offset partially by patient population growth . in addition to other factors mentioned in the product sales section above , future epogen ® sales will depend , in part , on such factors as : potential peginesatide launch ; 74 reimbursement developments , including those resulting from : ¡ cms 's 2011 final rule on bundling in dialysis ; and story_separator_special_tag ¡ other cms activities , including recent changes related to the qip ; regulatory developments , including the june 2011 esa label changes and any other product label changes ; changes in dose utilization as healthcare providers continue to refine their treatment practices in accordance with approved labeling ; new contracts with dialysis centers ; and adoption of alternative therapies or development of new modalities to treat anemia associated with crf . certain of the above factors may have a material adverse impact on future sales of epogen ® . see item 1. business significant developments , item 1. business marketed products and item 1a . risk factors for further discussion of certain of the above factors that could impact our future product sales . other products other product sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_12_th see item 1. business significant developments , item 1. business marketed products and item 1a . risk factors for further discussion of certain of the above factors that could impact our future product sales . 75 operating expenses operating expenses were as follows ( dollar amounts in millions ) : replace_table_token_13_th cost of sales cost of sales , which excludes the amortization of certain acquired intangible assets , increased to 15.9 % of product sales for 2011. excluding the impact of the puerto rico excise tax , cost of sales would have been 14.5 % of product sales compared with 15.1 % for 2010. this decrease was driven by improved productivity , offset partially by certain expenses related to actions to improve cost efficiencies . cost of sales increased to 15.1 % of product sales for 2010 , driven primarily by higher bulk material costs and higher inventory write-offs due to voluntary epogen ® , procrit ® ( epoetin alfa ) and enbrel recalls . these increases were offset partially by lower excess capacity charges and lower royalties , primarily for enbrel . research and development r & d costs are expensed as incurred and include primarily salaries , benefits and other staff-related costs ; facilities and overhead costs ; clinical trial and related clinical manufacturing costs ; contract services and other outside costs ; information systems ' costs and amortization of acquired technology used in r & d with alternative future uses . r & d expenses also include costs and cost recoveries associated with k-a and third-party r & d arrangements , including upfront fees and milestones paid to third parties in connection with technologies which had not reached technological feasibility and did not have an alternative future use . net payment or reimbursement of r & d costs is recognized when the obligations are incurred or as we become entitled to the cost recovery . the company groups all of its r & d activities and related expenditures into three categories : ( 1 ) discovery research and translational sciences , ( 2 ) later stage clinical programs and ( 3 ) marketed products . these categories include the company 's r & d activities as set forth in the following table : category description discovery research and translational sciences r & d expenses incurred in activities substantially in support of early research through the completion of phase 1 clinical trials . these activities encompass our discovery research and translational sciences functions , including drug discovery , toxicology , pharmacokinetics and drug metabolism , and process development . later stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product in the united states or the eu . marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold in the united states or the eu . includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained . 76 r & d expense by category was as follows ( in millions ) : replace_table_token_14_th the increase in r & d expense for 2011 was driven primarily by an increase of $ 151 million in our marketed product support largely driven by our continued support for prolia ® and xgeva ® which , subsequent to their approvals during 2010 , were categorized as marketed products rather than later stage clinical programs ; and an increase of $ 151 million in our later stage clinical program support , including amg 386 , ganitumab ( amg 479 ) , talimogene laherparepvec and amg 145 , offset partially by decreased support for prolia ® and xgeva ® as a result of their aforementioned approvals . these increases were offset partially by a decrease of $ 29 million in our discovery research and translational sciences activities , due primarily to reduced amortization expense related to r & d technology intangible assets acquired in business combinations in prior years . the increase in r & d expense for 2010 was driven primarily by an increase of $ 201 million in our marketed product support largely driven by our support for prolia ® and xgeva ® which , subsequent to their approvals during 2010 , were categorized as marketed products rather than later stage clinical programs and , to a lesser extent , lower cost recoveries from ongoing collaborations . this increase was offset by a reduction of $ 168 million in our later stage clinical programs as a result of the aforementioned approvals of prolia ® and xgeva ® , as well as licensing fees paid in 2009 , and lower expenses associated with our discovery research and translational
| we monitor the inventory levels of our products at our wholesalers by using data from our wholesalers and other third parties , and we believe wholesaler inventories have been maintained at appropriate levels ( generally two to three weeks ) given end-user demand . accordingly , historical fluctuations in wholesaler inventory levels have not significantly impacted our method of estimating sales deductions and returns . accruals for sales deductions are based primarily on estimates of the amounts earned or to be claimed on the related sales . these estimates take into consideration current contractual and statutory requirements , specific known market events and trends , internal and external historical data and forecasted customer buying patterns . sales deductions are substantially product-specific and , therefore , for any given year , can be impacted by the mix of products sold . rebates include primarily amounts paid to payers and providers in the united states , including those paid to state medicaid programs , and are based on contractual arrangements which vary by product , by payer and individual payer plans . we estimate the amount of rebate that will be paid based on the product sold , contractual terms , historical experience and wholesaler inventory levels and accrue these rebates in the period the related sale is recorded . we adjust the accrual as more information becomes available and to reflect actual experience . estimating such rebates is complicated , in part , due to the time delay between the date of sale and the actual settlement of the liability , which for certain rebates can take up to one year and greater than one year for certain recent government programs . rebates totaled $ 1.8 billion , $ 1.9 billion and $ 1.7 billion for the years ended december 31 , 2011 , 2010 and 2009 , respectively . we believe the methodology we use to accrue for rebates is reasonable and appropriate given current facts and circumstances . however , actual results may differ . changes in annual
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on february 27 , 2012 , the company issued warrants to purchase 1,000,000 shares of the company 's common stock at an exercise price of $ 0.60 per share to the former holders of the march 2011 notes described in note 6 – convertible story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements included elsewhere in this report and the information described under the caption “ risk factors ” and “ special note regarding forward looking statements ” above . company overview biozone pharmaceuticals , inc. , formerly known as international surf resorts , inc. , was incorporated under the laws of the state of nevada on december 4 , 2006 to operate as an internet-based provider of international surf resorts , camps and guided surf tours . the company proposed to engage in the business of vacation real estate and rentals related to its surf business and it owns the website isurfresorts.com . during late february 2011 , the company began to explore alternatives to its original business plan . on february 22 , 2011 , the prior officers and directors resigned from their positions and the company appointed a new president , director , principal accounting officer and treasurer and began to pursue opportunities in medical and pharmaceutical technologies and products . on march 1 , 2011 , the company changed its name to biozone pharmaceuticals , inc. on may 16 , 2011 , the company acquired substantially all of the assets and assumed all of the liabilities of aero pharmaceuticals , inc. pursuant to an asset purchase agreement dated as of that date . aero manufactures markets and distributes a line of dermatological products under the trade name of baker cummins dermatologicals . in december 2011 , in accordance with the intent of the parties participating in the reverse merger described below , the company transferred its 55 % ownership in isr de mexico , s. r.l . de c. v. , a mexican corporation that was owned by the company during the period prior to february 22 , 2011 , in return for and cancellation of 13,948,001 shares of the company 's common stock . reverse merger pursuant to authoritative accounting guidance , we accounted for the purchase of the biozone labs group as a “ reverse merger ” , with each of biozone labs , equalan and equachem , treated as the accounting survivor . on june 30 , 2011 , the company acquired all of the outstanding shares of biozone laboratories , inc. and its affiliates . biozone labs primarily is engaged in the business of developing and manufacturing over the counter ( “ otc ” ) drug products and cosmetic and beauty products on behalf of third parties . equalan llc ( “ equalan ” ) , related to biozone labs through common stock ownership , markets a line of proprietary skin care products under the brand names of glyderm ® . equachem llc ( “ equachem ” ) also related to biozone labs through common stock ownership , sells raw materials used in otc drugs and cosmetic products . we refer to biozone labs , equalan and equachem as the “ biozone labs group ” . the biozone labs group generated $ 12.6 and $ 15.3 million of sales during the years ended december 31 , 2011 and 2010 , respectively , of which $ 11.3 million or 89 % and $ 13.9 million or 91 % , respectively , were generated by biozone labs from its third party contract manufacturing business . 13 story_separator_special_tag style= '' text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > during the year ended december 31 , 2011 , cash of $ 575,521 was provided by financing activities , consisting of proceeds from the issuance of convertible notes of $ 2,750,000 , and the sale of common stock of $ 705,000. this was offset by repayment of notes payable to banks and shareholders of $ 2,729,115 , and payment of deferred financing fees of $ 150,364 , as compared to net cash provided by financing activities of $ 283,098 during the comparable twelve-month period ended december 31 , 2010 , which consisted of net advances from a shareholder of $ 375,321 , offset by repayments of existing debt of $ 92,223. our net loss for the years ended december 31 , 2011 and 2010 , respectively was a loss of $ 5,457,310 and a loss of $ 319,813. we anticipate that we will continue to generate losses from operations for the foreseeable future as we invest in research and development activities in furtherance of our business plan of advancing our drug delivery technology . as of december 31 , 2011 , we had cash and cash equivalents of $ 416,333 and negative working capital of $ 4,373,734. the increase in net loss of $ 5,137,497 between the year ended december 31 , 2010 and the year ended december 31 , 2011 largely is attributable to our goal of changing the business of the company from a vacation real estate and rentals business to a otc and cosmetic and beauty product manufacturer and the costs associated with purchasing the aero assets and investing in research and development activities related to our drug delivery technology . 14 we are in the process of reviewing our contract manufacturing cost structure to identify inefficiencies and opportunities for reductions . also , we are reviewing our sales efforts and programs to identify opportunities for increasing sales volume . story_separator_special_tag we anticipate that these efforts will reduce or eliminate ongoing losses from our contract manufacturing business and allow us to continue contract manufacturing operations for the foreseeable future . our current balances of cash will not meet our working capital and capital expenditure needs for the next twelve months . because we are not currently generating sufficient cash to fund our operations and we have debt that is in default , we may need to rely on external financing to meet future operating , debt repayment and capital requirements . any projections of future cash needs and cash flows are subject to substantial uncertainty . we can make no assurance that financing will be available in amounts or on terms acceptable to us , if at all . further , if we issue equity securities , stockholders may experience additional dilution or the new equity securities may have rights , preferences , or privileges senior to those of existing holders of common stock , and debt financing , if available , may involve restrictive covenants that could restrict our operations or finances . if we can not raise funds , when needed , on acceptable terms , we may not be able to continue our operations , grow market share , take advantage of future opportunities , or respond to competitive pressures or unanticipated requirements , all of which could negatively impact our business , operating results , and financial condition . these conditions raise substantial doubt about our ability to continue as a going concern . off–balance sheet arrangements as of december 31 , 2011 , we had no material off-balance sheet arrangements other than operating leases . contractual obligations on june 30 , 2011 , the company entered into three year executive employment agreements with three stockholders , brian keller , christian oertle and daniel fisher , to serve as our president , chief operating officer and executive vice president , respectively . the agreements with messrs. keller and fisher provide for annual salaries of $ 200,000 each and the agreement with mr. oertle that provides for an annual salary of $ 150,000. pursuant to the terms of the agreements , each of these executives is eligible to participate in the company 's long term incentive compensation programs and is entitled to an annual bonus if the company meets or exceeds criteria adopted by the compensation committee of the board , subject to certain claw back rights . the agreements provide for payments of six months ' severance in the event of early termination ( other than for cause ) . impact of inflation the impact of inflation upon our revenue and income/ ( loss ) from continuing operations during each of the past two fiscal years has not been material to our financial position or results of operations for those years because we do not maintain significant inventories whose costs are affected by inflation . properties our facilities are located in pittsburg , california , princeton , new jersey , miami , florida and englewood cliffs , new jersey . biozone labs manufactures its products in a 20,000 s.f. , cgmp facility owned by 580 garcia avenue , llc , its consolidated vie and fills and stores its products at a 60,000 sq . ft. rented facility located at 701 willow pass road , pittsburg , ca . the lease for the willow pass road facility expires on april 30 , 2015 and provides for annual rentals of approximately $ 430,000 we lease approximately 1,500 square feet of office space at 4400 biscayne boulevard , miami , florida where we employ two sales professional for our baker cummins brand proprietary skin care products . the lease expires on october 31 , 2012 and provides for annual rentals of approximately $ 23,700. our rent expense for our miami facility till the end of the lease is $ 20,650. in july 2011 , we entered into a lease for approximately 3,869 square feet of laboratory space in princeton , new jersey where we conduct research and development activities related to our proprietary drug delivery technology . the lease expires on july 20 , 2016. rent expense is approximately $ 8,065 per month . our corporate headquarters is located at 550 sylvan avenue , englewood cliffs , new jersey , where we lease approximately 800 square feet of office space . the lease expires on june 30 , 2012. rent expense is approximately $ 1,450 per month . seasonality many of our products include cough/cold remedies , which are often sold in the winter months . accordingly , our business is cyclical . approximately two thirds of our revenue is generated in the second half of the calendar year . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made , and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition . 15 basis of consolidation the consolidated financial statements include the accounts of biozone pharmaceuticals , inc. and its subsidiaries , all of which are wholly owned , its equity investment in betazone , inc. and its 580 garcia ave , a variable interest entity ( “ vie ” ) .
| depreciation of the remaining assets . research and development expenses increased $ 158,751 , which is primarily due to the opening of our research facility in princeton , nj and the addition of 5 new staff members . interest expense we incurred interest expense of $ 1,242,853 for the year ended december 31 , 2011 as compared to $ 439,018 for the year ended december 31 , 2010. the increase in interest expense of $ 803,835 is due primarily to recording a debt discount related to the derivative liability of the warrants issued in connection with the september 2011 notes warrants of $ 521,547 and the issuance of $ 56,250 worth of shares to the september 2011 notes holders in an exchange for the extension of the notes maturity were accounted for as interest expense , while the remainder of the increase was due to slightly higher interest rates on the average outstanding debt . change in value of derivative instruments we recorded a loss of $ 281,508 on the fair value of our derivative instruments for the year ended december 31 , 2011 compared to the prior year when we had no derivative instruments to value . net loss / income as a result of the foregoing , we realized a net loss of $ 5,457,283 for the year ended december 31 , 2011 as compared to a net loss of $ 319,813 for the year ended december 31 , 2010 , an increase in net loss of $ 5,137,470. evaluation of disclosure controls and procedures the reason for the ineffectiveness of our disclosure controls and procedures was the result of the lack of segregation of duties and responsibilities with respect to our cash control over the disbursements related thereto . the lack of segregation of duties resulted from our limited accounting staff . although neither management nor our independent auditors discovered any significant errors in the preparation of our financial
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pursuant to the celgene license agreement , we granted to celgene a worldwide and exclusive license to develop , manufacture and commercialize jtx-8064 and certain derivatives thereof ( an initial licensed compound ) , as well as any antibody , other than the initial licensed compound , or other biologic controlled by us as of july 22 , 2019 that is specifically directed to the lilrb2 receptor ( a licensed compound ) . the celgene license agreement provides celgene with the sole right , at its sole cost and expense , to develop , seek regulatory approval for , manufacture and commercialize the licensed compounds and any product that comprises a licensed compound ( each a licensed product ) for all uses and purposes . celgene is obligated to use commercially reasonable efforts to develop , seek regulatory approval for and commercialize at least one licensed product comprising or incorporating the initial licensed compound ( any such licensed product , an initial licensed product ) . under the terms of the celgene license agreement , celgene paid us a one-time , non-refundable upfront payment of $ 50.0 million in july 2019. we are entitled to receive payments from celgene upon the achievement of specified clinical , regulatory and sales milestones with respect to the first initial licensed product to achieve such milestones , including potential clinical and regulatory milestone payments up to an aggregate total of $ 180.0 million and potential sales milestone payments up to an aggregate total of $ 300.0 million . we are eligible to receive royalties at percentage rates ranging from mid-single-digits to low-double-digits , based on future annual net sales of the initial licensed products , on an initial licensed product-by-initial licensed product and country-by-country basis . in july 2016 , we entered into a master research and collaboration agreement , or the celgene collaboration agreement , and a series b-1 preferred stock purchase agreement with celgene . under the terms of these agreements , we received a $ 225.0 million upfront cash payment and $ 36.1 million from the sale of 10,448,100 shares of our series b-1 convertible preferred stock , which shares converted into 2,831,463 shares of common stock upon the completion of our initial public offering , or ipo , in 2017. we terminated the celgene collaboration agreement concurrently with entry into the celgene license agreement . since inception , our operations have focused on organizing and staffing our company , business planning , raising capital , developing our translational science platform and conducting research , preclinical studies and clinical trials . we do not have any products approved for sale . we are subject to a number of risks comparable to those of other similar companies , including dependence on key individuals ; the need to develop commercially viable products ; competition from other companies , many of which are larger and better capitalized ; and the need to obtain adequate additional financing to fund the development of our products . we have funded our operations primarily through proceeds received from private placements of our convertible preferred stock , proceeds received from our ipo , the upfront payment of $ 225.0 million received in connection with the celgene collaboration agreement , the upfront payment of $ 50.0 million received in connection with the celgene license agreement and proceeds received from our “ at the market ” offering program , or the atm offering . due to our significant research and development expenditures , we have accumulated substantial losses since our inception . as of december 31 , 2019 , we had an accumulated deficit of $ 107.2 million . we expect to incur substantial additional losses in the future as we expand our research and development activities . financial operations overview revenue for the year ended december 31 , 2019 , we recognized $ 147.9 million of license and collaboration revenue . this was comprised of $ 50.0 million of license revenue recognized under the celgene license agreement and $ 97.9 million of collaboration revenue recognized under the celgene collaboration agreement related to the $ 225.0 million upfront payment received in 2016. the celgene collaboration agreement was terminated effective july 22 , 2019 , and all remaining deferred revenue was recognized as we have no further performance obligations . 56 in the future , we may generate revenue from product sales or collaboration agreements , strategic alliances and licensing arrangements , including the celgene license agreement . we expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees , milestones , reimbursement of costs incurred and other payments , if any , and product sales , to the extent any products are successfully commercialized . if we or third parties fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . operating expenses research and development expenses research and development expenses represent costs incurred by us for the discovery , development and manufacture of our current and future product candidates and include : external research and development expenses incurred under arrangements with third parties , including academic and non-profit institutions , contract research organizations , contract manufacturing organizations and consultants ; salaries and personnel-related costs , including non-cash stock-based compensation expense ; license fees to acquire in-process technology and other expenses , which include direct and allocated expenses for laboratory , facilities and other costs . we use our employee and infrastructure resources across multiple research and development programs directed toward developing our translational science platform and for identifying , testing and developing product candidates . we manage certain activities such as contract research and manufacture of our product candidates and discovery programs through our third-party vendors . story_separator_special_tag 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 development of our product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales of our product candidates . this is due to the numerous risks and uncertainties associated with developing such product candidates , including the uncertainty of : addition and retention of key research and development personnel ; establishing an appropriate safety profile with ind-enabling toxicology studies ; the cost to acquire or make therapies to study in combination with our immunotherapies ; successful enrollment in and completion of clinical trials ; establishing agreements with third-party contract manufacturing organizations for clinical supply for our clinical trials and commercial manufacturing , if our product candidates are approved ; receipt of marketing approvals from applicable regulatory authorities ; commercializing products , if and when approved , whether alone or in collaboration with others ; the cost to develop companion diagnostics and or complementary diagnostics as needed for each of our development programs ; the costs associated with the development of any additional product candidates we acquire through third-party collaborations or identify through our translational science platform ; the terms and timing of any collaboration , license or other arrangement , including the terms and timing of any milestone payments thereunder ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our products , if and when approved ; and continued acceptable safety profiles of the products following approval . 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 viability associated with the development of that product candidate . we plan to increase our research and development expenses for the foreseeable future as we advance our product candidates through clinical trials and continue the enhancement of our translational science platform and the progression of our pipeline . due to the inherently unpredictable nature of preclinical and clinical development , we do not allocate all of our internal research and development expenses on a program-by-program basis as they primarily relate to personnel and lab consumables costs that are deployed across multiple programs under development . our research and development 57 expenses also include external costs , which we do track on a program-by-program basis following the program 's nomination as a development candidate . we began incurring such external costs for vopratelimab in 2015 , jtx-4014 in 2016 , jtx-8064 in 2017 and jtx-1811 in 2019. we do not expect to incur future external costs for jtx-8064 as a result of our entry into the celgene license agreement in july 2019. included below are external research and development and external clinical and regulatory costs for vopratelimab , jtx-4014 , jtx-8064 , jtx-1811 and our pre-development candidates : replace_table_token_1_th research and development activities account for a significant portion of our operating expenses . as we continue to implement our business strategy , we expect our research and development expenses to increase over the next several years . we expect that these expenses will increase as we : continue our phase 2 emerge clinical trial of vopratelimab ; initiate additional clinical trials of vopratelimab and jtx-4014 , including our phase 2 select clinical trial ; complete our phase 1 clinical trial of jtx-4014 ; complete our phase 1/2 iconic clinical trial of vopratelimab ; continue our ind-enabling activities for jtx-1811 ; continue to identify and develop potential predictive biomarkers and companion diagnostics and or complementary diagnostics for our product candidates ; and continue to develop and enhance our translational science platform and advance our pipeline of immunotherapy programs and our early research activities into later stages of development . product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . general and administrative expenses general and administrative expenses consist of salaries and personnel-related costs , including non-cash stock-based compensation expense , for our personnel in executive , business development , legal , finance and accounting , human resources and other administrative functions , consulting fees , facility costs not otherwise included in research and development expenses , fees paid for accounting and tax services , insurance expenses and legal costs . legal costs include general corporate legal fees , patent legal fees and related costs . we anticipate that our general and administrative expenses will increase in the future to support our continued operations . other income , net other income , net , consists primarily of interest and investment income on our cash , cash equivalents and investments . 58 critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , we evaluate our estimates which include , but are not limited to , the determination of the discount rate utilized in the initial application of accounting standard codification , or asc , topic 842 , leases , accrued expenses , stock-based compensation expense and income taxes . in addition , through july 2019 , we made estimates related to revenue recognized under the celgene collaboration agreement , including estimates of internal and external costs expected to be incurred to satisfy performance obligations . we base our estimates on historical experience and other market specific or other relevant assumptions we believe to be reasonable under the circumstances . actual results could differ from those estimates .
| 61 general and administrative expenses the following table summarizes our general and administrative expenses for the years ended december 31 , 2019 and 2018 : replace_table_token_4_th general and administrative expenses increase d by $ 1.5 million from $ 26.4 million for the year ended december 31 , 2018 to $ 27.9 million for the year ended december 31 , 2019 . the increase in general and administrative expenses was primarily attributable to $ 1.0 million of increased employee compensation costs , including $ 0.4 million of increased stock-based compensation expense , and $ 0.6 million of increased other general and administrative costs to support our operations . other income , net other income , net , increase d by $ 0.1 million from $ 4.0 million for the year ended december 31 , 2018 to $ 4.1 million for the year ended december 31 , 2019 . the change in other income , net , is attributable to increased interest and investment income on our cash , cash equivalents and investments as a result of an overall increased rate of return . liquidity and capital resources sources of liquidity we have funded our operations primarily through gross proceeds from private placements of our convertible preferred stock of $ 139.1 million , net proceeds from our ipo of $ 106.4 million , a non-refundable upfront payment of $ 225.0 million received in connection with the celgene collaboration agreement , a non-refundable upfront payment of $ 50.0 million received in connection with the celgene license agreement and net proceeds from our atm offering of $ 3.5 million . as of december 31 , 2019 , we had cash , cash equivalents and investments of $ 170.4 million . on december 17 , 2019 , we entered into a sales agreement with cowen and company , llc , or cowen , pursuant to which we may offer and sell shares of our common stock with an aggregate offering price of up to $ 50.0 million
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the decrease in fiscal year 2017 was primarily attributable to lower average per carton costs partially offset by higher volume of fresh lemons packed and sold compared to fiscal year 2016. in fiscal year 2017 , we packed and sold 3.2 million cartons of lemons at average per carton costs of $ 6.75 compared to 2.9 million cartons of lemons sold at average per carton costs of $ 7.55 in fiscal year 2016. lemon packing efficiency has improved primarily as a result of our new facility that became operational in march 2016. additionally , packing costs include $ 1.3 million of shipping costs in fiscal year 2017 compared to $ 1.0 million in fiscal year 2016. further , in fiscal year 2017 we incurred $ 2.2 million of packing service charges from an independent packinghouse to have a portion of our oranges and specialty citrus packed in limoneira branded cartons . · harvest costs : the increase in fiscal year 2017 was primarily attributable to higher lemon and wine grape harvest volumes partially offset by lower avocado harvest volume compared to fiscal year 2016 . · growing costs : growing costs , also referred to as cultural costs , consist of orchard maintenance costs such as cultivation , fertilization and soil amendments , pest control , pruning and irrigation . the increase in fiscal year 2017 is primarily due to the acquisition of pda in february 2017 and a full year of wine grape production compared to fiscal year 2016 . · third-party grower costs : we sell lemons that we grow and lemons that we procure from other growers . the cost of procuring lemons from other growers is referred to as third-party grower costs . the increase is primarily due to higher volume of third-party grower lemons sold , partially offset by lower prices . of the 3.2 million and 2.9 million cartons sold during fiscal years 2017 and 2016 , respectively , 1.4 million ( 44 % ) and 1.2 million ( 42 % ) were procured from third-party growers at average per carton prices of $ 19.02 and $ 20.59 , respectively . additionally , in fiscal year 2017 we incurred $ 0.2 million of costs for purchased , packed fruit for resale compared to $ 0.6 million in fiscal year 2016 . · depreciation expense in fiscal year 2017 was $ 1.2 million higher than fiscal year 2016 primarily due to the acquisition of pda in february 2017 and an increase in assets placed into service . 35 real estate development expenses for fiscal year 2017 were $ 0.4 million compared to $ 2.1 million in fiscal year 2016. real estate development costs and expenses in fiscal year 2017 include $ 0.1 million impairment on our pacific crest real estate development project . real estate development costs and expenses in fiscal year 2016 include $ 1.2 million of transaction costs paid upon entering into a joint venture with lewis for the residential development of our east area i real estate development project . selling , general and administrative expenses for fiscal year 2017 were $ 13.9 million compared to $ 13.3 million for fiscal year 2016. this 5 % increase of $ 0.6 million was primarily attributable to the following : · $ 0.3 million increase in lemon selling expenses primarily due to an increase in personnel ; · $ 0.3 million net increase in salaries and benefits primarily due to compensation increases ; · $ 0.2 million increase in legal and consulting expenses associated with our acquisition of pda in february 2017 ; and · $ 0.1 million decrease in incentive compensation primarily due to lower operating results . other ( expense ) income other ( expense ) income , for fiscal year 2017 was $ 1.2 million of expense compared to $ 4.1 million of income for fiscal year 2016. the $ 5.4 million decrease in income is primarily the result of : · $ 0.4 million increase in net interest expense ; · $ 0.6 million decrease in equity in earnings of investments ; · $ 3.4 million gain on the sales of stock in calavo in fiscal year 2016 ; and · $ 1.0 million sale of a conservation easement in fiscal year 2016. income taxes we recorded an income tax provision of $ 4.1 million for fiscal year 2017 on pre-tax income of $ 10.6 million compared to an income tax provision of $ 5.3 million for fiscal year 2016 on pre-tax income of $ 13.3 million . our effective tax rate is 38.4 % for fiscal year 2017 compared to an effective rate of 39.5 % for fiscal year 2016. the decrease in our effective tax rate in fiscal year 2017 is primarily attributable to increased domestic production activities deduction resulting from higher qualified production activities income . net loss attributable to noncontrolling interest net loss attributable to noncontrolling interest represents 10 % of the net loss of pda . fiscal year 2016 compared to fiscal year 2015 revenues total revenue for fiscal year 2016 was $ 111.8 million compared to $ 100.3 million for fiscal year 2015. the 11 % increase of $ 11.5 million was primarily the result of increased agribusiness revenues , as detailed below ( $ in thousands ) : replace_table_token_10_th · lemons : the increase in fiscal year 2016 was primarily the result of increased volume of fresh lemons sold and increased lemon by-product and other lemon sales partially offset by lower prices . during fiscal years 2016 and 2015 , fresh lemon sales were $ 71.7 million and $ 67.0 million , respectively , on 2.9 million and 2.7 million cartons of fresh lemons sold at average per carton prices of $ 24.72 and $ 24.81 , respectively . the lower average per carton price in fiscal year 2016 compared to fiscal year 2015 was primarily due to less favorable overall market conditions . lemon revenues in fiscal year 2016 include $ 4.8 million shipping and handling , $ 5.0 million lemon by-products and $ 3.8 million other lemon sales . story_separator_special_tag other lemon sales in fiscal year 2016 include $ 0.3 million of commissions earned on 0.2 million cartons of brokered fruit sales . lemon revenues in fiscal year 2015 include $ 4.2 million shipping and handling , $ 4.2 million lemon by-products and $ 3.6 million other lemon sales . other lemon sales in fiscal year 2015 include $ 0.1 million of commissions earned on 0.2 million cartons of brokered fruit sales . 36 · avocados : the increase in fiscal year 2016 was primarily due to increased production partially offset by lower prices . the california avocado crop typically experiences alternating years of high and low production due to plant physiology . during fiscal years 2016 and 2015 , 11.4 million and 7.0 million pounds of avocados were sold at average per pound prices of $ 0.95 and $ 1.02 , respectively . lower prices in fiscal year 2016 were primarily due to increased supply in the marketplace . · navel and valencia oranges : the increase in fiscal year 2016 was primarily due to higher volume of oranges sold partially offset by lower prices . during fiscal years 2016 and 2015 , orange sales were $ 6.1 million and $ 5.6 million , respectively , on 1,049,000 and 744,000 40-pound carton equivalents of oranges sold at average per carton prices of $ 5.86 and $ 7.56 , respectively . · specialty citrus and other crops : the increase in fiscal year 2016 was primarily due to higher volume of specialty citrus sold partially offset by lower prices . in fiscal years 2016 and 2015 , we sold 349,000 and 253,000 40-pound carton equivalents of specialty citrus at average per carton prices of $ 8.33 and $ 10.79 , respectively . additionally , we sold approximately 200 tons of wine grapes for $ 0.3 million in fiscal year 2016 compared to zero in fiscal year 2015. rental operations revenue was $ 5.6 million in fiscal year 2016 compared to $ 5.1 million in fiscal year 2015. the increase in fiscal year 2016 was primarily due to a full year of rental revenue from 65 newly completed agricultural workforce housing units that we began renting in may 2015. real estate development revenue was $ 0.1 million in fiscal years 2016 and 2015 , comprised primarily of incidental alfalfa sales at our windfall farms property . costs and expenses total costs and expenses for fiscal year 2016 were $ 102.6 million compared to $ 95.7 million for fiscal year 2015. this 7 % increase of $ 6.9 million was primarily attributable to increases in our agribusiness costs . costs associated with our agribusiness division include packing costs , harvest costs , growing costs , costs related to the lemons we procure from third-party growers and depreciation expense . these costs are discussed further below ( $ in thousands ) : replace_table_token_11_th · packing costs : packing costs consist of the costs to pack lemons for sale such as labor and benefits , cardboard cartons , fruit treatments , packing and shipping supplies and facility operating costs . the increase in fiscal year 2016 was primarily due to higher volume of cartons packed , partially offset by lower average per carton costs compared to fiscal year 2015. in fiscal years 2016 and 2015 , we packed and sold 2.9 million and 2.7 million cartons of lemons at average per carton costs of $ 7.55 and $ 7.63 , respectively . additionally , packing costs include $ 1.0 million of shipping costs in fiscal year 2016 compared to $ 0.9 million in fiscal year 2015 . · harvest costs : the increase in fiscal year 2016 was primarily attributable to higher lemon , avocado , orange and specialty citrus harvest volumes compared to fiscal year 2015 . · growing costs : growing costs , also referred to as cultural costs , consist of orchard maintenance costs such as cultivation , fertilization and soil amendments , pest control , pruning and irrigation . the decrease in fiscal year 2016 is primarily due to decreased lease expense and fertilization and soil amendments of $ 0.8 million and $ 0.6 million , respectively , compared to fiscal year 2015 . 37 · third-party grower costs : we sell lemons that we grow and lemons that we procure from other growers . the cost of procuring lemons from other growers is referred to as third-party grower costs . the increase is primarily due to higher volume of third-party grower lemons sold , partially offset by lower prices . of the 2.9 million and 2.7 million cartons sold during fiscal years 2016 and 2015 , respectively , 1.2 million ( 42 % ) and 0.9 million ( 36 % ) were procured from third-party growers at average per carton prices of $ 20.59 and $ 22.36 , respectively . additionally , we incurred $ 0.6 million of costs for purchased , packed fruit for resale compared to $ 0.9 million in fiscal year 2015 . · depreciation expense in fiscal year 2016 was $ 1.0 million higher than fiscal year 2015 primarily due to the acquisition of sheldon ranches in december 2015 and placement of our new , expanded lemon packing facility into service in march 2016. real estate development expenses for fiscal year 2016 were $ 2.1 million compared to $ 1.3 million in fiscal year 2015. the increase was primarily due to $ 1.2 million of transaction costs paid upon entering into a joint venture with lewis group of companies for the residential development of our east area i project .
| the lower average per carton price in fiscal year 2017 compared to fiscal year 2016 was primarily due to less favorable overall market conditions . lemon revenues in fiscal year 2017 include $ 8.8 million shipping and handling , $ 5.4 million lemon by-products and $ 3.5 million other lemon sales . other lemon sales in fiscal year 2017 include $ 0.8 million of lemon sales in chile by pda and $ 0.3 million of commissions earned on 0.3 million cartons of brokered fruit sales . lemon revenues in fiscal year 2016 include $ 4.8 million shipping and handling , $ 5.0 million lemon by-products and $ 3.8 million other lemon sales . other lemon sales in fiscal year 2016 include $ 0.3 million of commissions earned on 0.2 million cartons of brokered fruit sales . · avocados : the decrease in fiscal year 2017 was primarily due to decreased volume partially offset by higher prices . the california avocado crop typically experiences alternating years of high and low production due to plant physiology . during fiscal years 2017 and 2016 , 6.3 million and 11.4 million pounds of avocados were sold at average per pound prices of $ 1.51 and $ 0.95 , respectively . higher prices in fiscal year 2017 were primarily due to decreased supply in the marketplace . · navel and valencia oranges : the increase in fiscal year 2017 was primarily due to higher prices for oranges sold partially offset by lower volume . during fiscal years 2017 and 2016 , orange sales were $ 7.1 million and $ 6.1 million , respectively , on 893,000 and 1,049,000 40-pound carton equivalents of oranges sold at average per carton prices of $ 7.95 and $ 5.86 , respectively . orange revenues in fiscal year 2017 include $ 0.3 million of orange sales in chile by pda . 34 · specialty citrus and other crops : the increase in fiscal year 2017 was primarily due to higher volume of wine grapes sold compared to fiscal year 2016. in fiscal year
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payments resulting from procurement services are recognized into revenue as the activities are performed and are presented on a net basis . revenue is recorded on a net basis because we act as an agent , as we do not have discretion to change suppliers and do not perform any part of the services or manufacture of the subject pharmaceutical ingredients . the costs associated with these activities are netted against the related revenue in our consolidated statement of operations . for certain contingent payments under research and development arrangements , we recognize revenue using the milestone method . under the milestone method , a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved . a milestone is an event : ( i ) that can be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance , ( ii ) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and ( iii ) that would result in additional payments being due to us . the determination that a milestone is substantive requires estimation and judgment and is made at the inception of the arrangement . milestones are considered substantive when the consideration earned from the achievement of the milestone is : ( a ) commensurate with either our performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone , ( b ) related solely to past performance and ( c ) reasonable relative to all deliverables and payment terms in the arrangement . in making the determination as to whether a milestone is substantive or not , our management considers all facts and circumstances relevant to the arrangement , including factors such as the scientific , regulatory , commercial and other risks that must be overcome to achieve the milestone , the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables . research and development expenses research and development costs are expensed as incurred . we recognize costs for certain development activities based on an evaluation of the progress to completion of specific tasks using information and data provided by cros and other third-party vendors , including clinical trial sites . we determine accrual estimates through financial models that take into account discussion with applicable personnel and service providers as to the progress or state of completion of particular research and development activities , including clinical trials . our preclinical study and clinical trial accrued liabilities and prepaid assets are dependent , in part , upon the receipt of timely and accurate reporting from cros and other third party vendors , including clinical trial sites . although we do not expect our estimates to differ materially from amounts we actually incur , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reported amounts that are too high or too low for any particular period . when contracts for research and development services require advance payment , they are recorded on our consolidated balance sheet as prepaid items and expensed when the service is provided or reaches a specific milestone outlined in the contract . 76 stock-based compensation we recognize stock-based compensation costs related to stock options granted to personnel based on the estimated fair value of the awards on the date of grant . we estimate the grant date fair value , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . except as provided below , the grant date fair value of each stock-based award is recognized on a straight-line basis over the requisite service period , which is the vesting period of the award . during the year ended december 31 , 2016 , we issued stock options with exercise prices denominated in a foreign currency ( euros ) , which are required to instead be accounted for as liabilities . we account for each liability-classified stock-based award based on its fair value at each financial reporting date until the award is settled ( exercised ) . changes in the amounts attributed to these awards between the reporting dates are included in stock-based compensation expense ( credit ) in our consolidated statement of operations . we include liability-classified stock options in noncurrent liabilities on our balance sheet as their settlement ( exercise ) does not require use of cash , cash equivalents or other current assets . the foreign-denominated stock options issued during 2016 were replaced with stock options denominated in u.s. dollars on the date the transaction was completed . the black-scholes option-pricing model requires the use of highly subjective and complex assumptions that which determine the fair value of stock-based awards . these assumptions include : expected term . we estimate the expected term for stock-based awards using the simplified method due to limited historical exercise activity . the simplified method calculates the expected term as the arithmetic average between the vesting date and the contractual expiration date of the award . expected volatility . due to our limited history , the expected volatility was derived from the average historical stock volatilities of several unrelated public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected term of the awards . risk-free interest rate . the risk-free interest rate is based on the u.s. government bond rate with a maturity date commensurate with the expected term of the associated award . expected dividend . the expected dividend is assumed to be zero . story_separator_special_tag except for a single dividend paid by albireo limited in 2012 , we have never paid dividends and we have no current plans to pay any dividends . in addition to the assumptions used in the black-scholes option-pricing model , we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards . our estimated forfeiture rate is based on an analysis of actual forfeitures . we will continue to evaluate the appropriateness of our estimated forfeiture rate based on actual experience , analysis of employee turnover and other factors . quarterly changes in the estimated forfeiture rate could have a significant impact on stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed . if a revised forfeiture rate is higher than the previously estimated forfeiture rate , an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in our consolidated statement of operations . if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our consolidated statement of operations . we will continue to use judgment in evaluating the expected volatility , expected terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis . as we continue to accumulate additional data related to our common stock and stock-based awards , there may be refinements to the estimates of expected volatility , expected terms and forfeiture rates , which could impact future stock-based compensation expense . some of our stock-based awards are subject to performance-based vesting conditions . compensation expense related to awards with performance-based vesting conditions is recognized over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable or , in some cases , when the vesting condition occurs . fair value of financial instruments in december 2014 , we executed a convertible loan instrument , which provided 1,251,000 1.00 unsecured convertible loan notes denominated in euros and was subsequently amended in october 2015 , and issued all of the convertible loan notes to certain albireo limited shareholders and their affiliates . in october 2015 , we executed a separate convertible loan instrument , which provided 5,000,000 $ 1.00 unsecured convertible loan notes denominated in u.s. dollars , and , as of december 31 , 2015 , issued $ 3.5 million of the convertible loan notes to certain albireo limited shareholders and their affiliates and members of management . all of the recipients of the convertible loan notes in 2014 and 2015 are considered related parties . we bifurcated the embedded conversion features of the convertible loan note instruments from the loan note payable and recorded the fair value of the conversion features as debt discount . in accordance with applicable guidance , we allocated the proceeds received based on the relative fair values of the 77 respective convertible loan notes and conversion features , which resulted in the recording of debt discount totaling $ 526,000 ( 432,000 ) for the 2014 loan notes at issuance and $ 1.5 million for the 2015 loan notes at issuance . the debt discounts are accreted over the life of the respective convertible loan notes . in connection with the transaction , all of the convertible loan notes issued in 2014 and 2015 were converted into equity . similarly , in december 2014 , we entered into a loan facility agreement with kreos capital iv limited , or kreos , under which kreos provided a 6.0 million ( $ 7.3 million ) loan facility . in connection with the agreement , we issued to an affiliate of kreos detachable warrants that provided a right to acquire shares of albireo limited . in connection with the transaction , these warrants were replaced with warrants to purchase shares of our common stock . because the number of shares issuable upon exercise of both the initial and replacement warrants is variable , we treated the warrants as a liability under financial accounting standards board accounting standard codification topic 480 , distinguishing liabilities from equity , and measured them at fair value . the fair value of the warrants ' or replacement warrants ' liability is required to be remeasured at the end of each reporting period , with any change in fair value recognized in the consolidated statements of operations . in accordance with applicable guidance , we allocated the proceeds received based on the fair value of the warrants and the residual value of the debt , which resulted in us recording debt discount totaling 1.0 million ( $ 1.2 million ) at issuance . the debt discount is to be accreted over the life of the associated loan . results of operations years ended december 31 , 2016 and december 31 , 2015 revenue year ended december 31 , change 2016 2015 $ in thousands revenue $ 11,364 $ 5,099 $ 6,265 revenue was $ 11.4 million for the year ended december 31 , 2016 compared with revenue of $ 5.1 million for the year ended december 31 , 2015 , an increase of $ 6.3 million . the higher revenue was due to recognition in full of payments from ea pharma of $ 8.0 million received in april 2016 in connection with a renegotiated payment stream linked to know-how and intellectual property that we had delivered upon inception of the license agreement in 2012 and 3.225 million earned in the fourth quarter of 2016 upon the decision of ea pharma to proceed with the preparation of a new drug application for elobixibat in japan . for the year ended december 31 , 2015 , we recognized into revenue $ 5.1 million in payments received under our license agreement with ea pharma .
| the initial target indication for our lead product candidate , a4250 , is progressive familial intrahepatic cholestasis , or pfic , a rare , life-threatening genetic disorder affecting young children for which there is currently no approved drug treatment . a4250 is currently being evaluated in a phase 2 clinical trial in children with chronic cholestasis that is intended to support a planned phase 3 clinical trial in patients with pfic . in addition to pfic and subject to obtaining additional capital , we plan to consider conducting future clinical development of a4250 as a treatment for other pediatric cholestatic liver diseases and disorders . our clinical-stage product candidates in addition to a4250 include elobixibat , for which our licensee has filed a new drug application for approval in japan to treat chronic constipation , and a3384 , which is in development to treat bile acid malabsorption . we also have a preclinical program in nonalcoholic steatohepatitis , or nash . for accounting purposes , the transaction was treated as a “ reverse acquisition ” and albireo limited was considered the accounting acquirer . accordingly , the discussion and analysis in this item 7 reflect the historical results of albireo limited and its direct and indirect subsidiaries prior to completion of the transaction and do not include the historical results of biodel prior to completion of the transaction . biodel inc. was incorporated in december 2003 and commenced active operations in january 2004. albireo limited 's business began when albireo limited was spun out of astrazeneca ab in 2008. since inception , we have incurred significant operating losses . as of december 31 , 2016 , we had an accumulated deficit of $ 25.9 million . we expect to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue our development of , and seek marketing approvals for , our product candidates , prepare for and begin the commercialization of any approved products , and add infrastructure and personnel to support our product development efforts and operations as a public company in the united states . as a clinical-stage company , our revenues ,
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on june 21 , 2018 , the company used a portion of the proceeds from the nant transaction to repay the outstanding principal balance under the senior term facility and to terminate the senior term facility . the company also terminated the senior abl facility . see note 10 to the consolidated financial statements for additional information related to the extinguishment . in the fourth quarter of 2018 , the company offered a voluntary severance incentive plan ( “ vsip ” ) , which provides enhanced separation benefits to eligible employees with more than 10 years of service , and ratified collective bargaining agreements with the truck driver 's unions at both the new york daily news and the chicago tribune that allowed for reductions in the number of drivers . see note 4 to the consolidated financial statements for additional information related to these initiatives . 27 story_separator_special_tag style= '' line-height:120 % ; padding-top:16px ; text-align : left ; font-size:10pt ; '' > the effective tax rate on pretax income was 24.2 % and ( 31.8 ) % in the years ended december 30 , 2018 and december 31 , 2017 , respectively . year ended december 31 , 2017 compared to the year ended december 25 , 2016 operating revenues —operating revenues decreased 4.5 % , or $ 47.9 million , in the year ended december 31 , 2017 compared to the prior year period due to a $ 68.3 million decrease in advertising revenues and a $ 21.0 million decrease in other revenues . these decreases were partially offset by contributions from acquisitions of $ 40.2 million in year ended december 31 , 2017 and by an increase of $ 1.2 million in circulation revenues . overall decreases in circulation volume were generally offset by rate increases . compensation expense —compensation expense decreased 8.4 % , or $ 37.5 million , in the year ended december 31 , 2017 . the decrease is due primarily to a $ 24.7 million decrease in accrued incentives , a $ 18.1 million decrease in salary and payroll tax expense as a result of the reduction in headcount due to current and prior periods personnel restructuring , a $ 10.3 million decrease in severance costs , and a $ 9.2 million decrease in health care expense . these decreases were partially offset by compensation expense from acquisitions of $ 29.0 million . newsprint and ink expense —newsprint and ink expense declined 5.3 % , or $ 3.3 million , in the year ended december 31 , 2017 . the decrease was due mainly to a 14.1 % decline in newsprint consumption due primarily to less advertising space and lower commercial printing revenue , partially offset by a 1.3 % increase in the average cost per ton of newsprint . this decrease was partially offset by newsprint and ink expense from acquisitions of $ 4.6 million . outside services expense —outside services expense decreased 4.5 % , or $ 15.5 million in the year ended december 31 , 2017 . this decrease was primarily due to decreases in circulation and distribution expense of $ 10.5 million , decreases in legal and consulting expenses of $ 9.7 million and a decrease in outside printing and production expenses of $ 5.6 million . these decreases were partially offset by outside service expenses from acquisitions of $ 7.2 million . other expenses —other expenses include occupancy costs , promotion and marketing costs , affiliate fees and other miscellaneous expenses . these expenses decreased 7.6 % , or $ 13.5 million , in the year ended december 31 , 2017 due primarily to decreases in occupancy costs of $ 8.1 million , promotion and marketing costs of $ 4.3 million , and $ 6.7 million in pre-sale shared service costs that were allocated to discontinued operations . these decreases were partially offset by other expenses from acquisitions of $ 6.1 million . depreciation and amortization expense —depreciation and amortization expense decreased 7.9 % , or $ 4.1 million , for the year ended december 31 , 2017 primarily as a result of the depreciation on prior year fixed asset additions . interest expense— interest expense was consistent with the prior year . premium on stock buyback —as mentioned above , the company repurchased shares of the company 's stock for $ 56.2 million . the fair value of the stock as of the purchase date was $ 50.2 million . the $ 6.0 million difference between the purchase price and the transaction date fair value was recorded as a non-operating expense . loss on equity investments , net— loss on equity investments , net was consistent with the prior year . 30 other income , net - the increase in other income , net is due to increased credits related to amortization of prior service costs of postretirement plans . see note 14 to the consolidated financial statements for additional information on the company 's pension and other postretirement benefits . income tax expense ( benefit ) — income tax expense increased $ 16.8 million for the year ended december 31 , 2017 over the prior year period , primarily due to the additional expense of $ 11.0 million related to the tax cuts and jobs act of 2017 mentioned above . see note 13 to the consolidated financial statements for further explanation of the charge . the effective tax rate on pretax income ( loss ) was ( 31.8 ) % and 21.3 % in the years ended december 31 , 2017 and december 25 , 2016 , respectively . the effective tax rate decreased in 2017 as compared with 2016 . in the case of a pre-tax loss , the unfavorable permanent differences , such as non-deductible meals and entertainment expense , have the effect of decreasing the tax benefit which , in turn , decreases the effective tax rate . segments the company manages its business as two distinct segments , m and x . story_separator_special_tag the company measures segment profit using income from operations , which is defined as net income before net interest expense , gain on investment transactions , reorganization items and income taxes . the tables below show the segmentation of income and expenses for the year ended december 30 , 2018 as compared to the year ended december 31 , 2017 , as well as the year ended december 25 , 2016 ( in thousands ) . fiscal year 2018 is a 52-week year , fiscal year 2017 is a 53-week year and fiscal year 2016 is a 52-week year . replace_table_token_3_th ( 1 ) - see non-gaap measures for additional information on adjustments . replace_table_token_4_th ( 1 ) - see non-gaap measures for additional information on adjustments . 31 segment m segment m 's media groups include the chicago tribune media group , the new york daily news media group , the sun sentinel media group , the orlando sentinel media group , the baltimore sun media group , the hartford courant media group , the morning call media group , and the virginia media group ( which includes the daily press and the recently acquired the virginian-pilot ) . replace_table_token_5_th ( 1 ) - see non-gaap measures for additional information on adjustments . * represents positive or negative change in excess of 100 % year ended december 30 , 2018 compared to the year ended december 31 , 2017 advertising revenues —total advertising and marketing services revenues decreased 6.4 % , or $ 24.4 million , in the year ended december 30 , 2018 compared to the prior year period . retail advertising revenues fell 19.5 % , or $ 55.3 million , due to declines in all categories . the categories with the largest declines were department stores , furniture and home furnishings , food and drug stores , specialty merchandise , general merchandise and hardware store categories . national advertising revenues fell 16.5 % , or $ 5.8 million , due to declines in several categories , most notably advertising agencies and wireless categories , partially offset by an increase in the media category . classified advertising revenues decreased 9.7 % , or $ 5.1 million , compared to the prior year period , primarily due to decreases in the recruitment category . these decreases were partially offset by the combined impact of the acquisitions of the new york daily news in the third quarter of 2017 and the virginian-pilot in the second quarter of 2018. such acquisitions contributed $ 50.5 million in segment m advertising revenues during the year ended december 30 , 2018 compared to $ 8.6 million during the year ended december 31 , 2017 . circulation revenues —circulation revenues increased 9.5 % , or $ 30.2 million , in the year ended december 30 , 2018 . this increase was due primarily to the acquisitions which contributed $ 58.2 million in the year ended december 30 , 2018 compared to $ 17.2 million in the year ended december 31 , 2017 . the increase attributable from the acquisitions is partially offset by a decrease in circulation volume which exceeded increases in rates . other revenues —other revenues decreased 6.2 % , or $ 9.6 million , in the year ended december 30 , 2018 compared to the prior year , primarily due to declines of $ 14.3 million in commercial print and delivery , $ 4.8 million in direct mail and marketing and $ 3.7 million in content syndication and other revenues . these decreases were partially offset by revenues from the acquisitions which contributed $ 18.8 million in the year ended december 30 , 2018 compared to $ 5.6 million in the year ended december 31 , 2017 . operating expenses —operating expenses increased 6.7 % , or $ 53.5 million , in the year ended december 30 , 2018 compared to the prior year , primarily due to expenses from the acquisitions which contributed $ 169.3 million in the year ended december 30 , 2018 compared to $ 42.6 million in the year ended december 31 , 2017 . these increases were partially offset by decreases in all expense categories . 32 year ended december 31 , 2017 compared to the year ended december 25 , 2016 advertising revenues —total advertising and marketing services revenues decreased 13.5 % , or $ 59.4 million , in the year ended december 31 , 2017 compared to the prior year . retail advertising revenues fell 16.3 % , or $ 55.3 million , due to declines in all categories . the categories with the largest declines were department stores , furniture and home furnishings , specialty merchandise , food and drug stores , car dealerships and lots and personal services categories . national advertising revenues fell 18.4 % , or $ 8.0 million , due to declines in several categories , most notably media , advertising agencies and wireless categories . classified advertising revenues decreased 8.3 % , or $ 4.8 million , compared to the prior year , primarily due to decreases in the legal and recruitment categories . these decreases were partially offset by the acquisition of the new york daily news in the third quarter of 2017 which contributed $ 8.6 million in segment m advertising revenues during the year ended december 31 , 2017 . circulation revenues —circulation revenues increased 4.9 % , or $ 15.0 million , in the year ended december 31 , 2017 due primarily to the acquisition of the new york daily news which contributed $ 17.2 million in circulation revenue in 2017. the increase attributable from the acquisition is partially offset by a decrease in circulation volume which exceeded increases in rates . other revenues —other revenues decreased 7.8 % , or $ 13.1 million , in year ended december 31 , 2017 primarily due to declines in direct mail and marketing of $ 7.3 million , content syndication and other revenue of $ 5.8 million and commercial print and delivery revenues of $ 5.7 million for third-party publications .
| this increase was due primarily to the acquisitions which contributed $ 98.2 million in the year ended december 30 , 2018 compared to $ 29.0 million in the year ended december 31 , 2017 . the increase from acquisitions was partially offset by a decrease in salary expense of $ 37.6 million as a result of the reduction in headcount due to current and prior periods personnel restructuring . newsprint and ink expense —newsprint and ink expense increased 11.6 % , or $ 6.9 million , in the year ended december 30 , 2018 compared to the prior year . this increase was due primarily to the acquisitions which contributed $ 17.3 million in the year ended december 30 , 2018 compared to $ 4.6 million during the year ended december 31 , 2017 . in addition to the increase related to the acquisitions , the company experienced a 23.1 % increase in average cost per ton of newsprint , related to a proposed tariff on certain newsprint products sourced from canada . these increases were partially offset by a 13.4 % decrease in consumption . outside services expense —outside services expense increased 5.3 % , or $ 17.6 million , in the year ended december 30 , 2018 . this increase was due primarily to the acquisitions which contributed $ 35.9 million in the year ended december 30 , 2018 compared to $ 7.2 million during the year ended december 31 , 2017 as well as expense related to the consulting agreement described in note 5 to the consolidated financial statements . these increases were partially offset by decreases in circulation and distribution expenses of $ 15.8 million , outsourced services of $ 2.9 million and outside printing and production expenses of $ 1.9 million . other expenses —other expenses include occupancy costs , promotion and marketing costs , affiliate fees and other miscellaneous expenses . these expenses increased 0.7 % , or $ 1.2 million , in the
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payments to us under these agreements may include upfront fees , option fees , exercise fees , payments for research activities , payments for the manufacture of preclinical or clinical materials , payments based upon the achievement of certain milestones and royalties on product sales . we follow the provisions of the financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 605-25 , `` revenue recognitionmultiple-element arrangements , '' and asc topic 605-28 , `` revenue recognitionmilestone method , '' in accounting for these agreements . in order to account for these agreements , we must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on whether certain criteria are met , including whether the delivered element has stand-alone value to the collaborator . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . at june 30 , 2015 , we had the following two types of agreements with the parties identified below : development and commercialization licenses , which provide the party with the right to use our adc technology and or certain other intellectual property to develop compounds to a specified antigen target : amgen ( four exclusive single-target licenses * ) bayer healthcare ( one exclusive single-target license ) biotest ( one exclusive single-target license ) lilly ( three exclusive single-target licenses ) novartis ( five exclusive single-target licenses and one license to two related targets : one target on an exclusive basis and the second target on a non-exclusive basis ) roche , through its genentech unit ( five exclusive single-target licenses ) sanofi ( one exclusive single-target license and one exclusive license to multiple individual targets ) * amgen has sublicensed one of its exclusive single-target licenses to oxford biotherapeutics ltd. 48 research license/option agreement for a defined period of time to secure development and commercialization licenses to use our adc technology to develop anticancer compounds to specified targets on established terms ( referred to herein as right-to-test agreements ) : sanofi cytomx takeda there are no performance , cancellation , termination or refund provisions in any of the arrangements that contain material financial consequences to us . development and commercialization licenses the deliverables under a development and commercialization license agreement generally include the exclusive license to our adc technology with respect to a specified antigen target , and may also include deliverables related to rights to future technological improvements , research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner . generally , development and commercialization licenses contain non-refundable terms for payments and , depending on the terms of the agreement , provide that we will ( i ) at the collaborator 's request , provide research services at negotiated prices which are generally consistent with what other third parties would charge , ( ii ) at the collaborator 's request , manufacture and provide to it preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge , ( iii ) earn payments upon the achievement of certain milestones and ( iv ) earn royalty payments , generally until the later of the last applicable patent expiration or 10 to 12 years after product launch . in the case of kadcyla , however , the minimum royalty term is 10 years and the maximum royalty term is 12 years on a country-by-country basis , regardless of patent protection . royalty rates may vary over the royalty term depending on our intellectual property rights and or the presence of comparable competing products . we may provide technical assistance and share any technology improvements with our collaborators during the term of the collaboration agreements . we do not directly control when or whether any collaborator will request research or manufacturing services , achieve milestones or become liable for royalty payments . as a result , we can not predict when or if we will recognize revenues in connection with any of the foregoing . in determining the units of accounting , management evaluates whether the license has stand-alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement . factors considered in this determination include the research capabilities of the partner and the availability of adc technology research expertise in the general marketplace . if we conclude that the license has stand-alone value and therefore will be accounted for as a separate unit of accounting , we then determine the estimated selling prices of the license and all other units of accounting based on market conditions , similar arrangements entered into by third parties , and entity-specific factors such as the terms of our previous collaborative agreements , recent preclinical and clinical testing results of therapeutic products that use our adc technology , our pricing practices and pricing objectives , the likelihood that technological improvements will be made , and , if made , will be used by our collaborators and the nature of the research services to be performed on behalf of our collaborators and market rates for similar services . upfront payments on development and commercialization licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value . prior to the adoption of accounting standards update ( asu ) no . 2009-13 , `` revenue arrangements with multiple deliverables '' on july 1 , 2010 , we determined that our licenses lacked stand-alone value and were combined with other elements of the arrangement and any amounts associated with the license were 49 deferred and amortized over a certain period , which we refer to as our period of substantial involvement . story_separator_special_tag the determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period . historically our involvement with the development of a collaborator 's product candidate has been significant at the early stages of development , and lessens as it progresses into clinical trials . also , as a drug candidate gets closer to commencing pivotal testing our collaborators have sought an alternative site to manufacture their products , as our facility does not produce pivotal or commercial drug product . accordingly , we generally estimate this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal phase ii testing . we believe this period of substantial involvement is , depending on the nature of the license , on average six and one-half years . quarterly , we reassess our periods of substantial involvement over which we amortize our upfront license fees and make adjustments as appropriate . in the event a collaborator elects to discontinue development of a specific product candidate under a development and commercialization license , but retains its right to use our technology to develop an alternative product candidate to the same target or a target substitute , we would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated . in the event that a development and commercialization license were to be terminated , we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue , but was classified as deferred revenue , at the date of such termination . subsequent to the adoption of asu no . 2009-13 , we determined that our research licenses lack stand-alone value and are considered for aggregation with the other elements of the arrangement and accounted for as one unit of accounting . upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements , which generally include rights to future technological improvements , research services , delivery of cytotoxic agents and the manufacture of preclinical and clinical materials . we recognize revenue related to research services that represent separate units of accounting as they are performed , as long as there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collection of the related receivable is probable . we recognize revenue related to the rights to future technological improvements over the estimated term of the applicable license . we may also provide cytotoxic agents to our collaborators or produce preclinical and clinical materials for them at negotiated prices which are generally consistent with what other third parties would charge . we recognize revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator . arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple-deliverable arrangement is below our full cost , and our full cost is not expected to ever be below our contract selling prices for our existing collaborations . during the fiscal years ended june 30 , 2015 , 2014 and 2013 , the difference between our full cost to manufacture preclinical and clinical materials on behalf of our collaborators as compared to total amounts received from collaborators for the manufacture of preclinical and clinical materials was $ 9.2 million , $ 2.3 million , and $ 755,000 , respectively . the majority of our costs to produce these preclinical and clinical materials are fixed and then allocated to each batch based on the number of batches produced during the period . therefore , our costs to produce these materials are significantly impacted by the number of batches produced during the period . the volume of preclinical and clinical materials we produce is directly related to the number of clinical trials we and our collaborators are preparing for or currently have underway , the speed of enrollment in those trials , the dosage schedule of each clinical trial and the time period such trials last . accordingly , the volume of preclinical and 50 clinical materials produced , and therefore our per-batch costs to manufacture these preclinical and clinical materials , may vary significantly from period to period . we may also produce research material for potential collaborators under material transfer agreements . additionally , we perform research activities , including developing antibody specific conjugation processes , on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development . we record amounts received for research materials produced or services performed as a component of research and development support revenue . we also develop conjugation processes for materials for later stage testing and commercialization for certain collaborators . we are compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue . our development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories : ( i ) development milestones , ( ii ) regulatory milestones , and ( iii ) sales milestones . development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases . regulatory milestones are typically payable upon submission for marketing approval with the fda or other countries ' regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications . sales milestones are typically payable when annual sales reach certain levels .
| additionally , during the current period , janssen biotech terminated its exclusive development and commercialization license with us , and as a result , we recognized the remaining $ 241,000 of the $ 1 million upfront fee received upon execution of the license which had been previously deferred . included in license and milestone fees for the year ended june 30 , 2014 is $ 7.8 million of license revenue earned upon the execution of a development and commercialization license by lilly , two $ 5 million regulatory milestones achieved under our collaboration agreement with roche , $ 18.2 million of license revenue earned upon the execution of two development and commercialization licenses and a one-year extension of the original term of the multi-target agreement by novartis , and $ 2.2 million of revenue from amgen related to a modification of an existing arrangement . included in license and milestone fees for the year ended june 30 , 2013 was a $ 10.5 million regulatory milestone achieved under our collaboration agreement with roche , a $ 500,000 development milestone achieved under our collaboration agreement with sanofi and $ 11.1 million of license revenue earned upon the execution of a development and commercialization license by novartis . the amount of license and milestone fees we earn is directly related to the number of our collaborators , the collaborators ' advancement of the product candidates , and the overall success in the clinical trials of the product candidates . as such , the amount of license and milestone fees may vary widely from quarter to quarter and year to year . total revenue recognized from license and milestone fees from each of our collaborative partners in the years ended june 30 , 2015 , 2014 and 2013 is included in the following table ( in thousands ) : replace_table_token_5_th deferred revenue of $ 41.2 million at june 30 , 2015 represents payments received from our collaborators pursuant to our license agreements which we have yet to earn pursuant to our revenue recognition policy . included within this amount is a $
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product revenues from customers , including resellers and system integrators , are recognized in the periods that products are shipped ( free on board ( “ fob ” ) shipping point ) or received by customers ( fob destination ) , when the fee is fixed or determinable , when collection of resulting receivables is probable and we have no remaining obligations . most revenues to resellers and system integrators are based on firm commitments from the end user , and as a result , resellers and system integrators carry little or no inventory . revenues from associated engineering and installation contracts are recognized based on milestones or completion of the contracted services . our customers do not have the right to return product unless the product is found to be defective . we also sell extended repair and maintenance contracts with terms ranging from one to several years , which provide repair and maintenance services after expiration of the original one-year warranty term . revenues from separately priced extended repair and maintenance contracts are recognized on a straight-line basis , over the contract period , and classified as contract and other revenues . share-based compensation . we account for share-based compensation in accordance with the provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 718 , “ compensation—stock compensation ” ( “ asc 718 ” ) using the modified prospective method which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values . asc 718 requires the use of subjective assumptions , including expected stock price volatility and the estimated term of each award . we estimate the fair value of stock options granted using the black-scholes option-pricing model , which is then amortized on a straight-line basis over the requisite service periods of the awards , which is generally the vesting period . this model also utilizes the fair value of our common stock and requires that , at the date of grant , we use the expected term of the share-based award , the expected volatility of the price of our common stock over the expected term , the risk free interest rate and the expected dividend yield of our common stock to determine the estimated fair value . we determine the amount of share-based compensation expense based on awards that we ultimately expect to vest , reduced for estimated forfeitures . asc 718 requires forfeitures to be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . 18 allowance for doubtful accounts . our products are sold to customers in many different markets and geographic locations . we estimate our bad debt reserve on a case-by-case basis due to a limited number of customers . we base these estimates on many factors including customer credit worthiness , past transaction history with the customer , current economic industry trends and changes in customer payment terms . our judgments and estimates regarding collectability of accounts receivable have an impact on our financial statements . valuation of inventory . our inventory is comprised of raw materials , assemblies and finished products . we must periodically make judgments and estimates regarding the future utility and carrying value of our inventory . the carrying value of our inventory is periodically reviewed and impairments , if any , are recognized when the expected future benefit from our inventory is less than its carrying value . valuation of intangible assets . intangible assets consist of patents and trademarks that are amortized over their estimated useful lives . we must make judgments and estimates regarding the future utility and carrying value of intangible assets . the carrying values of such assets are periodically reviewed and impairments , if any , are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value . this generally occurs when certain assets are no longer consistent with our business strategy and whose expected future value has decreased . accrued expenses . we establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized . this reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time . factors affecting warranty reserve levels include the number of units sold , anticipated cost of warranty repairs , and anticipated rates of warranty claims . warranty expense is recorded in cost of revenues . we evaluate the adequacy of this reserve each reporting period . we use the recognition criteria of asc 450-20 , “ loss contingencies ” to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period . we accrue bonus expense each quarter based on estimated year-end results , and then adjust the actual in the fourth quarter based on our final results compared to targets . deferred tax asset . we evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance . we record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized . realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards . utilizing the net operating loss ( “ nol ” ) carryforwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control . included in the nol carryforwards are deductions from stock options that , if recognized , will be recorded as a credit to additional paid-in capital rather than through our results of operations . in determining taxable income for financial statement reporting purposes , we must make certain estimates and judgments . story_separator_special_tag these estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the ability to recover deferred tax assets . the company will continue to evaluate the ability to realize its net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets and will adjust the valuation accordingly . recent accounting pronouncements new pronouncements issued for future implementation are discussed in note 3 , recent accounting pronouncements , to our consolidated financial statements . segment and related information we are engaged in the design , development and commercialization of directed sound technologies and products . we present our business as one reportable segment due to the similarity in nature of products marketed , financial performance measures ( revenue growth and gross margin ) , methods of distribution ( direct and indirect ) and customer markets ( each product is sold by the same personnel to government and commercial customers , domestically and internationally ) . our chief operating decision-making officer reviews financial information on sound products on a consolidated basis . see note 15 to our consolidated financial statements for further discussion . 19 comparison of results of operations for fiscal years ended september 30 , 201 5 and 201 4 the following table provides for the periods indicated certain items of our consolidated statements of operations expressed in dollars and as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_3_th * not meaningful revenues revenues decreased $ 7,807,122 , or 31.7 % , in the fiscal year ended september 30 , 2015 as a result of award contract delays for both u.s. and international projects due to various factors , including budget delays , the decline in oil and gas prices , the strong dollar slowing international growth , and regional conflicts which can slow contracting . reduced u.s. defense spending continued to delay opportunities with the u.s. military . we also had a large $ 4.0 million order for border security to a country in the middle east in fiscal 2014 that did not recur in fiscal 2015. revenues from the public safety market for crowd and riot control and military vehicles continued to be strong , as well as other diverse markets including border and perimeter security , navy and coast guard ships , tsunami warning and emergency notification systems , wildlife control , maritime security , marine surveillance and to some extent , oil and gas . we received key , strategic , initial orders from the national guard , state department , u.s. coast guard and other customers that have strong business potential for us . we made progress expanding into the mass notification markets , increasing revenues of our omnidirectional products by $ 1,301,603 or 83 % , compared to prior fiscal year . the receipt of orders will often be uneven due to the timing of approvals or budgets . we had aggregate deferred revenue of $ 51,345 and $ 567,639 for prepayments from customers in advance of product shipment at september 30 , 2015 and 2014 , respectively . gross profit gross profit for the year ended september 30 , 2015 decreased by $ 5,234,498 , or 38.0 % , primarily due to decreased revenue , unfavorable channel mix and lower fixed overhead absorption , partially offset by a decrease in manufacturing overhead costs which were variable with the decreased volume , and lower warranty expense related to decreased shipments . the lower gross profit percentage was partially attributable to a higher mix of revenues through resellers at lower reseller pricing compared to direct customer sales which have higher pricing , but a commission may be paid and is reported in operating expense . as a result , third party commission expense in fiscal 2015 decreased by $ 746,849 compared to fiscal 2014. selling , general and administrative expenses selling , general and administrative expenses decreased by $ 2,678,299 , or 33.7 % , primarily due to a reduction of $ 1,801,753 for accrued bonus for not meeting established performance targets in 2015 , after meeting the targets in fiscal 2014 , $ 746,849 for commission paid to our third party sale representatives due to a lower level of commissionable revenues , $ 100,912 for travel expense , $ 31,703 for bank fees , $ 26,965 for reduced non-cash share-based compensation expenses and $ 27,421 of other savings , partially offset by $ 57,304 for increased salaries and consulting fees as a result of adding business development personnel . we incurred non-cash share-based compensation expenses of $ 473,118 and $ 500,083 in the fiscal years ended september 30 , 2015 and 2014 , respectively . the decrease is due to options becoming fully vested , partially offset by new grants in november 2014 . 20 research and development expenses r & d expenses decreased by $ 452,696 , or 18.2 % , primarily due to $ 704,885 for accrued bonus for not meeting established performance targets , after meeting the targets in fiscal 2014 , partially offset by increases of $ 127,183 for salaries and consulting fees , $ 47,687 for non-cash share-based compensation expense , $ 36,762 for depreciation , $ 27,002 for development and testing costs and $ 13,555 of other increases . included in r & d expenses for the year ended september 30 , 2015 was $ 120,728 of non-cash share-based compensation expenses , compared to $ 73,041 for the year ended september 30 , 2014. the increase is due to new option grants . during fiscal years 2015 and 2014 , we reviewed the ongoing value of our capitalized intangible assets . as a result of this review , we reduced the value of these patents by $ 4,580 for the fiscal year ended september 30 , 2014 for assets identified as no longer consistent with our business strategy .
| u.s. government spending accounted for 59 % of our net revenues in fiscal 2012 compared to 20 % in fiscal 2015. achieved income from operations before income taxes of 8 % of net revenues . working capital decreased by 7.5 % in 2015 , compared to 2014 , but increased by 3.5 % after adding back long-term marketable security investments . enhanced our existing directional product offerings and continued to expand our omnidirectional product line making significant investments in software development and third party certifications of our product performance . we are targeting strong growth with our product offerings in the expanding worldwide mass notification market . expanded our marketing and business development teams from a total of 10 to 12 employees at september 30 , 2015 , including new management personnel , as well as one additional full-time international business consultant , with a second international consultant being added shortly following the fiscal yearend . continued to evaluate and develop our distribution channels by signing on new third party sales representatives and resellers . in the past year , we have increased our sales efforts in africa and central and southeast asia . continued to develop our international business which represented 75 % of total fiscal 2015 net revenues . continued to grow our omnidirectional business , which increased 83 % over fiscal 2014 and represented 17 % of our fiscal 2015 net revenues . 16 managed our balance sheet and controlled expenses while investing in new product development , markets and personnel . repurchased 734,070 shares of our stock under our share repurchase program announced in 2013 , bringing the total number of shares repurchased under the program to 1,011,227. announced the introduction of the lrad 450xl , the world 's loudest ahd for its size and weight , which uses enhanced patent pending technology . in june 2015 , government security news recognized the lrad 450xl as the “ best acoustic hailing service ” and the lrad 360x as the “ best mass notification system ” in its publication . our revenues decreased from $ 24,591,342 in the fiscal year ended september 30 , 2014 to $ 16,784,220 in the fiscal year ended september 30 ,
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there was no impairment loss recorded in the year ended december 31 , 2012. interest expense for the year ended december 31 , 2013 , interest expense totaled $ 1.6 million compared to $ 0.8 million in the prior year . interest expense included interest incurred on our indebtedness in addition to amortization of debt discounts and deferred financing costs . the increase in interest expense is related to the increase in our outstanding balance under the credit facility . at december 31 , 2013 , our outstanding balance under the credit facility was $ 25.5 million compared to $ 10.0 million at december 31 , 2012. interest expense to related parties for the year ended december 31 , 2013 was approximately $ 21 thousand and was related to notes payable to related parties losses allocated to related party investors for the year ended december 31 , 2013 , we allocated $ 37 thousand of losses to the related party investors compared to $ 1.7 million in the same period of the previous year . the losses recorded in the year ended december 31 , 2013 were related to one related party investor who did not convert its debt during the restructuring that was completed on june 30 , 2012 , as amended . the five remaining related party investors converted their debt into class a interests in our subsidiary , cig , llc on june 30 , 2012. the $ 1.7 million recorded in losses allocated to related party investors in 2012 was related to all of the six related party investors . bargain purchase gain for the year ended december 31 , 2012 , we recorded in our statement of operations a bargain purchase gain of $ 0.9 million related to the acquisition of towers of texas completed on september 7 , 2012. this gain represented the excess of fair value of net assets acquired over the acquisition consideration . 29 gain from extinguishment of liabilities on august , 1 , 2013 , we issued 120,000 shares of common stock to crg finance to settle outstanding liabilities in the amount of $ 120 thousand resulting in a gain on the extinguishment of liabilities of $ 78 thousand . losses on extinguishment of long-term subordinated obligations to related parties during the year ended december 31 , 2012 , and in connection with the conversion of long-term subordinated obligation into class a interests in our subsidiary , cig , llc , we recorded a loss on extinguishment of liabilities of $ 0.7 million . the loss is related to the difference between the fair value of the class a interests and the carrying value of the converted subordinated obligation completed on june 30 , 2012. losses allocated to non-controlling interest for the year ended december 31 , 2013 , we recorded approximately $ 3.2 million in losses allocated to the non-controlling interest compared to $ 1.2 million in the same period of the prior year . the non-controlling interest is related to the class a interests that our related party investors received in connection with the restructuring completed on june 30 , 2012 , as amended . losses on modification of non-controlling interest in connection with the amendment of the amended and restated limited liability company agreement of cig , llc effective on august 1 , 2013 ( “ amendment no . 3 ” ) , we recorded a loss on modification of non-controlling interest of $ 2.7 million in our statement of operations for the year ended december 31 , 2013. the loss is due to the modification of the conversion terms in the amendment and represents the incremental increase in the fair value of the modified class a interests . previously , the restructuring and the amended and restated limited liability company agreement of cig , llc was amended effective on december 31 , 2012 ( “ amendment no . 1 ” ) and subsequently as of december 31 , 2012 ( “ amendment no . 2 ” ) . as a result , we recorded a loss of $ 0.8 million in our statement of operations for the year ended december 31 , 2012 under loss on modification of non-controlling interest . the loss was the result of the modification of the conversion terms in amendment no . 2 and represented the incremental increase in the fair value of the modified class a interests . gain on change in fair value of derivatives during the year ended december 31 , 2013 , we recorded a gain of $ 0.2 million resulting from the change in the fair value of the derivative liability related to the embedded conversion feature related to the series a-2 preferred stock issued during 2013. we did not have any derivatives in the year ended december 31 , 2012. net loss for the year ended december 31 , 2013 , net loss was $ 12.2 million as compared to net loss of $ 8.9 million in the previous year . the change was the result of the costs mentioned above incurred in connection with the various acquisitions we had during the year 2013 and increase in our interest expense related to our indebtedness and the modification of the non-controlling interests partially offset by the decrease in stock compensation expense incurred during 2013 compared to the year 2012. liquidity and capital resources the following table represents our cash flows for the year ended december 31 , 2013 to the year ended december 31 , 2012 : replace_table_token_2_th 30 overview as of december 31 , 2013 , the balance of our cash and cash equivalents was $ 2.5 million compared to $ 2.4 million as of december 31 , 2012. we believe that our cash and cash equivalents at december 31 , 2013 along with available funds under our credit facility will be sufficient to meet our cash requirements to operate our business over the next twelve months . however , this balance is not sufficient enough to provide the funds required to grow our business and execute on our plan for acquiring and building new communication towers . story_separator_special_tag our plan is to use the funds available through the credit facility and raise capital to support our business plan . however , there is no certainty that we will be successful at raising capital , nor is there certainty around the amount of funds that may be raised . in addition , the success of our efforts will be subject to the performance of the market and investor sentiment regarding the macro and micro conditions under which we operate including stock market volatility . cash flows from operating activities our net cash used in operating activities was $ 5.7 million during the year ended december 31 , 2013 compared to $ 5.5 million during the prior year . the increase was mainly the result of the impact of the costs incurred in connection with the acquisitions completed during year 2013 partially offset by an increase in operating margins due to the acquisitions and organic growth in our portfolio of towers . we incurred $ 1.7 million in acquisition costs during year 2013 . cash flows from investing activities our cash used in investing activities was $ 48.7 million during the year ended december 31 , 2013 and mainly consists of payments of $ 3.2 million related to the purchase and construction of towers and $ 45.0 million related to acquisitions consummated during 2013 in addition to a $ 0.5 million increase in restricted cash resulting from the increase in the interest reserve account required to maintain under the credit facility . for the year ended december 31 , 2012 , net cash used in investing activities was $ 5.0 million which mainly consists of payments of $ 1.2 million related to the purchase and construction of towers and $ 3.5 million related to acquisition of towers of texas consummated during 2012 in addition to a $ 0.3 million increase in restricted cash resulting from the interest reserve account the company is required to maintain under the credit facility . cash flows from financing activities our net cash provided by financing activities for the year ended december 31 , 2013 was $ 54.6 million mainly consisting of a ) net proceeds of $ 15.1 million obtained through borrowings under the credit facility ; b ) proceeds of $ 1.4 million from the sale and issuance of 761,125 shares of common stock ; c ) proceeds of $ 2.7 million from the issuance of 1,053,777 shares of series b preferred stock ; and d ) net proceeds of $ 36.8 million from the sale and issuance of series a-1 and series a-2 preferred stock partially offset by i ) dividend payments of $ 91 thousand on series b preferred stock ; ii ) payments of $ 53 thousand of debt issuance costs ; iii ) $ 0.2 million for payment of debt issuance costs accrued in 2012 ; iv ) payments of $ 73 thousand on equity issuance costs for conversion of notes payable to common stock ; v ) payment on notes payable to crg and vi ) payments of $ 0.8 million on notes payable to related parties . for the year ended december 31 , 2012 , net cash provided by financing activities was $ 11.4 million consisting of proceeds of a ) proceeds of $ 9.2 million from borrowings under the credit facility ; b ) proceeds of $ 1.7 million from convertible notes to a related party ; c ) net proceeds of $ 0.4 million from issuance of 232,450 shares of common stock ; and $ 1.6 million obtained through the issuance of $ 626,715 shares of preferred stock , partially offset by i ) payments of $ 0.2 million in debt issuance costs ; ii ) payments of $ 0.1 million in debt issuance costs for conversion of debt to related party ; iii ) payments of $ 0.4 million on notes payable to related party ; iv ) cash distributions of $ 0.2 million to related party and v ) payments of $ 0.7 million as advances to related parties investors . 31 non-cash investing and financing activities the following table represents our non-cash investing and financing activities for the years ended december 31 2013 and 2012 : replace_table_token_3_th during 2013 , and in connection with eight communication towers out of the nine towers acquired from cleartalk that did not qualify as a business , we recorded a liability of $ 28 thousand as asset retirement obligations . during 2012 , we recorded $ 0.2 million in asset retirement obligations related to asset acquisitions and capitalization of constructed towers . during the year ended december 31 , 2013 , we applied a $ 100,000 receivable balance due from enex to the convertible notes outstanding that were due to enex . as a result , the outstanding principal balance of the notes was $ 700,000 as of march 31 , 2013. on april 30 , 2013 , the conversion price related to these notes was modified from $ 3.00 per share to $ 2.00 per share . simultaneously , the outstanding balance of the notes of $ 700,000 and the related accrued and unpaid interest of $ 27,133 was converted into 363,567 shares of our common stock . on august 1 , 2013 , we converted an accounts payable balance of $ 120,000 to crg into 120,000 shares of common stock . the fair value of the shares of common stock issued was $ 42,000. in connection with the common stock issued for cash during 2013 , we issued in the second quarter 1,500 shares of common stock for equity issuance costs . during the fourth quarter of 2013 , we issued dividends to the investors of series a-1 preferred stock in the amount of $ 1.4 million in the form of shares . the series a-1 investors received 13,623.54 shares of series a-1 preferred stock . in connection with the issuance and the terms of the series a-1 and series a-2 preferred stock , we issued 1,208,782 shares of series a-2 preferred stock .
| other site-related costs for the year ended december 31 , 2013 , other site-related costs were $ 0.9 million , which was an increase of approximately $ 0.3 million or 50 % from $ 0.6 million during the same period in the prior year . the increase in site related costs is due to adding more towers through the acquisitions and construction of towers completed during 2013. acquiring and constructing new towers result in incurring additional site-related costs such as insurance , property taxes and utilities . 28 general and administrative expenses for the year ended december 31 , 2013 , general and administrative expenses totaled $ 6.4 million which was a decrease of $ 1.6 million as compared to $ 8.0 million in the same period in the previous year . we recorded a reversal of $ 0.3 million related to stock-based compensation in the year ended december 31 , 2013 due to the net result of stock compensation expense of $ 0.5 million recorded during the year and the reversal of $ 0.8 million of stock compensation due to forfeitures of stock options pursuant to cancellation of all stock grants on august 1 , 2013. stock compensation expense for the year ended december 31 , 2012 was $ 2.2 million . in addition , during the year ended december 31 , 2013 , we incurred $ 1.7 million in acquisition costs in connection with the acquisitions completed during 2013. shared services from related parties for the year ended december 31 , 2013 , shared services from related parties totaled $ 0.3 million , which was a decrease of approximately $ 0.2 million compared to the same period of the prior year . the decrease is primarily the result of certain expenses incurred in 2012 which did not reoccur in 2013 as a result of acquiring during 2013 the equipment and furniture that was shared with the related parties . shared services for the year ended december 31 , 2013 mainly consist
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lower borrowing levels and a reduction in average interest rates of 90 basis points resulted in a reduction in interest expense in 2011. income taxes : replace_table_token_17_th the effective tax rate was 27.3 % in 2011 compared to 16.0 % in 2010. the 2011 effective tax rate reflects the company 's reversal of approximately $ 4.9 million of previously unrecognized tax benefits , primarily related to the incurred loss on the sale of its european material handling business in 2007 and other tax adjustments , including provision to return adjustments resulting from changes in estimates . the 2010 effective tax rate of 16.0 % on the loss before taxes of $ 51.0 million was primarily due to the $ 72.0 million goodwill impairment charge recognized in that year , $ 30.9 million of which was not deductible . acquisitions in october 2012 , the company acquired 100 % of the stock of jamco products inc. ( `` jamco '' ) , an illinois corporation for $ 15.2 million . the purchase price included a cash payment of $ 15.1 million , net of $ 0.1 million in cash acquired . jamco is a leading designer and manufacturer of heavy-duty industrial steel carts and safety cabinets . the company has made preliminary estimates of the valuation of assets and intangible assets of purchase price allocation . the business is included in the material handling segment . 26 in july 2012 , the company acquired 100 % of the stock of plasticos novel do nordeste s.a. ( `` novel '' ) , a brazil-based designer and manufacturer of reusable plastic crates and containers used for closed-loop shipping and storage . novel also produces a diverse range of plastic industrial safety products . the total purchase price was approximately $ 31.0 million , which includes a cash payment of $ 3.4 million , net of $ 0.6 million of cash acquired , assumed debt of approximately $ 26.0 million and contingent consideration of $ 0.9 million based on an earnout . the contingent consideration , which is recorded in other liabilities in the consolidated statements of financial position is dependent upon the results of novel exceeding predefined earnings before interest , taxes , depreciation and amortization over the next four years . the business is included in the material handling segment . financial condition & liquidity and capital resources cash provided by operating activities was $ 60.8 million for the year ended december 31 , 2012 compared to $ 64.2 million in 2011. the decrease of $ 3.4 million was primarily attributable to working capital requirements . net income was $ 30.0 million in 2012 compared to $ 24.5 million in 2011. non-cash charges including depreciation and impairment charges were $ 39.2 million in 2012 compared to non-cash charges of $ 42.2 million in 2011. cash used for working capital was $ 8.1 million in 2012 compared to cash used of $ 2.5 million in 2011. in 2012 , an increase in inventories used approximately $ 2.7 million of cash compared to providing $ 0.5 million in 2011. the increase of inventories in 2012 was due to slower demand in the market ; however , reductions of inventory were achieved in 2011 due to working capital initiatives . in 2012 , the use of funds for accounts receivable reduced to $ 2.0 million compared to the use of $ 8.7 million in 2011 resulting from working capital initiatives . in addition , there was an increase of $ 4.2 million in cash used by accounts payable and accrued expenses in 2012 compared to 2011. the increase in cash used by accounts payable and accrued expenses in 2012 was the result of the fifth dividend payment in calendar year 2012 and the timing of other payments . capital expenditures were approximately $ 27.0 million in 2012 compared to $ 21.9 million in 2011. capital spending in 2012 was higher than the preceding year as investments were made for new manufacturing , molding and automated handling technology . in 2012 , the company paid a combined total of $ 18.5 million in connection with the acquisitions of novel and jamco and $ 1.1 million in connection with the acquisition of material improvements l.p. in 2011. in 2012 and 2011 , the company received approximately $ 3.1 million and $ 1.1 million , respectively , in cash proceeds from the sale of property , plant & equipment . during 2012 , the company used cash of $ 4.2 million to purchase 300 thousand shares of its own stock under a share repurchase plan . in 2011 , the company used cash of $ 20.9 million to purchase two million shares of its own stock in accordance with rule 10b5-1 of the securities exchange act of 1934. in addition , the company used cash to pay dividends of $ 13.0 million and $ 9.5 million for the years ended 2012 and 2011 , respectively . the increase in dividend payments in 2012 resulted from the accelerated fourth quarter dividend payment made in december 2012 to reduce the tax impact for our shareholders . total debt at december 31 , 2012 was approximately $ 92.8 million compared with $ 74.0 million at december 31 , 2011 . the increase in debt outstanding year-over-year is primarily due to funding our acquisitions in the current year . the company 's credit agreement provides available borrowing up to $ 180 million , reduced for letters of credit issued , and , as of december 31 , 2012 , there was $ 116.1 million available under this agreement . in december 2010 , the company paid the $ 65 million senior notes that matured . as of december 31 , 2012 , the company was in compliance with all its debt covenants . the most restrictive financial covenants for all of the company 's debt are an interest coverage ratio , defined as earnings before interest and taxes divided by interest expense story_separator_special_tag lower borrowing levels and a reduction in average interest rates of 90 basis points resulted in a reduction in interest expense in 2011. income taxes : replace_table_token_17_th the effective tax rate was 27.3 % in 2011 compared to 16.0 % in 2010. the 2011 effective tax rate reflects the company 's reversal of approximately $ 4.9 million of previously unrecognized tax benefits , primarily related to the incurred loss on the sale of its european material handling business in 2007 and other tax adjustments , including provision to return adjustments resulting from changes in estimates . the 2010 effective tax rate of 16.0 % on the loss before taxes of $ 51.0 million was primarily due to the $ 72.0 million goodwill impairment charge recognized in that year , $ 30.9 million of which was not deductible . acquisitions in october 2012 , the company acquired 100 % of the stock of jamco products inc. ( `` jamco '' ) , an illinois corporation for $ 15.2 million . the purchase price included a cash payment of $ 15.1 million , net of $ 0.1 million in cash acquired . jamco is a leading designer and manufacturer of heavy-duty industrial steel carts and safety cabinets . the company has made preliminary estimates of the valuation of assets and intangible assets of purchase price allocation . the business is included in the material handling segment . 26 in july 2012 , the company acquired 100 % of the stock of plasticos novel do nordeste s.a. ( `` novel '' ) , a brazil-based designer and manufacturer of reusable plastic crates and containers used for closed-loop shipping and storage . novel also produces a diverse range of plastic industrial safety products . the total purchase price was approximately $ 31.0 million , which includes a cash payment of $ 3.4 million , net of $ 0.6 million of cash acquired , assumed debt of approximately $ 26.0 million and contingent consideration of $ 0.9 million based on an earnout . the contingent consideration , which is recorded in other liabilities in the consolidated statements of financial position is dependent upon the results of novel exceeding predefined earnings before interest , taxes , depreciation and amortization over the next four years . the business is included in the material handling segment . financial condition & liquidity and capital resources cash provided by operating activities was $ 60.8 million for the year ended december 31 , 2012 compared to $ 64.2 million in 2011. the decrease of $ 3.4 million was primarily attributable to working capital requirements . net income was $ 30.0 million in 2012 compared to $ 24.5 million in 2011. non-cash charges including depreciation and impairment charges were $ 39.2 million in 2012 compared to non-cash charges of $ 42.2 million in 2011. cash used for working capital was $ 8.1 million in 2012 compared to cash used of $ 2.5 million in 2011. in 2012 , an increase in inventories used approximately $ 2.7 million of cash compared to providing $ 0.5 million in 2011. the increase of inventories in 2012 was due to slower demand in the market ; however , reductions of inventory were achieved in 2011 due to working capital initiatives . in 2012 , the use of funds for accounts receivable reduced to $ 2.0 million compared to the use of $ 8.7 million in 2011 resulting from working capital initiatives . in addition , there was an increase of $ 4.2 million in cash used by accounts payable and accrued expenses in 2012 compared to 2011. the increase in cash used by accounts payable and accrued expenses in 2012 was the result of the fifth dividend payment in calendar year 2012 and the timing of other payments . capital expenditures were approximately $ 27.0 million in 2012 compared to $ 21.9 million in 2011. capital spending in 2012 was higher than the preceding year as investments were made for new manufacturing , molding and automated handling technology . in 2012 , the company paid a combined total of $ 18.5 million in connection with the acquisitions of novel and jamco and $ 1.1 million in connection with the acquisition of material improvements l.p. in 2011. in 2012 and 2011 , the company received approximately $ 3.1 million and $ 1.1 million , respectively , in cash proceeds from the sale of property , plant & equipment . during 2012 , the company used cash of $ 4.2 million to purchase 300 thousand shares of its own stock under a share repurchase plan . in 2011 , the company used cash of $ 20.9 million to purchase two million shares of its own stock in accordance with rule 10b5-1 of the securities exchange act of 1934. in addition , the company used cash to pay dividends of $ 13.0 million and $ 9.5 million for the years ended 2012 and 2011 , respectively . the increase in dividend payments in 2012 resulted from the accelerated fourth quarter dividend payment made in december 2012 to reduce the tax impact for our shareholders . total debt at december 31 , 2012 was approximately $ 92.8 million compared with $ 74.0 million at december 31 , 2011 . the increase in debt outstanding year-over-year is primarily due to funding our acquisitions in the current year . the company 's credit agreement provides available borrowing up to $ 180 million , reduced for letters of credit issued , and , as of december 31 , 2012 , there was $ 116.1 million available under this agreement . in december 2010 , the company paid the $ 65 million senior notes that matured . as of december 31 , 2012 , the company was in compliance with all its debt covenants . the most restrictive financial covenants for all of the company 's debt are an interest coverage ratio , defined as earnings before interest and taxes divided by interest expense
| million and approximately $ 0.6 million from the effect of unfavorable foreign currency translation . net sales in the distribution segment decreased $ 7.1 million or 4 % in 2012 compared to 2011 . the reduction in sales was almost entirely due to lower sales volume , driven by a decline in the industry 's replacement tire shipments and lower equipment sales , as a result of market softness in the first half of 2012. in the engineered products segment , net sales in 2012 increased $ 25.5 million or 22 % compared to 2011 . the increase in net sales was due to higher sales volumes of $ 24.2 million from strong demand in the automotive , recreational vehicle , marine and contract manufacturing markets . higher selling prices of $ 1.3 million also contributed to the increase . 23 cost of sales & gross profit : replace_table_token_9_th gross profit margin increased to 27.2 % for 2012 compared to 26.2 % in the prior year . increased sales , productivity improvements , raw material substitutions and decreased manufacturing costs resulted in higher gross profit and gross profit margin year-over-year . manufacturing efficiencies were attained from executing our operations excellence initiatives in our lawn and garden segment that offset a portion of the margin lost due to lower sales and in our other segments , primarily the material handling segment . selling , general and administrative expenses : replace_table_token_10_th selling , general and administrative ( “ sg & a ” ) expenses increased $ 4.8 million or 3 % compared with 2011. excluding the $ 4.8 million increase in sg & a expenses from the two acquisitions in 2012 as of the dates acquired , sg & a was flat year-over -year . sg & a expenses in 2012 included increased employee related costs , primarily medical of $ 2.2 million and $ 2.4 million of higher distribution and selling costs . these increases were offset by a reduction of approximately $ 3.0 million in
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as a result of terminating this agreement , we are no longer contractually obligated to make minimum purchases of products from g-p. we continue to distribute a variety of g-p building products . 22 g-p agreed to pay us $ 18.8 million in exchange for our agreement to terminate the supply agreement one year earlier than the may 7 , 2010 termination date previously agreed upon . under the terms of the modification agreement , we received four quarterly cash payments of $ 4.7 million , which began on may 1 , 2009 and ended on february 1 , 2010. as a result of the termination , we recognized a net gain of $ 17.8 million in 2009 , as a reduction to operating expense . the gain was net of a $ 1.0 million write-off of an intangible asset associated with the supply agreement . we believe the early termination of the supply agreement contributed to the decline in our structural panel sales volume during fiscal 2009 , 2010 and 2011. however , because the majority of these sales are through the direct sales channel , the lower structural panel sales volume had an insignificant impact on our gross profit during these periods . to the extent we are unable to replace these volumes with structural product from g-p or other suppliers , the early termination of the supply agreement may continue to negatively impact our sales of structural products which could impact our net sales and our costs , which in turn could impact our gross profit , net income , and cash flows . on february 12 , 2012 , our three-year purchase agreement with g-p for engineered lumber expired in accordance with its terms . in february of 2012 , we launched our own privately branded engineered product line for all geographic markets other than new england . in addition , on february 13 , 2012 we entered into a supply agreement with weyerhaeuser company for the sale of certain engineered wood products in the new england region . at this time we can not predict what impact this product change will have on our gross profit , net income and cash flows . osb litigation settlement until the third quarter of fiscal 2010 , we were a claimant in a class action lawsuit pending in the united states district court for the eastern district of pennsylvania alleging that the following manufacturers of oriented strand board ( osb ) conspired in violation of federal antitrust law to restrict the supply of osb structural panel products and raise prices : louisiana-pacific corporation , weyerhaeuser company , g-p llc ( f/k/a georgia-pacific corporation ) , ainsworth lumber co. ltd. , potlatch corporation , norbord industries inc. , tolko industries ltd. , grant forest products inc. and grant forest products sales inc. , and j.m . huber corporation or huber engineered woods llc ( collectively , the defendants ) . on september 13 , 2010 , we received a cash settlement in the amount of $ 5.2 million in satisfaction of our claims under the class action lawsuit . this $ 5.2 million was recognized as a gain in selling , general , and administrative expenses in our statements of operations for fiscal year 2010. defined benefit pension plans we sponsor several defined benefit pension plans covering substantially all of our hourly employees . our estimates of the amount and timing of our future funding obligations for our defined benefit pension plans are based upon various assumptions . these assumptions include , but are not limited to , the discount rate , projected return on plan assets , compensation increase rates , mortality rates , retirement patterns , and turnover rates . in addition , the amount and timing of our pension funding obligations can be influenced by funding requirements that are established by the employee retirement income and security act of 1974 ( erisa ) , the pension protection act , congressional acts , or other governing bodies . during fiscal 2010 and 2011 , we met our required contribution to our defined benefit pension plans . we recognize the unfunded status ( i.e. , the difference between the fair value of plan assets and the projected benefit obligations ) of our pension plan in our consolidated balance sheets , with a corresponding adjustment to accumulated other comprehensive loss , net of tax , offset by a valuation allowance . on december 31 , 2011 , we measured the fair value of our plan assets and benefit obligations . as of december 31 , 2011 and january 1 , 2011 , the net unfunded status of our benefit plan was $ 35.5 million and $ 18.8 million , respectively . these amounts were included in other non-current liabilities on our consolidated balance sheets . the net adjustment to other comprehensive loss for fiscal 2011 , fiscal 2010 , and fiscal 2009 was $ 15.0 million loss ( $ 15.0 million net of tax offset by a valuation allowance ) , $ 1.0 million loss ( $ 0.6 million loss , net of tax ) , and $ 1.5 million gain ( $ 0.9 million gain , net of tax ) , respectively , which represents the net unrecognized actuarial ( loss ) gain and unrecognized prior service cost . the company 's required cash contribution to the pension plan in 2012 is approximately $ 4.1 million . this contribution is comprised of approximately $ 1.2 million related to our 2011 minimum required contribution and approximately $ 2.9 million related to our 2012 minimum required contribution . the company 's minimum required contribution for plan 23 year 2012 is $ 5.4 million . the company will fund the $ 1.2 million related to its 2011 minimum required contribution with cash in 2012. however , in an effort to preserve additional cash for operations , we intend to seek a waiver from the irs for our 2012 minimum required contribution . story_separator_special_tag if we are granted the requested waiver , our contributions for 2012 will be deferred and amortized over the following five years , increasing our future minimum required contributions . we used a discount rate of 5.02 % to compute 2011 pension expense , which was determined by matching of plan liability cash flows to a portfolio of bonds . a decrease in the discount rate of 25 basis points , from 5.02 % to 4.77 % , while holding all other assumptions constant , would have resulted in an increase in the company 's pension expense of approximately $ 0.3 million in 2011. we used a long-term rate of return of 7.85 % to compute 2011 pension expense . a decrease in the long-term rate of return of 25 basis points , from 7.85 % to 7.60 % , while holding all other assumptions constant , would have resulted in an increase in the company 's pension expense of approximately $ 0.2 million in 2011. we used an estimated rate of future compensation increases of 3.00 % to compute 2011 pension expense . an increase in the rate of 25 basis points , from 3.00 % to 3.25 % , while holding all other assumptions constant , would have resulted in an increase in the company 's pension expense of less than $ 0.1 million in 2011. plan assets are managed as a balanced portfolio comprised of two major components : an equity portion and a fixed income portion . the expected role of plan equity investments will be to maximize the long-term real growth of fund assets , while the role of fixed income investments will be to generate current income , provide for more stable periodic returns , and provide some downside protection against the possibility of a prolonged decline in the market value of equity investments . we review this investment policy statement at least once per year . in addition , the portfolio will be reviewed quarterly with our investment consultant to determine whether the current target allocations and or investments are appropriate for meeting our long term financial objectives . if it is concluded that changes are needed to either the target allocations or current investments ( in order to meet current target allocations ) , we adjust as needed based on these discussions . target allocations for fiscal 2012 are 50 % domestic and 15 % international equity investments , 30 % fixed income investments , and 5 % cash . the expected long-term rate of return for the plan 's total assets is based on the expected return of each of the above categories , weighted based on the target allocation for each class . restructuring charges during fiscal 2007 , we announced a plan to adjust our cost structure in order to manage our costs more effectively . the plan included the consolidation of our corporate headquarters and sales center to one building from two buildings which resulted in charges of $ 11.3 million during the fourth quarter of fiscal 2007. during the third quarter of fiscal 2011 , we entered into an amendment to our corporate headquarters lease in atlanta , ga related to the unoccupied 4100 building . this amendment released us from our obligations with respect to this unoccupied space as of january 31 , 2012 , in exchange for a $ 5.0 million space remittance fee , due on or before that date . in addition , we are obligated to pay $ 1.2 million on or before december 31 , 2013 to be used for tenant improvements . the provisions relating to the occupied 4300 building remain unchanged . under the existing provisions , the current term of the lease ends on january 31 , 2019. the amendment resulted in a reduction of our restructuring reserve of approximately $ 2.0 million , with the credit recorded in selling , general , and administrative expenses in the consolidated statements of operations . stock-based compensation we recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest . this expense is recorded on a straight-line basis over the requisite service period of the entire award , unless the awards are subject to market or performance conditions , in which case we recognize compensation expense over the requisite service period of each separate vesting tranche to the extent market and performance conditions are considered probable . the calculation of fair value related to stock compensation is subject to certain assumptions discussed in more detail in note 7. management updates such estimates when circumstances warrant . all compensation expense related to our share-based payment awards is recorded in selling , general and administrative expense in the consolidated statements of operations . 24 selected factors that affect our operating results our operating results are affected by housing starts , mobile home production , industrial production , repair and remodeling spending and non-residential construction . we believe a substantial percentage of our sales are directly related to new home construction . our operating results also are impacted by changes in product prices . structural products prices can vary significantly based on short-term and long-term changes in supply and demand . the prices of specialty products also can vary from time to time , although they generally are significantly less variable than structural products . the following table sets forth changes in net sales by product category , sales variances due to changes in unit volume and dollar and percentage changes in unit volume and price , in each case for fiscal 2011 , fiscal 2010 and fiscal 2009 : sales revenue variances by product replace_table_token_7_th ( 1 ) other includes unallocated allowances and discounts . the following table sets forth changes in gross margin dollars and percentages by product category , and percentage changes in unit volume growth by product , in each case for fiscal 2011 , fiscal 2010 and fiscal 2009 : replace_table_token_8_th ( 1 ) other includes unallocated allowances and discounts .
| selling , general and administrative expenses for fiscal 2011 were $ 207.9 million , or 11.8 % of net sales , compared to $ 221.2 million , or 12.3 % of net sales , during fiscal 2010. the decrease in selling , general , and administrative expenses is due to $ 10.6 million of property sale gains that were recognized in fiscal 2011 , a $ 2.0 million gain related to the modification of the lease agreement for our headquarters in atlanta , georgia , and a $ 1.4 million gain related to the insurance settlement on the newtown , ct facility . there were no similar property gains in fiscal 2010. however , in fiscal 2010 there were expenses incurred related to the failed tender offer of $ 3.0 partially offset by a gain related to the settlement received on an osb class action lawsuit in which we were a claimant of $ 5.2 million . in addition , decreases in payroll and payroll related costs of $ 1.7 million , as well as decreases in stock compensation expense of $ 2.0 million also contributed to the overall decrease in selling , general and administrative expense . these changes were largely related to fiscal 2011 reduction in force activities , as well as the vesting of certain restricted stock grants during the current year . partially offsetting these fluctuations were increases to fuel expense and other operating expenses of $ 2.9 million and $ 1.4 million , respectively . depreciation and amortization . depreciation and amortization expense was $ 10.6 million for fiscal 2011 , compared to $ 13.4 million for fiscal 2010. the $ 2.8 million decrease in depreciation and amortization is primarily related to current year sales of certain depreciable properties , a portion of our property and equipment becoming fully depreciated during fiscal 2011 and replenishment of fixed assets occurring at a slower rate . operating loss . operating loss for fiscal 2011 was $ 8.3 million , or 0.5 % of sales , compared to an operating loss of $ 23.9 million , or 1.3 % of sales , for fiscal 2010 , reflecting the $ 13.3 million decrease in selling , general and administrative expense and a $ 2.8 million decrease in depreciation and amortization offset by a $ 0.5 million decrease in gross profit . interest expense , net .
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we continue to update the expectation of cash flows to be collected over the life of the retained interest . changes to the previously projected cash flows are accounted for prospectively , unless based on management 's assessment of current information and events , it is determined that there is an other-than-temporary impairment . we have not recorded an other-than-temporary impairment related to our retained interest investment in 2012 , 2011 and 2010 . 26 standby guarantee liability . in october 2009 , we entered into a strategic alliance agreement with southwest airlines to facilitate the commencement of low-fare air service in may 2010 to the new northwest florida beaches international airport in northwest florida . we agreed to reimburse southwest airlines if it incurs losses on its service at the new airport during the first three years of service . the agreement also provides that southwest 's profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments . we measured the standby guarantee liability at fair value based upon a discounted cash flow analysis based on our best estimates of future cash flows to be paid by us pursuant to the strategic alliance agreement . these cash flows were estimated using numerous estimates including future fuel costs , passenger load factors , air fares , seasonality and the timing of the commencement of service . effective july 1 , 2012 , the company and southwest airlines mutually agreed to terminate this agreement . in conjunction with the termination of this agreement , in 2012 , we recorded $ 0.8 million of other income as a result of eliminating a liability recorded at the inception of the agreement . no payments were due to southwest airlines at the effective date of termination . pension plan . we sponsor a cash balance defined-benefit pension plan covering a majority of our employees . the accounting for pension benefits is determined by accounting and actuarial methods using numerous estimates , including discount rates , expected long-term investment returns on plan assets , employee turnover , mortality and retirement ages , and future salary increases . changes in these key assumptions can have a significant effect on the pension plan 's impact on the financial statements of the company . for example , in 2012 , a 1 % increase in the assumed long-term rate of return on pension assets would have resulted in a $ 0.5 million increase in pre-tax income . a 1 % decrease in the assumed long-term rate of return would have caused an equivalent decrease in pre-tax income . a 1 % increase or decrease in the assumed discount rate would have resulted in a less than $ 0.1 million change in pre-tax income . at december 31 , 2012 , our pension plan was in a net overfunded position of $ 33.4 million and the ratio of plan assets to projected benefit obligation was 225 % . in 2012 , our compensation committee approved a plan to terminate our pension plan in march 2013. at that time , the plan will be frozen until such time that we have received all the regulatory approvals for termination . as a result of this action , we recognized a loss in 2012 of $ 2.1 million . in addition , we currently expect to recognize further estimated losses of approximately $ 22 million to $ 26 million , and receive approximately $ 15 million to $ 19 million of cash once we receive all the regulatory approvals and distributions are made to plan participants and excise taxes are paid . stock-based compensation . we have previously offered stock incentive plans whereby awards were granted to certain employees and non-employee directors in the form of restricted shares of our common stock or options to purchase our common stock . in 2012 , less than 0.1 million of vested restricted stock awards were granted . in addition , in february 2011 , 2010 and 2009 , we granted select executives and other key employees restricted stock awards with vesting based upon the achievement of certain market conditions that are defined as our total shareholder return as compared to the total shareholder return of certain peer groups during a three-year performance period . stock-based compensation cost is measured at the grant date based on the fair value of the award and is typically recognized as expense on a straight-line basis over the requisite service period , which is the vesting period . upon exercise of stock options or vesting of restricted stock , we will issue new common stock . all stock options and the majority of our restricted share awards have vested and the related stock-based compensation has been recognized in our consolidated financial statements in prior years . we currently have less than $ 0.1 million of unamortized expense related to restricted share awards that will be recognized in the first quarter of 2013 when these awards vest . income taxes . in preparing our consolidated financial statements , significant management judgment is required to estimate our income taxes . our estimates are based on our interpretation of federal and state tax laws . 27 we estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes . the temporary differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . we record a valuation allowance against our deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income . adjustments may be required by a change in assessment of our deferred tax assets and liabilities , changes due to audit adjustments by federal and state tax authorities , and changes in tax laws . to the extent adjustments are required in any given period story_separator_special_tag we continue to update the expectation of cash flows to be collected over the life of the retained interest . changes to the previously projected cash flows are accounted for prospectively , unless based on management 's assessment of current information and events , it is determined that there is an other-than-temporary impairment . we have not recorded an other-than-temporary impairment related to our retained interest investment in 2012 , 2011 and 2010 . 26 standby guarantee liability . in october 2009 , we entered into a strategic alliance agreement with southwest airlines to facilitate the commencement of low-fare air service in may 2010 to the new northwest florida beaches international airport in northwest florida . we agreed to reimburse southwest airlines if it incurs losses on its service at the new airport during the first three years of service . the agreement also provides that southwest 's profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments . we measured the standby guarantee liability at fair value based upon a discounted cash flow analysis based on our best estimates of future cash flows to be paid by us pursuant to the strategic alliance agreement . these cash flows were estimated using numerous estimates including future fuel costs , passenger load factors , air fares , seasonality and the timing of the commencement of service . effective july 1 , 2012 , the company and southwest airlines mutually agreed to terminate this agreement . in conjunction with the termination of this agreement , in 2012 , we recorded $ 0.8 million of other income as a result of eliminating a liability recorded at the inception of the agreement . no payments were due to southwest airlines at the effective date of termination . pension plan . we sponsor a cash balance defined-benefit pension plan covering a majority of our employees . the accounting for pension benefits is determined by accounting and actuarial methods using numerous estimates , including discount rates , expected long-term investment returns on plan assets , employee turnover , mortality and retirement ages , and future salary increases . changes in these key assumptions can have a significant effect on the pension plan 's impact on the financial statements of the company . for example , in 2012 , a 1 % increase in the assumed long-term rate of return on pension assets would have resulted in a $ 0.5 million increase in pre-tax income . a 1 % decrease in the assumed long-term rate of return would have caused an equivalent decrease in pre-tax income . a 1 % increase or decrease in the assumed discount rate would have resulted in a less than $ 0.1 million change in pre-tax income . at december 31 , 2012 , our pension plan was in a net overfunded position of $ 33.4 million and the ratio of plan assets to projected benefit obligation was 225 % . in 2012 , our compensation committee approved a plan to terminate our pension plan in march 2013. at that time , the plan will be frozen until such time that we have received all the regulatory approvals for termination . as a result of this action , we recognized a loss in 2012 of $ 2.1 million . in addition , we currently expect to recognize further estimated losses of approximately $ 22 million to $ 26 million , and receive approximately $ 15 million to $ 19 million of cash once we receive all the regulatory approvals and distributions are made to plan participants and excise taxes are paid . stock-based compensation . we have previously offered stock incentive plans whereby awards were granted to certain employees and non-employee directors in the form of restricted shares of our common stock or options to purchase our common stock . in 2012 , less than 0.1 million of vested restricted stock awards were granted . in addition , in february 2011 , 2010 and 2009 , we granted select executives and other key employees restricted stock awards with vesting based upon the achievement of certain market conditions that are defined as our total shareholder return as compared to the total shareholder return of certain peer groups during a three-year performance period . stock-based compensation cost is measured at the grant date based on the fair value of the award and is typically recognized as expense on a straight-line basis over the requisite service period , which is the vesting period . upon exercise of stock options or vesting of restricted stock , we will issue new common stock . all stock options and the majority of our restricted share awards have vested and the related stock-based compensation has been recognized in our consolidated financial statements in prior years . we currently have less than $ 0.1 million of unamortized expense related to restricted share awards that will be recognized in the first quarter of 2013 when these awards vest . income taxes . in preparing our consolidated financial statements , significant management judgment is required to estimate our income taxes . our estimates are based on our interpretation of federal and state tax laws . 27 we estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes . the temporary differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . we record a valuation allowance against our deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income . adjustments may be required by a change in assessment of our deferred tax assets and liabilities , changes due to audit adjustments by federal and state tax authorities , and changes in tax laws . to the extent adjustments are required in any given period
| 29 the decrease of $ 18.9 million or 48 % in real estate sales in 2011 as compared with 2010 is primarily due to decreased sales in rural land sales as a result of our planned reduction in large tract rural land sales , as well as weakened demand , partially offset by an increase of residential real estate sales . cost of real estate sales increased and gross margin on real estate sales decreased during 2011 compared to 2010 primarily as a result of the higher proportion of residential sales compared to rural land sales . residential real estate sales remained weak in 2011 due to oversupply , depressed prices in the florida real estate markets , poor economic conditions and the residual uncertainty about the gulf coast region arising from the deepwater horizon incident . resorts , leisure and leasing revenues . the increase of $ 6.2 million or 16 % in revenues in 2012 as compared to 2011 was driven by an increase of $ 4.4 million from the watercolor inn and vacation rentals due to increased occupancy and room rate increases implemented earlier in 2012 , more vacation homes and occupancy in our vacation rental business , and improved operating margins . in addition revenues from our leasing operations increased $ 1.4 million , or 64 % , due to commencement of rent for our built-to-suit leases that began at the end of 2011 through mid-2012 . cost of resort , leisure and operating revenues increased $ 1.9 million or 5 % , which was due to greater occupancy and activity levels at the watercolor inn and vacation rentals . resort , leisure and leasing revenues increased $ 6.8 million or 22 % in 2011 as compared with 2010 , primarily due to rate and occupancy increases at the watercolor inn and in the vacation rental programs and increased activity at related resort operations . cost of resort , leisure and leasing revenues increased $ 3.9 million due to greater occupancy and activity levels . timber revenues . timber revenues decreased by approximately $ 47.7 million in 2012 as compared to 2011 due to $ 54.5 million of revenue from a timber teed transaction in 2011. excluding the impact of the $ 54.5 million
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we identify below a number of policies that entail significant judgments or estimates , the assumptions and or judgments used to determine those estimates and the potential effects on reported financial results if actual results differ materially from these estimates . accounting policy assumptions and uncertainties quantification and analysis of effect on actual results if estimates differ materially revenue recognition . we recognize product sales when persuasive evidence of an order arrangement exists , delivery has occurred , the sales price is fixed or determinable and collectibility is reasonably assured . generally , these criteria are met at the time of receipt by customers when title and risk of loss both are transferred . sales are presented net of returns and allowances , rebates and sales incentives . reserves for estimated returns and allowances are provided when sales are recorded , based on historical experience and current trends . our revenue recognition policy contains assumptions and judgments made by management related to the timing and amounts of future sales returns . sales returns are estimated based upon historical experience and current known trends . we have not made any material changes to our sales return reserve policy in the past three years and we do not anticipate making any material changes to this policy in the future . however if our estimates are materially different than our actual experience we could have a material gain or loss adjustment . allowance for doubtful accounts receivable . we record an allowance for doubtful accounts to reflect our estimate of the collectibility of our trade accounts receivable . while bad debt allowances have been within expectations and the provisions established , there can be no guarantee that we will continue to experience the same allowance rate we have in the past . our allowance for doubtful accounts policy contains assumptions and judgments made by management related to collectibility of aged accounts receivable and chargebacks from credit card sales . we evaluate the collectibility of accounts receivable based on a combination of factors , including an analysis of the age of customer accounts and our historical experience with accounts receivable write-offs . the analysis also includes the financial condition of a specific customer or industry , and general economic conditions . in circumstances where we are aware of customer credit card charge-backs or a specific customer 's inability to meet its financial obligations , a specific reserve for bad debts applicable to amounts due to reduce the net recognized receivable to the amount management reasonably believes will be collected is recorded . in those situations with ongoing discussions , the amount of bad debt recognized is based on the status of the discussions . we have not made any material changes to our allowance for doubtful accounts receivable reserve policy in the past three years and we do not anticipate making any material changes to this policy in the future . however if our estimates are materially different than our actual experience we could have a material gain or loss adjustment . a change of 10 % in our allowance for doubtful accounts reserve at december 31 , 2011 would impact net income by approximately $ 0.4 million . 18 accounting policy assumptions and uncertainties quantification and analysis of effect on actual results if estimates differ materially inventory valuation . we value our inventories at the lower of cost or market , cost being determined on the first-in , first-out method except in europe and retail locations where an average cost is used . excess and obsolete or unmarketable merchandise are written down based on historical experience , assumptions about future product demand and market conditions . if market conditions are less favorable than projected or if technological developments result in accelerated obsolescence , additional write-downs may be required . while obsolescence and resultant markdowns have been within expectations , there can be no guarantee that we will continue to experience the same level of markdowns we have in the past . our inventory reserve policy contains assumptions and judgments made by management related to inventory aging , obsolescence , credits that we may obtain for returned merchandise , shrink and consumer demand . we have not made any material changes to our inventory reserve policy in the past three years and we do not anticipate making any material changes to this policy in the future . however if our estimates are materially different than our actual experience we could have a material loss adjustment . a change of 10 % in our inventory reserves at december 31 , 2011 would impact net income by approximately $ 0.5 million . goodwill and intangible assets . we apply the provisions of relevant accounting guidance in our valuation of goodwill , trademarks , domain names , client lists and other intangible assets . relevant accounting guidance requires that goodwill and indefinite lived intangibles be reviewed at least annually for impairment or more frequently if indicators of impairment exist . the amount of an impairment loss would be recognized as the excess of the asset 's carrying value over its fair value . our impairment testing involves judgments and uncertainties , quantitative and qualitative , related to the use of discounted cash flow models and forecasts of future results , both of which involve significant judgment and may not be reliable . significant management judgment is necessary to evaluate the operating environment and economic conditions that exist to develop a forecast for a reporting unit . assumptions related to the discounted cash flow models we use include the inputs used to determine the company 's weighted average cost of capital including a market risk premium , the beta of a reporting unit , reporting unit specific risk premiums and terminal growth values . critical assumptions related to the forecast inputs used in our discounted cash flow models include projected sales growth , same store sales growth , gross margin percentages , new business opportunities , working capital requirements , capital expenditures and growth in selling , general and administrative expense . story_separator_special_tag we also use our company 's market capitalization and comparable company market data to validate our reporting unit valuations . we have not made any material changes to our goodwill and intangible assets policy in the past three years and we do not anticipate making any material changes to this policy in the future . we do not believe it is reasonably likely that the estimates or assumptions used to determine whether any of our goodwill or intangible assets are impaired will change materially in the future . however if the inputs used in our discounted cash flow models or our forecasts are materially different than actual experience we could incur impairment charges that are material . the company has approximately $ 57.8 million in goodwill and intangible assets at december 31 , 2011. in 2011 no impairment of the company 's goodwill or intangible assets were identified . 19 accounting policy assumptions and uncertainties quantification and analysis of effect on actual results if estimates differ materially long-lived assets . management exercises judgment in evaluating our long-lived assets for impairment and in their depreciation and amortization methods and lives . we believe we will generate sufficient undiscounted cash flow to more than recover the investments made in property , plant and equipment . the impairment analysis for long lived assets requires management to make judgments about useful lives and to estimate fair values of long lived assets . it may also require us to estimate future cash flows of related assets using discounted cash flow model our estimates of future cash flows involve assumptions concerning future operating performance and economic conditions . while we believe that our estimates of future cash flows are reasonable , different assumptions regarding such cash flows could materially affect our evaluations . we have not made any material changes to our long lived assets policy in the past three years and we do not anticipate making any material changes to this policy in the future . we do not believe it is reasonably likely that the estimates and assumptions used to determine long lived asset impairment will vary materially in the future . however if our estimates are materially different than our actual experience we could have a material gain or loss adjustment . an change of 10 % in the carrying value of our long lived assets would impact net income by approximately $ 4.9 million . vendor accruals . our contractual agreements with certain suppliers provide us with funding or allowances for costs such as price protection , markdowns and advertising as well as funds or allowances for purchasing volumes . generally , allowances received as a reimbursement of identifiable costs are recorded as an expense reduction when the cost is incurred . sales related allowances are generally determined by our level of purchases of product and are deferred and recorded as a reduction of inventory carrying value and are ultimately included as a reduction of cost of goods when inventory is sold . management makes assumptions and exercises judgment in estimating period end funding and allowances earned under our various agreements . estimates are developed based on the terms of our vendor agreements and using existing expenditures for which funding is available , determining products whose market price would indicate coverage for markdown or price protection is available and estimating the level of our performance under agreements that provide funds or allowances for purchasing volumes . estimates of funding or allowances for purchasing volume will include projections of annual purchases which are developed using current actual purchase data and historical purchase trends . accruals in interim periods could be materially different if actual purchase volumes differ from projections . we have not made any material changes to our vendor accrual policy in the past three years nor do we anticipate making any material changes to this policy in the future . if actual results are different from the projections used we could have a material gain or loss adjustment . a change of 10 % in our vendor accruals at december 31 , 2011 would impact net income by approximately $ 1.6 million . 20 accounting policy assumptions and uncertainties quantification and analysis of effect on actual results if estimates differ materially income taxes . we are subject to taxation from federal , state and foreign jurisdictions and the determination of our tax provision is complex and requires significant management judgment . we conduct operations in numerous u.s. states and foreign locations . our effective tax rate depends upon the geographic distribution of our pre-tax income or losses among locations with varying tax rates and rules . as the geographic mix of our pre-tax results among various tax jurisdictions changes , the effective tax rate may vary from period to period . we are also subject to periodic examination from domestic and foreign tax authorities regarding the amount of taxes due . these examinations include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions . we establish as needed , and periodically reevaluate , an estimated income tax reserve on our consolidated balance sheet to provide for the possibility of adverse outcomes in income tax proceedings . while management believes that we have identified all reasonably identifiable exposures and whether or not a reserve is appropriate , it is possible that additional exposures exist and that exposures may be settled at amounts different than the amounts reserved . the determination of deferred tax assets and liabilities and any valuation allowances that might be necessary requires management to make significant judgments concerning the ability to realize net deferred tax assets . the realization of net deferred tax assets is dependent upon the generation of future taxable income . in estimating future taxable income there are judgments and uncertainties related to the development of forecasts of future results that may not be reliable . significant management judgment is also necessary to evaluate the operating environment and economic conditions that exist to develop a forecast for a reporting unit .
| geographies : the north american sales increase resulted primarily from the industrial products segment 's additional new product lines partially offset by declining consumer sales in the technology products segment . on a constant currency basis , north american sales would have grown 1.2 % . the movement in foreign exchange rates positively impacted sales by approximately $ 9.0 million . the european sales increase resulted primarily from an increase in business to business sales . on a constant currency basis , european sales would have increased 0.7 % . movement in foreign exchange rates positively impacted sales by approximately $ 45.6 million . 23 channel sales : the worldwide business to business channel sales increase resulted primarily from the industrial products segment 's additional product lines and the addition of business to business sales personnel in both the technology products and industrial products segments . on a constant currency basis , worldwide business to business channel sales grew 9.7 % . the worldwide consumer-channels , defined as revenues from retail stores , consumer websites , inbound call centers and television shopping channels , decline resulted primarily from decreased european and north american unassisted web and television shopping sales . on a constant currency basis , worldwide consumer channel sales declined 7.4 % . 2010 versus 2009 : the growth in technology products sales in 2010 compared to 2009 was driven by increased business to business and consumer channel sales worldwide as a result of improved global economic conditions , the expansion of the number of retail stores in the united states and canada and the continued sales contribution from our circuit city and wstore europe sa ( “ wstore ” ) acquisitions in 2009. on a constant currency basis , excluding the impact of the wstore acquisition on results , technology product sales would have grown 7.9 % or $ 230.6 million . north american technology products sales increased 8.2 % in 2010 compared to 2009 benefiting from increased retail and internet sales in the consumer channel , the result of opening seven retail stores in 2010 and the circuit city acquisition in 2009. on a constant currency basis , north american sales would
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its law enforcement , and surveillance customers include metropolitan , regional and national law enforcement agencies , as well as domestic and international defense agencies and organizations . the novel coronavirus outbreak could impact our business . the recent outbreak of the coronavirus ( “ covid-19 ” ) is creating uncertainty worldwide and domestically , in the markets , our operations , our supply chain , and the general public , given that none of the duration , scope or impact of the outbreak can be predicted . our highest priority is the safety and well-being of our employees and other members in the vislink community . we have been working diligently to take precautions to ensure a clean and safe environment . we are also working closely with our suppliers and customers to ensure that we are taking every feasible step to minimize disruption and to continue to deliver the products our customers ' need . as of the date of this filing , covid-19 has not had a significant impact on our business . although we currently expect that any future disruptive impact of covid-19 on our business to be temporary , this situation continues to evolve rapidly and therefore we can not predict the extent of which covid-19 's impact the company . we expect and are seeing that covid-19 ( and reactions to it ) are having and will have negative global financial consequences and heightened uncertainty , which may directly or indirectly negatively impact the operation of our supply chain , our liquidity and capital resources , and our workforce availability , any of which could have a material adverse effect on our business , financial condition , results of operations or cash flows . 18 story_separator_special_tag expenditures . in november 2019 , the company closed on an additional equity financing for issuance of common stock and warrants for net proceeds of $ 3.6 million . the company appropriated the net proceeds from equity financing to assist in alleviating the burden of accumulated backorders and provide working capital for daily operating expenditures . in february 2020 , the company closed on an equity financing for issuance of common stock and warrants for net proceeds of $ 5.4 million . the company has earmarked the net proceeds from equity financing to for working capital and general corporate purposes . on december 31 , 2019 , our working capital , defined as current assets less current liabilities , was $ 3.6 million , which included $ 1.7 million in cash . we believe that as of december 31 , 2019 , and as of the date of the filing of this report , we have sufficient working capital to fund our operations at least for the next 12 months from the date these financial statements are available . our operations primarily have been funded through cash generated by debt and equity financing . cash consists of cash on hand and demand deposits . our cash balances were as follows ( in thousands ) : replace_table_token_1_th cash flows the following table sets forth the major components of our consolidated statements of cash flows data for the periods presented ( in thousands ) . replace_table_token_2_th operating activities net cash used in operating activities of approximately $ 8.4 million during the year ended december 31 , 2019 , was primarily attributable to our net loss of $ 18.0 million , a change in the fair value of derivative liabilities of $ 1.1 million , a decrease of accounts receivable and operating lease liabilities of $ 0.9 million each , a decrease of accounts payable of $ 0.6 million , partially offset by stock-based compensation of $ 2.1 million , depreciation and amortization of $ 2.4 million , inventory valuation adjustments of $ 4.7 million , an increase in deferred revenue and customer deposits of $ 1.2 million , and an increase in inventory of $ 0.8 million . net cash used in operating activities of approximately $ 6.4 million during the year ended december 31 , 2018 , was primarily attributable to our net loss of $ 14.9 million , a decrease of accounts payable of $ 3.4 million , a change in the fair value of derivative liabilities of $ 3.2 million , a decrease of accrued expenses and interest expense of $ 1.2 million , partially offset by stock-based compensation of $ 3.7 million , depreciation and amortization of $ 3.0 million , amortization of debt discount of $ 2.3 million , payments made in stock ( payroll and consultants ) of $ 1.8 million , loss on debt and payables extinguishment of $ 1.1 million , an increase in accounts receivable of $ 1.8 million , an increase in deferred revenue and customer deposits of $ 1.0 million , and an increase in inventory of $ 0.8 million . investing activities net cash used in investing activities of $ 0.4 million during the year ended december 31 , 2019 , was primarily due to the purchase of equipment . net cash provided by investing activities of $ 0.2 million during the year ended december 31 , 2018 , was primarily due to the proceeds from the sale of equipment . 22 financing activities net cash provided by financing activities of $ 8.5 million during the year ended december 31 , 2019 , was primarily due to the net proceeds received from an equity financing of $ 14.4 million , principally offset by principal payments made on convertible promissory notes of $ 6.0 million . net cash provided by financing activities of $ 5.4 million during the year ended december 31 , 2018 , was primarily due to the net proceeds received from the incurrence of promissory notes of $ 5.6 million , principally offset by payments made on convertible promissory notes and capital leases of $ 0.1 million each . story_separator_special_tag liquidity under asu 2014-15 presentation of financial statements—going concern ( subtopic 205-40 ) ( “ asc 205-40 ” ) , the company has the responsibility to evaluate whether conditions and or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued . as required by asc 205-40 , this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued . management has assessed the company 's ability to continue as a going concern under the requirement of asc 205-40. as reflected in the consolidated financial statements , the company had $ 1.7 million in cash on the balance sheet at december 31 , 2019. the company had working capital and an accumulated deficit of $ 3.6 million and $ 252.6 million , respectively . additionally , the company had a loss from operations of approximately $ 17.2 million and cash used in operating activities of $ 8.4 million for the year ended december 31 , 2019. as of february 14 , 2020 , the company 's cash balance was approximately $ 6.8 million after the equity raise . the company achieved the following capital events : ● on july 11 , 2019 , the company closed an equity financing for 1,550,000 shares of common stock , warrants to purchase 6,000,000 shares of common stock and , 4,450,000 pre-funded warrants to purchase common stock in place of common stock . the company received gross proceeds of approximately $ 11,996,000 from the offering , before deducting underwriting-related fees and other offering expenses payable by the company . the company used the net proceeds to satisfy outstanding principal and accrued interest due on convertible promissory notes of approximately $ 7,600,000 million and the balance for working capital . ● on november 27 , 2019 , the company closed an equity financing for 3,201,200 shares of common stock , warrants to purchase 11,893,100 shares of common stock and , warrants to purchase 11,320,725 shares of common stock . the company received gross proceeds of approximately $ 3,988,000 from the offering , before deducting underwriting-related fees and other offering expenses payable by the company . the company used the net proceeds from equity financing for working capital purposes . ● on february 14 , 2020 , the company closed on an equity financing for 12,445,000 shares of common stock , 12,445,000 warrants to purchase 9,333,750 shares of common stock , and 14,827,200 pre-funded warrants , with each pre-funded warrant exercisable for one share of common stock , together with 14,827,200 warrants to purchase 11,120,400 shares of common stock . the company received gross proceeds of approximately $ 5,998,000 , less offering costs of $ 560,000 for net proceeds of $ 5,438,000. the company has earmarked the use of the net proceeds from equity financing for working capital and general corporate purposes . as a result of the capital events , repaying substantially all of our outstanding debt , and ongoing cost management , the company believes there are enough funds to mitigate the going concern uncertainty for at least twelve months from the date that the accompanying financial statements included elsewhere in this form 10-k were issued . 23 nasdaq compliance on september 26 , 2019 , the company received a written notification from the nasdaq stock market llc ( “ nasdaq ” ) indicating that the company was not in compliance with nasdaq listing rule 5550 ( a ) ( 2 ) as company 's closing bid price was below $ 1.00 per share for the previous 30 consecutive business days . pursuant to the nasdaq listing rule 5810 ( c ) ( 3 ) ( a ) , the company was granted a 180-day compliance period , or until march 24 , 2020 , to regain compliance with the minimum bid price requirements . during the compliance period , the company 's shares of common stock will continue to be listed and traded on the nasdaq capital market . on march 25 , 2020 , the company received a written notification from nasdaq that the company was afforded a second 180-calendar day grace period to regain compliance with the minimum bid price requirements . if the company does not regain compliance by september 21 , 2020 , nasdaq will provide notice that the company 's shares of common stock will be subject to delisting . on march 4 , 2020 , the company received a letter from the listing qualifications department ( the “ staff ” ) of nasdaq notifying the company that the staff has determined that the company did not comply with listing rule 5635 ( d ) because the february 2020 offering did not meet the nasdaq definition of a public offering under listing rule im-5635-3 . the staff 's determination was based on ( i ) the extent of the offering 's distribution , ( ii ) the existence of a prior relationship between the company and the investors , and ( iii ) the significant discount to the minimum price , as defined in nasdaq rules . on march 18 , 2020 , the company submitted a plan to regain compliance with rule 5635 , which is currently under review by nasdaq . off-balance sheet arrangements as of december 31 , 2019 , and 2018 , we had no off-balance sheet arrangements . 24 critical accounting policies , estimates and judgments our consolidated financial statements are prepared in accordance with united states generally accepted accounting principles ( “ u.s . gaap ” ) , which require us to make estimates and assumptions . certain critical accounting policies affect the more significant accounts , particularly those that involve judgments , estimates and assumptions used in the preparation of our consolidated financial statements . the development and selection of these critical accounting policies have been determined by our management . we have reviewed our critical accounting policies and estimates with the audit committee of our board of directors .
| for the years ended december 31 , 2019 , and 2018 inventory valuation adjustments amounted to $ 4.7 million and $ 0.5 million , representing an increase of $ 4.2 million or 840 % . the increase is primarily due to the disposal of items identified as obsolete . general and administrative expenses general and administrative expenses are costs incurred in operating the business daily and include salary and benefit expenses including stock-based compensation and payroll taxes , as well as the costs of trade shows , marketing programs , promotional materials , professional services , facilities , general liability insurance , travel and expenses associated with being a public company . general and administrative expenses for the years ended december 31 , 2019 , and 2018 were $ 20.1 million and $ 21.8 million , respectively , representing a decrease of $ 1.7 million or 8 % . the reduction is primarily attributable to $ 1.6 million of salaries and benefits , and $ 0.9 million in consulting . the decline has been offset mainly by an increase of $ 0.8 million in with minor increases of other various corporate expenditures . research and development research and development expenses consist primarily of salary and benefit expenses including stock-based compensation and payroll taxes , as well as costs for prototypes , facilities and travel . research and development expenses for the years ended december 31 , 2019 , and 2018 were $ 3.2 million and $ 7.9 million , respectively , representing a decrease of $ 4.7 million or 59 % . the reduction is primarily attributable to the company 's strategic cost savings plan initiated in the fiscal year-end 2018 , eliminating the xg division resulting in a decline of $ 2.0 in stock-based compensation and $ 1.8 million in salaries and benefits . impairment impairments related to the long-lived assets or amortized intangible assets that were recorded during the years ended december 31 , 2019 and 2018 were $ -0- and $ 0.4 million , respectively ,
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actual results could differ materially from our estimates under different assumptions or conditions . to the extent that there are material differences between our estimates and actual results , our financial condition or results of operations will be affected . 30 our significant accounting policies , as describ ed in note 2 , “ summary of significant accounting policies ” of our notes to consolidated financial statements included elsewhere in this report , should be read in conjunction with management 's discussion and analysis of financial condition and results of op erations . we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results because application of such policies require significant judgment regarding the effects of matters that are inherently uncertain and that affect our consolidated financial statements . revenue recognition we generate revenue from sales of licensing rights and subscriptions to our software products , hardware and third party software products , support and maintenance services , revenue cycle management and related services ( `` rcm '' ) , electronic data interchange and data services ( “ edi ” ) , and professional services , such as implementation , training , and consulting performed for clients who use our products . we generally recognize revenue provided that persuasive evidence of an arrangement exists , fees are considered fixed or determinable , delivery of the product or service has occurred , and collection is considered probable . revenue from the delivered elements , such as software licenses , are generally recognized upon physical or electronic delivery . in certain transactions where collection is not considered probable , the revenue is deferred until collection occurs . if the fee is not fixed or determinable , then the revenue recognized in each period ( subject to application of other revenue recognition criteria ) will be the lesser of the aggregate amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method . we assess whether fees are considered fixed or determinable at the inception of the arrangement and negotiated fees generally are based on a specific volume of products to be delivered and not subject to change based on variable pricing mechanisms , such as the number of units copied or distributed or the expected number of users . a typical software licensing arrangement may contain multiple elements , such as software licenses , support and maintenance services , and professional services . revenue from arrangements involving multiple elements is generally allocated to each element using the residual method when evidence of fair value only exists for the undelivered elements . the fair value of an element is based on vendor-specific objective evidence ( “ vsoe ” ) , which is established based on the price charged when the same element is sold separately or renewed . we generally establish vsoe for the related undelivered elements based on the bell-shaped curve method . vsoe is established on maintenance for certain clients based on stated renewal rates only if the rate is determined to be substantive and falls within our customary pricing practices . vsoe calculations are updated and reviewed on a quarterly or annual basis , depending on the nature of the product or service . under the residual method , we defer revenue related to the undelivered elements based on vsoe of fair value of each undelivered element and allocate the remainder of the contract price , net of all discounts , to the delivered elements . if vsoe of fair value of any undelivered element does not exist , all revenue is deferred until vsoe of fair value of the undelivered element is established or the element has been delivered . revenue related to arrangements that include hosting services is recognized in accordance to the revenue recognition criteria described above only if the client has the contractual right to take possession of the software at any time without incurring a significant penalty , and it is feasible for the client to either host the software on its own equipment or through another third party . otherwise , the arrangement is accounted for as a service contract in which the entire arrangement is deferred and recognized over the period that the hosting services are being provided . from time to time , we offer future purchase discounts on our products and services as part of our arrangements . such discounts that are incremental to the range of discounts reflected in the pricing of the other elements of the arrangement , that are incremental to the range of discounts typically given in comparable transactions , and that are significant , are assessed as an additional element of the arrangement . based on our assessments , such discounts are generally not considered to be incremental and significant . revenue deferred related to incremental and significant future purchase options , if any , are not recognized until either the client exercises the discount offer or the offer expires . revenue from professional services , including implementation , training , and consulting services , are generally recognized as the corresponding services are performed . revenue from software related subscription services and support and maintenance revenue are recognized ratably over the contractual service period . revenue from edi and data services and other transaction processing services are recognized at the time the services are provided to clients . revenue from rcm and related services is derived from service fees under our rcm arrangements , generally calculated as a percentage of total client collections . our rcm arrangements include ongoing billing , collections , and other related services , and often may also include other products and services , such as software , software-as-a-service , support and maintenance , and professional services . we recognize rcm and related services revenue at the time collections are made by the client as the services fees are not fixed or determinable until such time . story_separator_special_tag we record revenue net of sales tax obligation in the consolidated statements of net income and comprehensive income . 31 the amount and timing of revenue recognized in a given period is affected by our judgment as to whether an arrangement includes multiple elements and if so , the allocation of revenue to each elemen t. we generally apply the residual method for the revenue recognition of our multiple element arrangements and estimate the fair value of the undelivered elements based on vsoe . establishing vsoe on our undelivered elements requires judgment . we establish vsoe for each undelivered element as the price charged when the same element is sold separately and generally evidenced when a substantial majority of historical standalone transactions fall within a reasonably narrow range using the bell-shaped curve meth od . in our determination of vsoe , we also consider service type , client type , and other variables . our revenue recognition is based on our ability to maintain vsoe . although not currently expected , certain events may occur , such as modification to or lack of consistency in our selling and pricing practices that could result in changes to our determination of vsoe . vsoe calculations are updated and reviewed on a quarterly or annual basis , depending on the nature of the product or service . we also must apply judgment in determining the appropriate timing and recognition of certain revenue deferrals . in certain transactions where collection risk is high , the revenue is deferred until collection occurs . if the fee is not fixed or determinable , then the revenue recognized in each period ( subject to application of other revenue recognition criteria ) will be the lesser of the aggregate amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method . we assess whether fees are considered fixed or determinable at the inception of the arrangement and negotiated fees generally are based on a specific volume of products to be delivered and not subject to change based on variable pricing mechanisms , such as the number of units copied or distributed or the expected number of users . although we currently 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 . reserves on accounts receivable we maintain reserves for potential sales returns and uncollectible accounts receivable . in aggregate , such reserves reduce our gross accounts receivable to its estimated net realizable value . our standard contracts generally do not contain provisions for clients to return products or services . however , we historically have accepted sales returns under certain circumstances . accordingly , we estimate sales return reserves , including reserves for returns and other credits , based upon our review of customer-specific facts and circumstances , including aged receivable balances , and recognize revenue , net of an allowance for sales returns . if we are unable to estimate the returns , revenue recognition may be delayed until the rights of return period lapses , provided also , that all other criteria for revenue recognition have been met . if we experience changes in practices related to sales returns or changes in actual return rates that deviate from the historical data on which our reserves had been established , our revenues may be adversely affected . allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients ' inability to make required payments are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances , net of deferred revenue and specifically reserved accounts . specific reserves are based on our estimate of the probability of collection for certain troubled accounts . accounts are written off as uncollectible only after we have expended extensive collection efforts . our allowances for doubtful accounts are based on our assessment of the collectability of client accounts . we regularly review the adequacy of these allowances by considering internal factors such as historical experience , credit quality and age of the client receivable balances as well as external factors such as economic conditions that may affect a client 's ability to pay and review of major third-party credit-rating agencies , as needed . if a major client 's creditworthiness or financial condition were to deteriorate , if actual defaults are higher than our historical experience , or if other circumstances arise , our estimates of the recoverability of amounts due to us could be overstated , and additional allowances could be required , which could have an adverse impact on our operating results . although we currently 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 required reserves that could be material . software development costs software development costs , consisting primarily of employee salaries and benefits , incurred in the research and development of new software products and enhancements to existing software products for external sale are expensed as incurred , and reported as net research and development costs in the consolidated statements of net income and comprehensive income , until technological feasibility has been established . after technological feasibility is established , any additional external software development costs are capitalized . amortization of capitalized software is recorded using the greater of the ratio of current revenues to the total of current and expected revenues of the related product or the straight-line method over the estimated economic life of the related product , which is typically three years . the total of capitalized software costs incurred in the development of products for external sale are reported as capitalized software costs within our consolidated balance sheets .
| the increase in professional services is mostly associated with transcription and editing services from our acquisition of entrada , offset by lower sales of professional services due to lower client demand for our core software products and related implementation , training , and consulting services . the increase in support and maintenance is primarily due to lower sales credits in the current year , addition of new customers , and the impact of our annual price increases . edi revenue increased due to higher edi services sold with our nextgen office cloud-based solutions and growth in edi transaction volume due to the addition of new clients and further penetration of our existing client base . rcm services revenue increased from the addition of new clients and organic growth achieved through cross selling and ramping up of rcm services provided to our existing clients , offset by customer attrition . the decline in software license and hardware reflects lower recent bookings associated with the increasingly saturated end-market for electronic health records software and our transition to a recurring subscription-based model . consolidated revenue for the year ended march 31 , 2017 increased $ 17.1 million compared to the year ended march 31 , 2016 mostly to a $ 31.6 million increase in software related subscription services and $ 6.6 million increase in edi , partially offset by a $ 9.3 million decrease in professional services , $ 6.4 million decrease in support and maintenance , $ 5.0 million decrease in software license and hardware , and $ 0.5 million decrease in rcm . the increase in software related subscription services was primarily driven by a full year of sales related to the nextgen office cloud-based solution acquired from healthfusion in january 2016 , combined with growth in subscriptions related to our interoperability , patient portal , and qsidental web product offerings as we continue to expand our client base . the increase in edi is partially attributed to the acquisition of healthfusion and growth in edi transaction volume due to addition of new clients and further penetration of our existing client base . the decline in software license and hardware revenue was mostly
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recently enacted u.s. tax legislation the tax cuts and jobs act ( the “ tcja ” ) was enacted on december 22 , 2017. the legislation significantly changes united states ( or `` u.s. '' ) tax law by , among other things , reducing the u.s. corporate income tax rate from a maximum of 35 % to 21 % ; implementing a territorial tax system , generally providing for , among other things , a dividends received deduction on the foreign source portion of dividends received from a foreign corporation if specified conditions are met ; and imposing a one-time repatriation tax on undistributed post-1986 earnings and profits of foreign subsidiaries , which will be deemed repatriated for purposes of the tax . on december 22 , 2017 , the sec staff issued staff accounting bulletin no . 118 ( “ sab 118 ” ) to address the application of u.s. gaap in situations where a company does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tcja . sab 118 states that in these circumstances , if the company can determine a reasonable estimate for the income tax effects , the sec staff would not object if the company includes in its financial statements the reasonable estimate it has determined ( and the sec staff also expressed its belief that it would not be appropriate for a company to exclude a reasonable estimate from its financial statements to the extent a reasonable estimate has been determined ) . we have included provisional amounts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended december 31 , 2017. while we believe that the provisional amounts constitute reasonable estimates , we continue to examine the impact the tcja may have on our business . once our accounting for the income tax effects of the tcja is complete , the amounts with respect to the income tax effects of the tcja may differ from the provisional amounts , possibly materially , due to , among other things , additional analysis , changes in interpretations and assumptions we have made , additional regulatory guidance that may be issued , and actions we may take as a result of the tcja . in 2017 , we recognized a $ 107.9 million net tax expense as a result of the tcja . additional information on the impacts of the tcja is included below and in note 13 to our consolidated financial statements included in this annual report on form 10-k. health care reform in 2010 , the patient protection and affordable care act ( as amended , the `` affordable care act '' ) was signed into law . the legislation is far-reaching and is intended to expand access to health insurance coverage and improve the quality and reduce the costs of healthcare . for medical device companies such as teleflex , the expansion of medical insurance coverage should lead to greater utilization of the products we manufacture , but the provisions of the legislation designed to contain the cost of healthcare could negatively affect pricing of our products and encourage patient outcome driven results . the overall impact of the affordable care act on our business is yet to be determined , mainly due to uncertainties around future customer behaviors , which we believe will be affected by reimbursement factors such as insurance coverage , statistics , patient outcomes and patient satisfaction . several legislative initiatives to repeal the affordable care act and adopt a form of replacement legislation were proposed , but not adopted , in 2017. however , the recently adopted tax cuts and jobs act eliminated the individual mandate under the affordable care act , which generally required most americans to maintain a minimum level of health insurance coverage . as a result , the level of insurance premium prices for participants in insurance exchanges under the affordable care act is subject to 36 increased uncertainty . the nature and effect of any modification of , or legislative substitution for , the affordable care act , as well as the longer-term viability of the act , is uncertain . the affordable care act imposed a 2.3 % excise tax on sales of medical devices , beginning in 2013. although the excise tax has been suspended through 2019 , its status remains unclear for subsequent years . for the year ended december 31 , 2015 , we recorded medical device excise taxes of $ 10.2 million , which was included in selling , general and administrative expenses . global economic conditions global economic conditions in the past decade have had adverse impacts on market activities due to , among other things , failure of financial institutions , falling asset values , diminished liquidity , reduced demand for products and services and significant fluctuations in foreign currency exchange rates . in response , we adjusted production levels and engaged in new restructuring activities . we continue to review and evaluate our manufacturing , warehousing and distribution processes to maximize efficiencies through the elimination of redundancies in our operations and the consolidation of facilities . although , on a consolidated basis , the consequences of economic conditions , other than fluctuations in foreign currency exchange rates , have not had a significant adverse impact on our financial position , results of operations or liquidity , healthcare policies and practice trends vary by country , and the impact of the global economic downturn was felt to varying degrees in each of our regional markets over the last several years . story_separator_special_tag while there has been some degree of improvement in economic conditions recently , the continuation of economic trends of uncertain economic growth , constricted credit , public sector austerity measures in response to public budget deficits and foreign currency volatility , particularly with respect to the euro , could have a material adverse effect on our results of operations and our liquidity . in recent years , hospitals in some regions of the united states experienced a decline in admissions , a weaker payor mix , and a reduction in elective procedures . consequently , hospitals took actions to reduce their costs , including limiting their capital spending . despite recent improvements in the economic environment , challenges persist , particularly in some european countries , as discussed below . approximately 95 % of our net revenues come from single-use products primarily used in critical care and surgical applications , and our sales volume could be negatively impacted if hospital admission rates or payor mix change . conversely , our sales volume could increase due to the greater number of insured individuals as a result of the affordable care act , which has had the effect of facilitating medical insurance coverage for many persons who previously were not covered , although , as noted above , the affordable care act may be subject to repeal , further modification or replacement , and its longer-term viability is uncertain . a number of european countries continue to contend with considerable government debt , annual deficits and high levels of unemployment . despite some indications of a more positive economic outlook in europe , the healthcare sector remains weak . in particular , budgetary restraints among european countries have led to cost control measures , such as delays in approvals for elective surgeries.the public healthcare systems in certain countries in western europe , most notably greece , spain , portugal and italy , have experienced significantly reduced liquidity due to recessionary conditions , which continues to result in delays in payments to us by customers in these countries . moreover , the impact of brexit , economic and trade policies of the trump administration and political developments in european nations could have a profound economic effect in europe and elsewhere . in asia , we are experiencing an increasing trend of government-implemented price management and reimbursement controls , particularly in china and australia . there also has been an increase in government initiatives to help local manufacturers access a bigger share of the local market . moreover , many countries in the region have become more proactive with respect to regulatory requirements , and as a result , we expect longer , costlier and more complicated regulatory approval processes in these countries . in latin america , some highly regulated economies such as argentina and venezuela have experienced unusually high inflation rates and weakening currencies . this has impacted the budgets of the public healthcare systems resulting in delays in the importation of medical devices . although latin america does not represent a significant portion of our business , our operations in this region may be adversely affected by these factors . results of operations as used in this discussion , `` new products '' are products for which commercial sales have commenced within the past 36 months , and “ existing products ” are products for which commercial sales commenced more than 36 months 37 ago . discussion of results of operations items that reference the effect of one or more acquired businesses ( except as noted below with respect to acquired distributors ) generally reflects the impact of the acquisitions within the first 12 months following the date of the acquisition . in addition to increases and decreases in the per unit selling prices of our products to our customers , our discussion of the impact of product price increases and decreases also reflects , for the first 12 months following the acquisition or termination of a distributor , the impact on the pricing of our products resulting from the elimination of the distributor from the sales channel . to the extent an acquired distributor had pre-acquisition sales of products other than ours , the impact of the post-acquisition sales of those products on our results of operations is included within our discussion of the impact of acquired businesses . certain financial information is presented on a rounded basis , which may cause minor differences . revenues replace_table_token_6_th comparison of 2017 and 2016 net revenues for the year ended december 31 , 2017 increased 14.9 % , or $ 278.3 million , compared to the prior year . the increase is primarily attributable to net revenues of $ 205.8 million generated by acquired businesses , primarily vascular solutions and neotract and , to a lesser extent , an increase in new product sales . comparison of 2016 and 2015 net revenues for the year ended december 31 , 2016 increased 3.2 % , or $ 58.3 million , compared to the prior year . the increase is primarily attributable to an increase in sales volumes of existing products of $ 37.3 million and an increase in new product sales of $ 24.2 million , both across all of our segments . the increase was partially offset by unfavorable fluctuations in foreign currency exchange rates . gross profit replace_table_token_7_th comparison of 2017 and 2016 for the year ended december 31 , 2017 , gross margin increased 130 basis points , or 2.4 % , compared to the prior year . the increase in gross margin is primarily attributable to gross margin generated by acquired businesses , a more favorable mix of products sold , cost improvement initiatives , including the 2016 and 2014 footprint realignment plans described below and the impact of price increases .
| the increase is primarily attributable to gross profit generated by vascular solutions , which was partially offset by higher operating expenses , including expenses incurred in connection with the acquisition and ongoing operations of vascular solutions . anesthesia north america anesthesia north america net revenues for the year ended december 31 , 2017 decreased $ 0.8 million , or 0.4 % , compared to the prior year . the decrease is primarily attributable to a $ 10.1 million decrease in sales volumes of existing products partially offset by net revenues generated by an acquired business and an increase in new product sales . anesthesia north america operating profit for the year ended december 31 , 2017 increased $ 7.3 million , or 13.2 % , compared to the prior year . the increase is primarily attributable to a gain of $ 6.4 million resulting from a favorable ruling in a lawsuit involving an insurance provider . surgical north america surgical north america net revenues for the year ended december 31 , 2017 increased $ 3.0 million , or 1.7 % , compared to the prior year . the increase is primarily attributable to a $ 3.0 million increase in new product sales and price increases of $ 2.6 million partially offset by a $ 2.8 million decrease in sales volumes of existing products . surgical north america operating profit for the year ended december 31 , 2017 increased $ 7.3 million , or 12.9 % , compared to the prior year . the increase is primarily attributable to an increase in gross profit resulting from lower manufacturing costs and increases in prices and new product sales , partially offset by sales volume decreases . the increase in operating profit is also attributable to lower expense associated with the revaluation of contingent consideration liabilities . emea emea net revenues for the year ended december 31 , 2017 increased $ 41.8 million , or 8.2 % , compared to the prior year . the increase is primarily attributable to net revenues of $ 20.5 million generated by acquired businesses ( primarily vascular solutions ) , favorable
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payer conversion rate payer conversion rate is calculated by dividing average mpu for the period by the average mau for the same period . we believe this indicator provides useful information reflecting game monetization . 42 non-gaap financial measures adjusted ebitda , or aebitda , as used herein , is a non-gaap financial measure that is presented as supplemental disclosure and is reconciled to net income attributable to sciplay as the most directly comparable gaap measure as set forth in the below table . we define aebitda to include net income attributable to sciplay before : ( 1 ) net income attributable to noncontrolling interest ; ( 2 ) interest expense ; ( 3 ) income tax ( benefit ) expense ; ( 4 ) depreciation and amortization ; ( 5 ) contingent acquisition consideration ; ( 6 ) restructuring and other , which includes charges or expenses attributable to : ( a ) employee severance ; ( b ) management changes ; ( c ) restructuring and integration ; ( d ) m & a and other , which includes : ( i ) m & a transaction costs ; ( ii ) purchase accounting adjustments ; ( iii ) unusual items ( including certain legal settlements ) and ( iv ) other non-cash items ; and ( e ) cost-savings initiatives ; ( 7 ) stock-based compensation ; ( 8 ) loss ( gain ) on debt financing transactions ; and ( 9 ) other expense ( income ) including foreign currency ( gains ) and losses . we also use aebitda margin , a non-gaap measure , which we calculate as aebitda as a percentage of revenue . our management uses aebitda and aebitda margin to , among other things : ( i ) monitor and evaluate the performance of our business operations ; ( ii ) facilitate our management 's internal comparisons of our historical operating performance and ( iii ) analyze and evaluate financial and strategic planning decisions regarding future operating investments and operating budgets . in addition , our management uses aebitda and aebitda margin to facilitate management 's external comparisons of our results to the historical operating performance of other companies that may have different capital structures and debt levels . our management believes that aebitda and aebitda margin are useful as they provide investors with information regarding our financial condition and operating performance that is an integral part of our management 's reporting and planning processes . in particular , our management believes that aebitda is helpful because this non-gaap financial measure eliminates the effects of restructuring , transaction , integration or other items that management believes have less bearing on our ongoing underlying operating performance . management believes aebitda margin is useful as it provides investors with information regarding the underlying operating performance and margin generated by our business operations . components of results of operations revenue we generate substantially all of our revenue from the sale of virtual coins , chips and bingo cards , which players of our games can use to play slot games , table games and bingo games . revenue from the sale of virtual coins , chips and bingo cards is generated on mobile and web platforms . other revenue primarily represents advertising revenue , which is currently an insignificant portion of our total revenue . we expect our overall revenue to continue to grow as we continue to increase our market share and execute our strategy . as player platform preferences change and continue to migrate to mobile , we expect revenue generated on web platforms to continue to decline . operating expenses operating expenses consist primarily of cost of revenue , sales and marketing expenses , general and administrative expenses , r & d , d & a , contingent acquisition consideration , and restructuring and other expenses , each more fully described below . d & a expense is excluded from cost of revenue and other operating expenses , and is separately presented on the consolidated statements of income . cost of revenue cost of revenue consists primarily of fees paid to platform providers such as facebook , google , apple , amazon and microsoft , which generally represent 30 % of revenue , and licensing fees , which includes intellectual property royalties paid to both affiliated and unaffiliated third parties , and other direct expenses incurred to generate revenue . we expect the aggregate amount of cost of revenue to increase for the foreseeable future as we grow our revenue and expand our business . sales and marketing sales and marketing expenses consist primarily of advertising costs related to marketing and player acquisition and retention , salaries and benefits for our sales and marketing employees and fees paid to consultants . we intend to continue to 43 invest in sales and marketing to grow our player base both for our existing games and future games we may deploy . as a result , we expect the aggregate amount of sales and marketing expenses to increase for the foreseeable future as we grow our revenues and business and deploy new games . as deployed games mature , we generally expect sales and marketing expenses as a percentage of revenue attributable to such games to decrease . general and administrative general and administrative expenses consist primarily of salaries , benefits , and stock-based compensation for our executives , finance , information technology , human resources and other administrative employees , and includes administrative parent services ( see note 10 ) . in addition , general and administrative expenses include outside consulting , legal and accounting services , facilities and other supporting overhead costs not allocated to other departments . we expect that our aggregate amount of general and administrative expenses will increase for the foreseeable future as we continue to grow our business and incur additional expenses associated with being a publicly traded company . r & d r & d expenses consist primarily of costs associated with game development , such as associated salaries , benefits , facilities and other supporting overhead costs associated with game development . story_separator_special_tag continued investment in enhancing existing games and developing new games is important to attaining our strategic objectives . as a result , we expect the aggregate amount of r & d expenses to increase for the foreseeable future as we grow our business , focus on retention of our development team and grow our facilities . contingent acquisition consideration contingent acquisition consideration expense consists of incremental consideration to be paid to former owners of businesses we acquired , the amount of which exceeds the acquisition date estimation . as described in note 1 , when an acquisition includes future consideration to be paid to previous owners of those businesses we have acquired , we estimate the fair value of the future payments and record the acquisition-date fair value as a component of the purchase price . we monitor such arrangements and evaluate them when conditions change . any adjustments subsequent to the acquisition date estimate are recorded as contingent acquisition consideration expense . because such expense is based on our current expectations of the future results of the acquired businesses , any adjustments are recorded if our expectations for the future change . although we currently do not have any expectation that we will incur future contingent acquisition consideration , any such expenses will be dependent on future merger and acquisition activities and terms of those arrangements . restructuring and other our restructuring and other expenses include charges or expenses attributable to : ( i ) employee severance ; ( ii ) management restructuring and related costs ; ( iii ) restructuring and integration ; ( iv ) cost savings initiatives ; and ( v ) acquisition related and other unusual items other than contingent acquisition consideration . restructuring and other expenses will increase or decrease based on management actions and or occurrence of charges described herein . 44 results of operations story_separator_special_tag solid # 000000 ; '' > $ 39.0 net income attributable to noncontrolling interest 61.1 — net income 93.5 39.0 contingent acquisition consideration 1.7 27.5 restructuring and other 1.0 1.0 depreciation and amortization 7.0 15.1 income tax expense 8.7 10.4 stock-based compensation 8.9 4.0 other expense ( income ) , net 1.5 ( 3.0 ) aebitda ( 2 ) $ 122.3 $ 94.0 revenue $ 465.8 $ 416.2 net income margin ( net income/revenue ) 20.1 % 9.4 % aebitda margin ( aebitda/revenue ) ( 2 ) 26.3 % 22.6 % royalties for scientific games ip ( 1 ) $ 10.2 $ 26.1 ( 1 ) under the terms of the ip license agreement , as more fully described in note 10 , we acquired an exclusive ( subject to certain limited exceptions ) , perpetual , non-royalty-bearing license for intellectual property created or acquired by sg gaming , inc. or its affiliates , which resulted in no future royalties or fees for our use of intellectual property owned by sg gaming , inc. or its affiliates in our currently available games . ( 2 ) refer to “ key performance indicators and non-gaap measures ” section above for the definitions of aebitda and aebitda margin presented in this table . revenue , key performance indicators and other metrics replace_table_token_3_th 45 revenue information by geography is summarized as follows : replace_table_token_4_th the following reflects our key performance indicators and other metrics : ( in millions , except arpdau , average monthly revenue per payer , and percentages ) years ended december 31 , variance 2019 2018 2019 vs. 2018 mobile penetration ( 1 ) 83 % 78 % 5 pp nm average mau ( 1 ) 8.0 8.3 ( 0.3 ) ( 3.6 ) % average dau ( 1 ) 2.7 2.6 0.1 3.8 % arpdau ( 1 ) $ 0.48 $ 0.43 $ 0.05 11.6 % average mpus ( 1 ) 0.5 0.5 — — % average monthly revenue per payer ( 1 ) $ 82.19 $ 75.93 $ 6.26 8.2 % payer conversion rate ( 1 ) 6.0 % 5.5 % 0.5 pp nm ( 1 ) kpi include results from current period players only , excluding out of period adjustments disclosed in note 12. pp = percentage points . nm = not meaningful . mobile platform revenue increased primarily due to the ongoing popularity of jackpot party casino , monopoly slots , bingo showdown and 88 fortunes . web platform revenue decreased due to a decline in player levels as a result of player preferences causing a continued migration to mobile platforms . the increase in mobile penetration percentage primarily reflects a continued trend of players migrating from web to mobile platforms to play our games . average mau decreased and average dau stayed relatively flat due to the turnover in users while paying users stayed consistent . consequently , arpdau and average monthly revenue per payer increased due to decreased average mau and flat average dau base . the increase in payer conversion rates were due to the growing popularity of our games and increased interaction with the games by our players as a result of the introduction of new content and features into our games . 46 operating expenses years ended december 31 , variance percentage of revenue ( $ in millions ) 2019 2018 2019 vs. 2018 2019 2018 2019 vs. 2018 change operating expenses : cost of revenue ( 1 ) $ 158.5 $ 160.4 $ ( 1.9 ) ( 1 ) % 34.0 % 38.5 % ( 4.5 ) pp sales and marketing ( 1 ) 129.7 105.7 24.0 23 % 27.8 % 25.4 % 2.4 pp general and administrative ( 1 ) 40.6 34.5 6.1 18 % 8.7 % 8.3 % 0.4 pp research and development ( 1 ) 23.6 25.6 ( 2.0 ) ( 8 ) % 5.1 % 6.2 % ( 1.1 ) pp depreciation and amortization 7.0 15.1 ( 8.1 ) ( 54 ) % nm contingent acquisition consideration 1.7 27.5 ( 25.8 ) ( 94 ) % nm restructuring and other 1.0 1.0 — — % nm total operating expenses $ 362.1 $ 369.8 $ ( 7.7 ) ( 2 ) % ( 1 ) excludes depreciation and amortization .
| summary of results of operations years ended december 31 , variance ( $ in millions , except percentages ) 2019 2018 2019 vs. 2018 revenue $ 465.8 $ 416.2 $ 49.6 12 % operating expenses 362.1 369.8 ( 7.7 ) ( 2 ) % operating income 103.7 46.4 57.3 123 % net income 93.5 39.0 54.5 140 % net income attributable to sciplay 32.4 39.0 ( 6.6 ) ( 17 ) % aebitda $ 122.3 $ 94.0 $ 28.3 30 % net income margin 20.1 % 9.4 % 10.7 pp nm aebitda margin 26.3 % 22.6 % 3.7 pp nm pp = percentage points . nm = not meaningful . the following table reconciles net income attributable to sciplay to aebitda and aebitda margin : years ended december 31 , ( $ in millions , except percentages ) 2019 2018 net income attributable to sciplay ( 1 ) $ 32.4 < td style= '' vertical-align : bottom ; background-color : # cceeff ; border-top:1px
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we define noi as total property revenue less direct property operating expenses ( including property taxes ) , and excluding corporate-level income ( including management , development and other fees ) , corporate-level property management and other indirect operating expenses , investments and investment management expenses , expensed acquisition , development and other pursuit costs , net of recoveries , interest expense , net , loss ( gain ) on extinguishment of debt , net , general and administrative expense , equity in income of unconsolidated real estate entities , depreciation expense , corporate income tax expense , casualty and impairment loss ( gain ) , net , gain on sale of communities , loss ( gain ) on other real estate transactions and net operating income from real estate assets sold or held for sale . noi does not represent cash generated from operating activities in accordance with gaap , and noi should not be considered an alternative to net income as an indication of our performance . noi should also not be considered an alternative to net cash flow from operating activities , as determined by gaap , as a measure of liquidity , nor is noi indicative of cash available to fund cash needs . reconciliations of noi for the years ended december 31 , 2017 , 2016 and 2015 to net income for each year are as follows ( dollars in thousands ) : replace_table_token_15_th 38 the noi increases for both 2017 and 2016 , as compared to the prior years , consist of changes in the following categories ( dollars in thousands ) : replace_table_token_16_th _ ( 1 ) noi for the year ended december 31 , 2016 includes $ 20,306 in business interruption insurance proceeds related to the edgewater casualty loss . ( 2 ) noi for the year ended december 31 , 2017 includes $ 3,495 in business interruption insurance proceeds related to the maplewood casualty loss . the increase in our established communities ' noi in 2017 and 2016 is due to increased rental rates , partially offset by increased operating expenses . the increase in 2016 is also partially offset by decreased economic occupancy . rental and other income increased in both 2017 and 2016 compared to the prior years due to additional rental income generated from newly developed , acquired and existing operating communities and an increase in rental rates at our established communities . the changes between years are also impacted by business interruption insurance proceeds received due to the final settlement of the edgewater and maplewood casualty losses , as described above . consolidated communities—the weighted average number of occupied apartment homes for consolidated communities increased to 70,081 apartment homes for 2017 , as compared to 67,849 homes for 2016 and 64,211 homes for 2015 . the weighted average monthly rental revenue per occupied apartment home increased to $ 2,556 for 2017 as compared to $ 2,476 in 2016 and $ 2,388 in 2015 . established communities—rental revenue increased $ 38,648,000 , or 2.5 % , to $ 1,574,395,000 for 2017 from $ 1,535,747,000 in the prior year . the increase is due to an increase in average rental rates of 2.4 % to $ 2,511 per apartment home and an increase in economic occupancy of 0.1 % to 95.5 % . rental revenue increased $ 64,206,000 , or 4.3 % , for 2016 , as compared to the prior year . economic occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community 's gross revenue . economic occupancy is defined as gross potential revenue less vacancy loss , as a percentage of gross potential revenue . gross potential revenue is determined by valuing occupied homes at leased rates and vacant homes at market rents . we experienced increases in rental revenue for all of our established communities ' regions in 2017 as compared to the prior year , as discussed in more detail below . the metro new york/new jersey region accounted for approximately 23.0 % of the established community rental revenue for 2017 and experienced a rental revenue increase of 2.1 % for 2017 over the prior year . average rental rates increased 2.0 % to $ 3,038 per apartment home , and economic occupancy increased 0.1 % to 95.8 % for 2017 as compared to 2016 . we expect operating conditions in the metro new york/new jersey region to remain bifurcated between new york city and surrounding suburban submarkets in 2018. we believe elevated levels of new apartment deliveries in new york city are limiting our ability to increase rental rates , while surrounding suburban submarkets are more insulated from this new competition . the southern california region accounted for approximately 21.5 % of the established community rental revenue for 2017 and experienced a rental revenue increase of 3.9 % for 2017 over the prior year . average rental rates increased 4.1 % to $ 2,214 per apartment home , and were partially offset by a 0.2 % decrease in economic occupancy to 95.3 % for 2017 as compared to 2016 . we expect an increase in new apartment deliveries in southern california in 2018 but believe strengthening job and income growth will continue to support a favorable operating environment . 39 the northern california region accounted for approximately 21.4 % of the established community rental revenue for 2017 and experienced a rental revenue increase of 1.6 % for 2017 over the prior year . average rental rates increased 1.1 % to $ 2,839 per apartment home , and economic occupancy increased 0.5 % to 95.7 % for 2017 as compared to 2016 . we expect operating conditions to remain challenged in the northern california region in 2018 due to slower job growth and an increase in competition from new apartment deliveries . the new england region accounted for approximately 14.8 % of the established community rental revenue for 2017 and experienced a rental revenue increase of 2.4 % for 2017 over the prior year . story_separator_special_tag average rental rates increased 2.3 % to $ 2,420 per apartment home , and economic occupancy increased 0.1 % to 95.6 % for 2017 as compared to 2016 . we expect the operating environment in new england in 2018 to be more favorable in the suburban submarkets than in the urban submarkets due to higher levels of new apartment deliveries in the urban submarkets . the mid-atlantic region accounted for approximately 14.0 % of the established community rental revenue for 2017 and experienced a rental revenue increase of 1.8 % for 2017 over the prior year . average rental rates increased 1.9 % to $ 2,153 per apartment home , and were partially offset by a 0.1 % decrease in economic occupancy to 95.2 % for 2017 as compared to 2016 . we believe elevated levels of new apartment deliveries in the mid-atlantic region will limit our ability to increase rental rates in select submarkets in 2018. the pacific northwest region accounted for approximately 5.3 % of the established community rental revenue for 2017 and experienced a rental revenue increase of 5.4 % for 2017 over the prior year . average rental rates increased 5.2 % to $ 2,228 per apartment home , and economic occupancy increased 0.2 % to 95.2 % for 2017 as compared to 2016 . we expect strong job and income growth in 2018 in the pacific northwest region will continue to support a favorable operating environment . management , development and other fees decreased $ 1,452,000 or 25.9 % , and $ 4,348,000 , or 43.7 % , in 2017 and 2016 , respectively , as compared to the prior years . the decreases in 2017 and 2016 were primarily due to lower property and asset management fees earned as a result of dispositions from fund ii and the u.s. fund . the decrease in 2016 was also due to asset management and disposition fees earned in the prior year not present in 2016 from the residual jv . direct property operating expenses , excluding property taxes increased $ 21,874,000 , or 5.4 % , and $ 29,260,000 , or 7.8 % , in 2017 and 2016 , respectively , as compared to the prior years . the increases in 2017 and 2016 were primarily due to the addition of newly developed and acquired apartment communities . for established communities , direct property operating expenses , excluding property taxes , increased $ 6,067,000 , or 2.0 % , and $ 7,256,000 , or 2.5 % , in 2017 and 2016 , respectively , as compared to the prior years . the increase in 2017 was primarily due to increased compensation expense , bad debt and turnover and maintenance costs , partially offset by decreased property insurance costs . the increase in 2016 was primarily due to increased bad debt expense , compensation and community repairs and maintenance costs , partially offset by decreased utility costs and a decrease in snow removal and other costs related to the severe winter storms in our northeast markets that occurred during the first quarter of 2015. property taxes increased $ 16,538,000 , or 8.1 % , and $ 11,338,000 , or 5.9 % , in 2017 and 2016 , respectively , as compared to the prior years . the increases in 2017 and 2016 were primarily due to the addition of newly developed and acquired apartment communities , increased assessments across our portfolio , as well as successful appeals and reductions of supplemental taxes in the prior years in excess of those recognized in the then current year . for established communities , property taxes increased $ 5,300,000 , or 3.5 % , and $ 6,616,000 , or 4.4 % , in 2017 and 2016 , respectively , as compared to the prior years . the increase in 2017 was primarily due to increased assessments in the current year periods , as well as successful appeals in the prior year periods in the company 's west coast markets . the increase in 2016 was primarily due to increased assessments as well as appeals and supplemental tax reversals in 2015 in excess of those recognized in 2016. for communities in california , property tax changes are determined by the change in the california consumer price index , with increases limited by law ( proposition 13 ) . massachusetts also has laws in place to limit property tax increases . we evaluate property tax increases internally and also engage third-party consultants to assist in our evaluations . we appeal property tax increases when appropriate . corporate-level property management and other indirect operating expenses increased $ 2,521,000 , or 3.8 % , in 2017 as compared to the prior year . the increase in 2017 was primarily due to increased compensation related costs in the current year , partially offset by severance costs in the prior year not present in current year . 40 investments and investment management expense increased by $ 1,114,000 , or 23.1 % , and $ 452,000 , or 10.3 % , in 2017 and 2016 , respectively , as compared to the prior years . the increases in 2017 and 2016 were primarily due to increases in compensation expense . expensed acquisition , development and other pursuit costs , net of recoveries primarily reflect abandoned pursuit costs as well as acquisition costs related to business acquisitions that occurred prior to the adoption of asu 2017-01 as of october 1 , 2016. subsequent to the adoption of asu 2017-01 , we expect that acquisitions of individual operating communities will generally be viewed as asset acquisitions , and result in acquisition costs being capitalized instead of expensed . abandoned pursuit costs include costs incurred for development pursuits not yet considered probable for development , as well as the abandonment of development rights and costs related to abandoned acquisition and disposition pursuits .
| we also started the construction of eight communities containing an aggregate of 2,600 apartment homes , which are expected to be completed for an estimated total capitalized cost of $ 808,000,000 . in addition , during 2017 we completed the redevelopment of seven communities containing an aggregate of 2,072 apartment homes for a total investment of $ 99,000,000 , excluding costs incurred prior to the redevelopment . during the year ended december 31 , 2017 , we sold six wholly-owned operating communities , containing an aggregate of 1,624 apartment homes , for an aggregate sales price of $ 475,500,000 . we also sold other ancillary real estate including undeveloped land parcels and 421-a tax certificates representing the right to qualify for certain property tax exemptions in new york city , for an aggregate sales price $ 39,154,000 . we recorded an aggregate gain in accordance with gaap of $ 252,845,000 associated with our real estate disposition activity . during the year ended december 31 , 2017 , we acquired three communities containing an aggregate of 1,062 apartment homes and 27,000 square feet of retail space for an aggregate purchase price of $ 365,750,000 . we believe that our balance sheet strength , as measured by our current level of indebtedness , our current ability to service interest and other fixed charges , and our current moderate use of financial encumbrances ( such as secured financing ) provide us with adequate access to liquidity from the capital markets . we expect to be able to meet our reasonably foreseeable liquidity needs , as they arise , through a combination of one or more of the following sources : existing cash on hand ; operating cash flows ; borrowings under our credit facility ; secured debt ; the issuance of corporate securities ( which could include unsecured debt , preferred equity and or common equity ) ; the sale of apartment communities ; or through the formation of joint ventures . see the discussion under `` liquidity and capital resources . ''
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the delinquency rate for commercial real estate loans collateralizing cmbs decreased in 2013 , and stands at 7.43 % as of december 2013 data versus 9.71 % a year ago . commercial real estate prices have recovered 79.9 % of their peak to trough decline , according to moody 's commercial property price indices . cmbs issued prior to the crisis performed well in 2013. new issuances of cmbs continued to grow in 2013 and were met with reasonably strong demand . the u.s. federal reserve has communicated that the quantitative easing ( `` qe '' ) program will be reduced , or “ tapered , ” beginning with a $ 10 billion reduction in january purchases of agency rmbs . further reduction in purchases will be announced from time-to-time by the federal reserve and likely will be dependent on prospective economic data . the federal reserve purchasing program is expected to end in late 2014. the expected timing and degree of the reduction in qe has the potential to adversely impact treasury and agency rmbs valuations going forward by reducing overall demand for these assets and potentially increasing price volatility . in response to the federal reserve 's announced plans to reduce purchases of agency rmbs , the interest rate on ten year u.s. treasury notes rose 1.27 % in 2013 to 3.03 % as of december 31 , 2013 as economic activity improved despite inflation remaining low . the largest term interest rate increases occurred in may and june following comments from the federal reserve regarding the possibility of qe tapering of bond purchases in late 2013. during that two-month period interest rate volatility spiked and rates on current coupon agency rmbs rose nearly a full 1 % while u.s. treasury ten year rates rose 0.81 % . as a result , prices on 30 year current coupon agency rmbs fell by approximately 7 % during those two months . rmbs and cmbs prices also fell in those two months along with other fixed rate bonds as demand for fixed income assets generally fell out of concern over rising interest rates . while we use hedging strategies in an attempt to reduce interest rate exposure , the sharp increase in interest rates caused a net reduction in our book value . investors responded to these declines in book value and we saw the value of our stock price decline the second half of 2013. with the federal reserve 's decision to taper , we increased our efforts to lower the interest rate sensitivity of our portfolio . one of the steps that we took was to sell fixed-rate agency rmbs , which led us to record a loss on sale of assets in the third and fourth quarters of 2013. the total losses in those quarters were greater than the earnings from our portfolio and as such we recorded a net loss for those periods . we believe we have reduced the interest rate sensitivity of our portfolio , resulting in greater book value stability beginning in the fourth quarter of 2013. as interest rates increased during the fourth quarter , our book value improved 1.9 % . prices of agency rmbs could continue to come under pressure as the market adjusts to the federal reserve tapering of qe . it is possible that we may realize further losses on the sale of assets in future periods and these losses may exceed our earnings . in addition , as of december 31 , 2013 we have elected to discontinue hedge accounting for our portfolio of interest rate swaps . as a result , changes in the value of our swaps will be recorded as part of net income rather than other comprehensive income ( loss ) . this change will cause our net income to be more volatile in future periods . refer to note 9 - `` derivatives and hedging activities '' for further information . the dodd-frank act , enacted in july 2010 , contains numerous provisions affecting the financial and mortgage industries , many of which may have an impact on our operating environment and the target assets in which we invest . several of the provisions are described later in this paragraph . consequently , the dodd-frank act may affect our cost of doing business , may limit our investment opportunities and may affect the competitive balance within our industry and market areas . under the dodd-frank act , new underwriting requirements for residential mortgage loans have been adopted . the ability-to-repay ( “ atr ” ) rule requires lenders to make a reasonable , good-faith determination that the borrower has a reasonable ability to repay the loan . in addition to the atr rule , the consumer financial protection bureau adopted a qualified mortgage ( “ qm ” ) framework that provides certain legal protections to originators originating residential mortgage loans under the qm framework . while substantially similar to atr underwriting requirements , qm requires the originator to consider additional factors when originating a new loan . while we are not directly subject to compliance with the implementation of rules regarding the origination of residential mortgage loans , the effect of these regulations and others could affect our ability to securitize or invest in newly originated loans in the future . the federal housing finance agency ( “ fhfa ” ) and the department of the treasury introduced the home affordable refinance program ( “ harp ” ) in early 2009. harp provides borrowers , who may not otherwise qualify for refinancing because of declining home values or reduced access to mortgage insurance , the ability to refinance their mortgages into a lower interest rate and or more stable mortgage product . we do not expect the current harp or future modifications to have a material impact on our results of operations in future periods . replace_table_token_43_th investment activities entering 2013 we began positioning the portfolio to take advantage of opportunities created by an improving housing market and our belief that there would be better availability of credit for borrowers . story_separator_special_tag we believed the improving market would help private label securitization volumes grow and that a pilot program for risk-sharing between gses and private investors would begin . during 2013 , we participated in five residential loan securitizations that are consolidated on our balance sheet , and participated in risk-sharing transactions issued by both fannie mae and freddie mac . we also began a commercial real estate lending program and originated four loans in addition to investing in securitized mezzanine loans . while we did participate in new opportunities , the size of these investments is still a relatively small portion of our equity . we expect to pursue opportunities to increase the percentage of our equity invested in three areas during 2014 : commercial mortgage loans , subordinate interests in residential loan securitizations and gse risk-sharing transactions . the interest rate environment and our views on how it will change have a significant impact on our portfolio decisions . during 2013 , we focused on transitioning the portfolio to be less sensitive to interest rate movements . this included investing in credit assets , reducing repurchase agreement leverage and increasing our hedging positions . to provide economic stimulus , the federal reserve has been purchasing agency rmbs which has had the effect of holding mortgage interest rates low . in may , the federal reserve announced it would reduce purchases later in 2013. as a result of this announcement , we sold lower coupon 30-year fixed-rate agency rmbs replacing them with agency hybrid adjustable-rate mortgages ( `` arm '' ) and credit assets . in addition , we increased our hedging with interest rate swaps from $ 8.0 billion notional at december 31 , 2012 to $ 12.8 billion at december 31 , 2013 , or by 60.0 % , and increased the average remaining term of the swaps from 4.0 to 5.1 years . we also entered into payer swaptions to further reduce interest rate risk in the second quarter . as a result of all of these actions we believe we have significantly reduced interest rate and funding risk relative to the prior year . as of december 31 , 2013 , 49.2 % ( 2012 : 48.6 % ) of our equity was invested in agency rmbs , 35.3 % ( 2012 : 28.9 % ) in non-agency rmbs , 24.4 % ( 2012 : 21.1 % ) in cmbs , 3.0 % ( 2012 : 0 % ) in residential loans , held-for-investment , 2.7 % ( 2012 : 0 % ) in commercial loans , held-for-investment and 1.9 % ( 2012 : 1.4 % ) in unconsolidated joint ventures . we own 30 year fixed-rate agency rmbs securities that offer higher coupons and call protection based on the collateral attributes . in addition , we hold 15 year fixed-rate agency rmbs securities , agency hybrid arm rmbs and agency arm rmbs we believe to have similar durations based on the prepayment speeds . in addition , we own agency collateralized mortgage obligations ( `` cmo '' ) that are interest only securities . during 2013 , we adjusted our portfolio to reduce interest rate exposure . this included reducing our position in 30 year and 15 year fixed-rate agency rmbs both through sale of assets as well as through principal prepayments . the table below shows the breakdown of our investment portfolio : replace_table_token_44_th our portfolio of investments that have credit exposure include non-agency rmbs , cmbs and residential and commercial real estate loans . we use our proprietary models to perform a detailed review of each investment which often includes loan level analysis of expected performance . we do not place any reliance on ratings by various agencies as we believe our models evaluate the performance based on our assumptions about market conditions and are updated more frequently than agency ratings . as shown in the table above , during 2013 , we increased our exposure to credit assets as we view the improving economy will provide better risk adjusted returns for this asset class while having lower interest rate exposure . replace_table_token_45_th with respect to our non-agency rmbs portfolio , we primarily invest in rmbs consisting of prime and alt-a loans . in addition , we have invested in re-securitization of real estate mortgage investment conduit ( `` re-remic '' ) senior rmbs that we believe provide attractive risk adjusted returns based on the significant credit subordination they contain . based on our view of the improving housing market , we added to our position of non-agency rmbs during 2013. our cmbs portfolio generally consists of assets originated prior to 2008 , assets originated after 2010 ( “ cmbs 2.0 ” ) and multi-family cmbs issued by freddie mac under their “ k ” program ( “ freddie k ” ) . during 2013 , we grew our cmbs portfolio approximately $ 584.0 million based on our view of the improving risk and return offered by this asset class . the primary focus of our investments was in the cmbs 2.0 where we grew the percentage of our total cmbs portfolio to approximately 66.6 % in 2013 from approximately 56.1 % in 2012. during 2013 , we expanded our portfolio of credit assets by adding residential and commercial real estate loans . our residential loan portfolio consists of prime jumbo mortgages that generally have been originated in 2011 or later . we believe these loans have high credit quality based on their risk characteristics including but not limited to high fico scores , low or no delinquencies and low loan-to-value ratios based on current home values . for further details on the loan portfolio , refer to note 5 - `` residential loans held-for-investment . '' our commercial real estate loan portfolio includes mezzanine loans we originated . these loans are secured by the borrower 's ownership interest in a single purpose entity that owns commercial property , rather than a lien on the commercial property .
| for internal portfolio analysis , our management deducts these gains and losses from u.s. gaap net income to provide a consistent view of investment portfolio performance across reporting periods . we believe the presentation of core earnings allows investors to evaluate and compare our performance to that of our peers because core earnings measures investment portfolio performance over multiple reporting periods by removing realized and unrealized gains and losses . as such , we believe that the disclosure of core earnings is useful and meaningful to our investors . however , we caution that core earnings should not be considered as an alternative to net income ( determined in accordance with u.s. gaap ) , or an indication of our cash flow from operating activities ( determined in accordance with u.s. gaap ) , a measure of our liquidity , or an indication of amounts available to fund our cash needs , including our ability to make cash distributions . in addition , our methodology for calculating core earnings may differ from those employed by other companies for a similarly described measure and , therefore , may not be comparable . replace_table_token_59_th the table below provides a reconciliation of u.s. gaap net income attributable to common shareholders to core earnings for the following periods : reconciliation of net income attributable to common shareholders to core earnings replace_table_token_60_th interest income and average earning asset yield our primary source of income is interest earned on our investment portfolio . during 2013 , we had average earning assets of approximately $ 20.5 billion ( 2012 : $ 16.3 billion ; 2011 : $ 11.0 billion ) and earned interest income of $ 682.4 million ( 2012 : $ 566.8 million ; 2011 : $ 453.4 million ) . the yield on our average investment portfolio was 3.32 % ( 2012 : 3.47 % ; 2011 : 4.14 % ) . the change in our average assets and the portfolio yield for 2013
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as a result of this program and continued detailed review of aged inventory , the company changed its excess and obsolescence reserve methodology from a specific identification methodology to an aging methodology . this change in estimate resulted in a $ 549,000 increase in inventory reserves , which increased costs of revenues in the fourth quarter of 2016. allowances for doubtful accounts the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . a key consideration in estimating the allowance for doubtful accounts has been , and will continue to be , our customer 's payment history and aging of its accounts receivable balance . 22 story_separator_special_tag for the years ended december 31 , 2016 and 2015 , respectively . the decrease in revenues during 2016 was primarily due to reduced demand for the company 's passive rf components and subassemblies , largely as a result of reductions in capital spending by certain domestic wireless operators as described above . net revenues from the company 's test and measurement products for the year ended december 31 , 2016 were $ 11,128,350 as compared to $ 11,574,275 for the year ended december 31 , 2015 , a decrease of $ 445,925 or 3.9 % . net revenues from test and measurement products accounted for 35.5 % and 35.0 % of net consolidated revenues for the years ended december 31 , 2016 and 2015 , respectively . the decrease in revenues for 2016 was primarily due to a delay in execution of certain government projects as described above . sales in the company 's test and measurement segment can fluctuate period to period depending upon the approval and timing of government project funding . the company 's gross profit on consolidated net revenues for the year ended december 31 , 2016 was $ 13,161,754 or 42.0 % as compared to $ 14,827,874 or 44.8 % as reported in the previous year . gross profit decreased primarily due to an increase in inventory reserves , as well as lower absorption of fixed manufacturing costs for the twelve months ended december 31 , 2016 as compared to same period in 2015. during the fourth quarter of 2016 , the company changed its inventory reserve methodology from a specific identification methodology to an aging methodology . changes in inventory reserves , net of write-offs , increased costs of revenue by $ 800,000 for the twelve months ended december 31 , 2016 as compared to the same period in 2015 , of which , approximately $ 549,000 was incurred in the fourth quarter and was related to the methodology change . consolidated operating expenses for the year ended december 31 , 2016 were $ 15,709,863 or 50.1 % of consolidated net revenues as compared to $ 14,080,835 or 42.5 % of consolidated net revenues for the year 24 ended december 31 , 2015. for the year ended december 31 , 2016 as compared to the prior year , consolidated operating expenses increased by $ 1,629,028 or 11.6 % . consolidated operating expenses were higher in 2016 due to an increase in consolidated general and administrative expenses of $ 1,503,670 , an increase in consolidated research and development expenses of $ 88,832 and an increase in consolidated sales and marketing expenses of $ 36,526. the increase in consolidated general and administrative expenses was primarily due to approximately $ 1,200,000 of costs incurred in 2016 in connection with the company 's pursuit of strategic opportunities , including the acquisition of commagility , and an increase in non-cash stock compensation expense of $ 386,478. the increase in consolidated research and development expense was primarily due to an increase in external costs associated with product development projects in both our business segments of $ 245,696 , offset by a decrease in salary expenses of $ 170,038. consolidated sales and marketing expenses were higher in 2016 primarily due to an increase in non-employee sales commission of $ 41,922 partially offset by lower advertising and trade show expenses . other income , net of other non-operating expense , increased by $ 388,269 for the year ended december 31 , 2016 as compared to the previous year . the increase in other income was primarily due to an insurance settlement in the amount of $ 485,000 , offset by related legal fees and ongoing monitoring costs in connection with the company 's ground water management plan associated with a facility previously leased by the company 's boonton operations . for the year ended december 31 , 2016 , the company recorded a tax benefit of $ 352,234. the tax benefit was primarily due to losses generated from the company 's operations . for the year ended december 31 , 2015 , the company recorded a tax expense of $ 345,940. the tax expense recorded was predominantly comprised of a non-cash deferred tax expense for federal income taxes and a current provision for state income taxes for which the company makes estimated tax payments on a quarterly basis . for the year ended december 31 , 2016 , the company realized a net loss of $ 1,832,024 or $ 0.10 loss per share on a basic and diluted basis , as compared to net income of $ 376,681 or $ 0.02 income per share on a basic and diluted basis for the year ended december 31 , 2015 , a decrease of $ 2,208,705 or $ 0.12 per diluted share . the decrease was due to the factors discussed above . liquidity and capital resources the company 's working capital has decreased by $ 1,870,770 to $ 20,193,594 at december 31 , 2016 , from $ 22,064,364 at december 31 , 2015. at december 31 , 2016 and 2015 , the company 's current ratio was 6.5 to 1 and 13.5 to 1 , respectively . story_separator_special_tag the company had cash and cash equivalents of $ 9,350,803 at december 31 , 2016 , compared to a balance of $ 9,726,007 at december 31 , 2015. the company believes its current level of cash is sufficient to fund the company 's current operating , investing and financing activities . the company expects to realize tax benefits in future periods due to the available net operating loss carryforwards resulting from the disposition of a former wholly owned subsidiary in 2010. accordingly , future taxable income is expected to be offset by the utilization of operating loss carryforwards and as a result will increase the company 's liquidity as cash needed to pay federal income taxes will be substantially reduced . operating activities provided $ 623,779 in cash for the year ended december 31 , 2016. for the year ended december 31 , 2015 , operating activities provided $ 1,022,621 in cash flows . the 2016 decrease in cash provided by operations was primarily due to an increase in accounts payable , a decrease in accounts receivable and an increase in accrued expenses and other current liabilities , partially offset by a loss from operations , an increase in inventory and an increase in prepaid expenses and other assets . for 2015 , cash provided by operations was primarily the result of net income from operations , a decrease in inventory , and a decrease in prepaid expenses and other assets , partially offset by a decrease in accounts payable , accrued expenses and other current liabilities , and an increase in accounts receivable . 25 the company has historically turned over its accounts receivable approximately every two months . this average collection period has been sufficient to provide the working capital and liquidity necessary to operate the company . net cash used for investing activities for the years ended december 31 , 2016 and 2015 was $ 818,588 and $ 463,428 , respectively . the use of cash was for capital expenditures , primarily production test equipment and capitalized external labor and software related to the company 's online ordering system . financing activities used $ 180,395 in cash for the year ended december 31 , 2016. the use of these funds was for periodic payments on an equipment lease and for the repurchase of 42,995 shares of the company 's outstanding common stock . financing activities used $ 1,556,699 in cash for the year ended december 31 , 2015. the use of these funds was for the repurchase of 977,447 shares of the company 's outstanding common stock and for periodic payments on an equipment lease , offset by proceeds from the exercise of stock options . purchase obligations consist of inventory that arises in the normal course of business operations . future obligations and commitments as of december 31 , 2016 consisted of the following : replace_table_token_4_th during 2016 , the company maintained a line of credit with an investment bank . the credit facility provided borrowing availability of up to 100 % of the company 's money market account balance and 99 % of the company 's short-term investment securities and , under the terms and conditions of the loan agreement , was fully secured by said money fund account and any short-term investment holdings . advances under the facility will bear interest at a variable rate equal to the london interbank offered rate ( “ libor ” ) in effect at time of borrowing . additionally , under the terms and conditions of the loan agreement , there was no annual fee and any amount outstanding under the loan facility could be paid at any time in whole or in part without penalty . on february 17 , 2017 , the company partially funded the acquisition of commagility with the cash from this money market account . thus the line of credit is no longer available to the company . on february 17 , 2017 , wireless telecommunications , ltd. ( the “ acquisition subsidiary ” ) , a u.k. corporation , which is a wholly owned subsidiary of the company , completed the acquisition of all of the issued shares in commagility ( the “ acquisition ” ) from commagility 's four founders ( the “ sellers ” ) . the acquisition was completed pursuant to the terms of a share purchase agreement , dated february 17 , 2017 , and entered into by and among the company , the acquisition subsidiary and the sellers ( the “ share purchase agreement ” ) . under the share purchase agreement , the sellers have given warranties , representations and indemnities in relation to commagility and its business which are customary for a transaction of this type . the consideration for commagility paid at closing was comprised of approximately $ 11,300,000 ( approximately £9,000,000 ) in cash and 3,487,529 newly issued shares of the company 's common stock ( the “ consideration shares ” ) , valued at approximately $ 6,250,000 based upon a 10 day volume weighted average price for the shares of the company 's common stock . additionally , the sellers are to be paid an additional $ 1,250,000 ( £1,000,000 ) in four equal installments payable quarterly starting in june 2017. further , the sellers may earn up to an additional $ 12,500,000 ( £10,000,000 ) payment if certain financial targets are achieved by commagility during calendar years 2017 and 2018. the cash portion of the consideration at closing was funded from a combination of cash on hand and borrowings from the credit facility . 26 pursuant to the share purchase agreement , 2,092,516 of the consideration shares are subject to forfeiture and return to the company if ( a ) 2017 adjusted ebitda generated by commagility is less than £2,400,000 ; or ( b ) 2018 adjusted ebitda generated by commagility is less than £2,400,000 ( in each case as determined by an audit of commagility conducted by the accountants of the acquisition subsidiary in accordance with the terms of the share purchase agreement ) .
| based on the evaluations noted above , the company has concluded that there are no significant uncertain tax positions requiring recognition or disclosure in its consolidated financial statements . based on a review of tax positions for all open years and contingencies as set out in the company 's notes to the consolidated financial statements , no reserves for uncertain income tax positions have been recorded pursuant to asc 740 during the years ended december 31 , 2016 and 2015 , and the company does not anticipate that it is reasonably possible that any material increase or decrease in its unrecognized tax benefits will occur within the next twelve months . valuation of goodwill goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination . goodwill is not amortized but rather is reviewed for impairment at least annually , or more frequently if a triggering event occurs . management first makes a qualitative assessment of whether it is more likely than not that a reporting unit 's fair value is less than its carrying amount before applying the two-step goodwill impairment test . if , based on the qualitative assessment , it is more likely than not that the estimated fair value of a reporting unit is in excess of its carrying amount , management will not perform quantitative assessment . if , however , the conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , management will perform a two-step goodwill impairment test . under the first step , the fair value of the reporting unit is compared with its carrying value , and , if an indication of goodwill impairment exists for the reporting unit , the company must perform step two of the impairment test ( measurement ) . under step two , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill as determined by allocating the fair value
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this increase is mainly attributable to an increase related to a full year of general and administrative expenses for oblong industries in 2020 as compared to inclusion of only the fourth quarter for 2019. impairment charges . impairment charges in 2020 and 2019 were $ 1,150,000 and $ 2,317,000 , respectively . the impairment charges for 2020 are primarily attributable to $ 541,000 on oblong 's goodwill , $ 465,000 on right-of-use assets related to oblong industries operating leases , and $ 144,000 on assets no longer used in the business . for 2019 , the impairment charges are primarily attributable to $ 2,254,000 on goodwill and $ 63,000 on capitalized software no longer in service . future declines of our revenue , cash flows and or stock price may give rise to a triggering event that may require the company to record impairment charges in the future related to our goodwill , intangible assets and other long-lived assets . depreciation and amortization . depreciation and amortization expenses in 2020 and 2019 were $ 3,140,000 and $ 1,321,000 , respectively . this increase of $ 1,819,000 is mainly attributable to $ 2,878,000 of depreciation and amortization expense recorded in 2020 related to assets recorded in connection with the acquisition of oblong industries , compared to $ 754,000 of depreciation and amortization expense recorded in the fourth quarter of 2019 , partially offset by a decrease of $ 305,000 in depreciation and amortization expense for oblong as certain assets became fully depreciated in 2020. loss from operations . loss from operations increased to $ 10,064,000 in 2020 from $ 7,574,000 in 2019. the increase in the company 's loss from operations is mainly attributable to an increase of $ 5,143,000 in operating expenses , partially offset by an increase of $ 2,653,000 in gross profit , as discussed further above . interest and other ( income ) expense , net . interest and other ( income ) expense in 2020 was income of $ 2,746,000 , comprised of ( i ) a gain on extinguishment of debt of $ 3,117,000 related to the satisfaction of the svb loan , partially offset by ( ii ) $ 352,000 of interest expense on the company 's debt obligations . interest and other expense , net in 2019 was $ 187,000 , comprised of ( i ) $ 97,000 of interest expense on the company 's debt obligations with silicon valley bank ( “ svb ” ) during the fourth quarter of 2019 , and ( ii ) $ 90,000 of amortization of debt discount costs related to the svb loan agreement . -25- income tax expense . we did not record any income tax expense in 2020 and 2019 ( see note 17 - income taxes to our consolidated financial statements ) . liquidity and capital resources as of december 31 , 2020 and 2019 , we had $ 5,277,000 ( including restricted cash of $ 219,000 ) and $ 4,602,000 of cash , respectively . for the years ended december 31 , 2020 and 2019 , we incurred net losses of $ 7,421,000 and $ 7,761,000 , respectively , and net cash used in operating activities was $ 6,566,000 and $ 3,253,000 , respectively . net cash used in investing activities for 2020 was $ 31,000 and primarily related to purchases of property and equipment . net cash provided by investing activities in 2019 was $ 2,149,000 , and primarily related to cash acquired in the merger . net cash provided by financing activities in 2020 was $ 7,272,000 , primarily attributable to net proceeds of $ 7,371,000 from two private placements of common stock and $ 2,417,000 of proceeds from the ppp loan , partially offset by the satisfaction payment of $ 2,500,000 on the svb loan . net cash provided by financing activities for 2019 was $ 3,699,000 , primarily attributable to net proceeds of $ 3,750,000 from a private placement of series e preferred stock , partially offset by $ 51,000 used to purchase treasury stock . svb loan agreement on october 1 , 2019 , in connection with the acquisition of oblong industries , the company and oblong industries , as borrowers , and silicon valley bank ( “ svb ” ) , as lender , executed an amendment to the svb loan agreement . on october 24 , 2019 , gp communications joined the svb loan agreement as an additional co-borrower . the svb loan agreement provided for a term loan facility of approximately $ 5,247,000 , ( the “ svb loan ” ) , all of which was outstanding at december 31 , 2019. on june 26 , 2020 , the company and svb entered into a default waiver and first amendment ( the “ amendment ” ) to the svb loan agreement . under the amendment , the bank agreed to extend the interest-only payment period under the svb loan agreement through september 30 , 2020 , after which equal monthly principal payments of $ 291,500 were payable over an eighteen month period from october 1 , 2020 through march 1 , 2022 ( the “ maturity date ” ) to fully repay the loan . the svb loan originally accrued interest at a rate equal to the prime rate ( as defined in the svb loan agreement ) plus 200 basis points ( for a total of 6.75 % as of december 31 , 2019 ) . in connection with the amendment , the interest rate under the svb loan was increased to the prime rate plus 425 basis points ( for a total of 7.50 % as of september 30 , 2020 ) . story_separator_special_tag in connection with its execution of the amended svb loan agreement on october 1 , 2019 , the company ( i ) agreed to pay svb a fee of $ 100,000 on april 1 , 2020 ( the “ deferral fee ” ) and ( ii ) issued a warrant to svb that entitles svb to purchase 72,394 shares of the company 's common stock at an exercise price of $ 0.01 per share ( the “ svb warrant ” ) . pursuant to the amendment , the due date for the deferral fee was changed to the earlier of ( i ) the maturity of the loan , ( ii ) the repayment in full of all principal and interest owing under the loan agreement , and ( iii ) occurrence of an event of default under the loan agreement . the svb warrant has a ten ( 10 ) year term . the fair value of the svb warrant was recorded to additional paid-in capital and was determined to be $ 72,000 using the black-scholes model . the total obligations under the svb loan agreement were $ 5,509,000 , comprised of $ 5,247,000 for the svb loan , the deferral fee and the maturity fee of $ 262,000 that was assumed on october 1 , 2019 as part of the acquisition . the deferral fee , the fair value of the svb warrant , and $ 20 of debt issuance costs totaled $ 192 and was recorded as a discount to the debt . the remaining unamortized debt discount as of december 31 , 2019 was $ 130,000. this debt discount was being amortized to interest expense using the effective interest method over the term of the debt . during the year ended december 31 , 2020 , the company amortized $ 81,000 of the debt discount , which is recorded in “ interest and other expense , net ” on our consolidated statements of operations , and $ 49 of the discount was forgiven in the satisfaction agreement discussed below . on october 22 , 2020 , the company entered into an agreement ( the “ satisfaction agreement ” ) with svb as lender , pursuant to which svb agreed to accept a one-time cash payment of $ 2,500,000 ( the “ satisfaction payment ” ) in satisfaction of the company 's outstanding payment obligations under the svb loan agreement , subject to certain terms and conditions . svb also agreed to release the security interests and other liens previously granted to or held by svb as security for the company 's obligations under the svb loan agreement . the company made the satisfaction payment on october 22 , 2020. the remaining balance of $ 3,062,000 , net of discount , as well as $ 55,000 of accrued interest was forgiven and recorded as a “ gain on extinguishment of debt ” on our consolidated statements of operations . as of december 31 , 2020 , the company has no outstanding obligations under the svb loan agreement . -26- future capital requirements and going concern as of december 31 , 2020 , we had $ 5,277,000 of cash and restricted cash . as of december 31 , 2020 and the filing of this report , we had $ 2,417,000 of total obligations under the ppp loan . the company estimates that approximately $ 2,266,000 of the ppp loan will be forgiven . however , this estimate is subject to change and there is no guarantee that the company will receive any forgiveness for any fixed amount of any ppp loan principal received by the company . our capital requirements in the future will continue to depend on numerous factors , including the timing and amount of revenue for the combined organization , customer renewal rates and the timing of collection of outstanding accounts receivable , in each case particularly as it relates to the combined organization 's major customers , the expense to deliver services , expense for sales and marketing , expense for research and development , capital expenditures , and the amount of forgiveness of the ppp loan , if any , and the debt service obligations under the ppp loan . while our acquisition of oblong industries provides additional revenues to the company , the cost to further develop and commercialize oblong industries ' product offerings is expected to exceed its revenues for the foreseeable future . we expect to continue to invest in oblong industries ' product development and sales and marketing expenses with the goal of growing the company 's revenue in the future . the company believes that , based on the combined organization 's current projection of revenue , expenses , capital expenditures , debt service obligations , and cash flows , it will not have sufficient resources to fund its operations for the next twelve months following the filing of this report . we believe additional capital will be required to fund operations and provide growth capital including investments in technology , product development and sales and marketing . to access capital to fund operations or provide growth capital , we will need to raise capital in one or more debt and or equity offerings . there can be no assurance that we will be successful in raising necessary capital or that any such offering will be on terms acceptable to the company . if we are unable to raise additional capital that may be needed on terms acceptable to us , it could have a material adverse effect on the company . the factors discussed above raise substantial doubt as to our ability to continue as a going concern . the accompanying consolidated financial statements do not include any adjustments that might result from these uncertainties . see note 16 - commitments and contingencies to our consolidated financial statements for discussion regarding certain additional factors that could impact the company 's liquidity in the future . critical accounting policies we prepare our consolidated financial statements in accordance with u.s. generally accepted accoutning principles ( “ gaap ” ) .
| as shown in the table below , the combined organization 's total revenue for calendar year 2019 on a pro forma basis ( as if the acquisition of oblong industries had occurred on january 1 , 2019 ) , was $ 25.6 million . pro forma and unaudited ( as if the acquisition of oblong industries had occurred on january 1 , 2019 ) year ended december 31 , ( $ in thousands ) 2019 revenue oblong ( formerly glowpoint ) $ 9,660 oblong industries 15,926 pro forma total revenue $ 25,586 revenue . total revenue increased $ 2,506,000 ( or 20 % ) in 2020 to $ 15,333,000 from $ 12,827,000 in 2019. the following table summarizes the changes in components of our revenue , and the significant changes in revenue are discussed in more detail below . -23- replace_table_token_4_th oblong ( formerly glowpoint ) revenue for managed services for video collaboration services decreased $ 3,153,000 ( or 57 % ) to $ 2,413,000 in 2020 , from $ 5,566,000 in 2019. this decrease is mainly attributable to lower revenue from existing customers ( either from reductions in price or level of services ) and loss of customers to competition . revenue for network services decreased $ 249,000 ( or 6 % ) to $ 3,611,000 in 2020 from $ 3,860,000 in 2019. this decrease is mainly attributable to net attrition of customers and lower demand for our services given the competitive environment and pressure on pricing that exists in the network services business . revenue for professional and other services decreased $ 31,000 ( or 13 % ) to $ 203,000 in 2020 from $ 234,000 in 2019. this decrease is mainly attributable to lower resale of video equipment . oblong industries for oblong industries , the increase in revenue in each of the different components is primarily attributable to the acquisition of oblong industries on october 1 , 2019. oblong industries revenue for 2020 includes a full year of revenue , compared to revenue for 2019 , which only included three months . oblong industries revenue for 2020 decreased compared to pro forma 2019 , shown above , primarily as a result of delayed fulfillment and order placements and cancellation of professional services ,
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disposed of 497 properties , consisting of 482 retail properties , one industrial property and 14 anchored shopping centers , excluding a related outparcel of land , for an aggregate sales price of $ 1.65 billion . reduced total debt by $ 918.4 million , from $ 2.5 billion to $ 1.6 billion . in connection with the sale of 444 properties that closed in december 2019 , total consideration included the assumption by the purchaser ( as defined in note 4 — real estate assets ) of existing mortgage debt totaling $ 130.8 million , the repayment of $ 101.3 million of certain mortgage notes due to the disposition of the underlying properties , the repayment of $ 165.0 million on the unsecured term loan balance and repayment of the $ 266.0 million unsecured revolving loan balance . portfolio information as of december 31 , 2019 , we owned 396 properties located in 43 states , the gross rentable square feet of which was 94.6 % leased , including any month-to-month agreements , with a weighted average lease term remaining of 8.6 years . during the year ended december 31 , 2019 , we disposed of 497 properties , for an aggregate gross sales price of $ 1.65 billion . the following table shows the property statistics of our real estate assets as of december 31 , 2019 and 2018 : replace_table_token_6_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's or a credit rating of baa3 or higher by moody 's . the ratings may reflect those assigned by standard & poor 's or moody 's to the lease guarantor or the parent company , as applicable . the weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by standard & poor 's . the following table summarizes our real estate acquisition activity during the years ended december 31 , 2019 and 2018 : replace_table_token_7_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . 56 the following table shows the tenant diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2019 : replace_table_token_8_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of the buildings on land parcels subject to ground leases . the following table shows the tenant industry diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2019 : replace_table_token_9_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of the buildings on land parcels subject to ground leases . 57 the following table shows the geographic diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2019 : replace_table_token_10_th ( 1 ) includes square feet of the buildings on land parcels subject to ground leases . the following table shows the property type diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2019 : replace_table_token_11_th ( 1 ) includes square feet of the buildings on land parcels subject to ground leases . leases although there are variations in the specific terms of the leases of our properties , the following is a summary of the general structure of our current leases . generally , the leases of the properties acquired provide for initial terms of ten or more years and provide the tenant with one or more multi-year renewal options , subject to generally the same terms and conditions as the initial lease term . certain leases also provide that in the event we wish to sell the property subject to that lease , we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property . the properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation , including utilities , property taxes and insurance , while certain of the leases require us to maintain the roof , structure and parking areas of the building . additionally , certain leases provide for increases in rent as a result of fixed increases , increases in the consumer price index , and or increases in the tenant 's sales volume . the leases of the properties provide for annual rental payments ( payable in monthly installments ) ranging from $ 7,000 to $ 8.0 million ( average of $ 218,000 ) . certain leases provide for limited increases in rent as a result of fixed increases or increases in the consumer price index . 58 the following table shows lease expirations of our real estate portfolio , as of december 31 , 2019 , during each of the next ten years and thereafter , assuming no exercise of renewal options : replace_table_token_12_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of the buildings on land parcels subject to ground leases . the following table shows the economic metrics of our real estate assets as of and for the years ended december 31 , 2019 and 2018 : replace_table_token_13_th ( 1 ) based on annualized rental income of our real estate portfolio as of december 31 , 2019 and 2018 . ( 2 ) through the end of the next five years as of the respective reporting date . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > interest expense and other , net also includes amortization of deferred financing costs . story_separator_special_tag the increase in interest expense and other , net , of $ 1.1 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , was due to increases in the weighted average interest rate during the first half of 2019 , as compared to the same period in 2018 , partially offset by debt repayments in connection with the disposition of the underlying properties during the year ended december 31 , 2019 . gain on disposition of real estate , net the increase in gain on disposition of real estate during the year ended december 31 , 2019 , as compared to the same period in 2018 , was due to the disposition of 497 properties , including the sale of 444 properties that closed in december 2019 pursuant to a purchase and sale agreement further discussed in note 4 — real estate assets . the dispositions resulted in a gain of $ 180.7 million during the year ended december 31 , 2019 compared to the disposition of 21 properties for a gain of $ 6.3 million during the year ended december 31 , 2018 . impairment impairments increased $ 40.0 million during the year ended december 31 , 2019 , as compared to the same period in 2018 , due to 34 properties that were deemed to be impaired , resulting in impairment charges of $ 72.9 million during the year ended december 31 , 2019 , compared to 22 properties that were deemed to be impaired , resulting in impairment charges of $ 33.0 million during the year ended december 31 , 2018 . depreciation and amortization the decrease in depreciation and amortization expenses of $ 33.1 million during the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily due to the disposition of 497 properties . transaction-related expenses through august 20 , 2019 , we paid cmft management or its affiliates acquisition fees of up to 2.0 % of : ( 1 ) the contract purchase price of each property or asset we acquired ; ( 2 ) the amount paid in respect of the development , construction or improvement of each asset we acquired ; ( 3 ) the purchase price of any loan we acquired ; and ( 4 ) the principal amount of any loan we originated . we also reimbursed cmft management or its affiliates for transaction-related expenses incurred in the process of acquiring a property or the origination or acquisition of a loan , so long as the total acquisition fees and expenses relating to the transaction did not exceed 6.0 % of the contract purchase price , unless otherwise approved by a majority of our 61 board , including a majority of our independent directors , as commercially competitive , fair and reasonable to us . other transaction-related expenses , such as advisor reimbursements for disposition activities , are expensed as incurred . the decrease in transaction-related expenses of $ 323,000 during the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily due to acquisition fees paid to the advisor pursuant to the prior advisory agreement related to the acquisition of $ 62.1 million of loans held-for-investment during the year ended december 31 , 2019 , compared to acquisition fees paid to the advisor related to the origination of $ 89.3 million of loans held-for-investment during the year ended december 31 , 2018 . management and advisory fees and expenses pursuant to the prior advisory agreement with cmft management and based upon the amount of our current invested assets , through august 20 , 2019 , we were required to pay to cmft management a monthly advisory fee equal to one-twelfth of 0.75 % of the average invested assets up to $ 2.0 billion , one-twelfth of 0.70 % of the average invested assets over $ 2.0 billion up to $ 4.0 billion and one-twelfth of 0.65 % of the average invested assets over $ 4.0 billion . beginning on august 20 , 2019 , we pay cmft management a management fee pursuant to the management agreement , payable quarterly in arrears , equal to the greater of ( a ) $ 250,000 per annum ( $ 62,500 per quarter ) and ( b ) 1.50 % per annum ( 0.375 % per quarter ) of the company 's equity ( as defined in the management agreement ) . additionally , we may be required to reimburse certain expenses incurred by cmft management in providing advisory services , subject to limitations as set forth in the management agreement ( as discussed in note 11 — related-party transactions and arrangements ) . the decrease in management and advisory fees and expenses of $ 1.1 million during the year ended december 31 , 2019 , as compared to the same period in 2018 , was due to a decrease in our average invested assets to $ 5.0 billion for the period through august 20 , 2019 , compared to $ 5.4 billion over the year ended december 31 , 2018 . in addition , beginning on august 20 , 2019 , we began paying cmft management a management fee and ceased paying an advisory fee . during the year ended december 31 , 2019 , we incurred management fees of $ 14.6 million . general and administrative expenses the primary general and administrative expense items are certain expense reimbursements to our advisor , escrow and trustee fees , state franchise and income taxes , office expenses and accounting fees . the decrease in general and administrative expenses of $ 398,000 for the year ended december 31 , 2019 , compared to the same period in 2018 , was primarily due to decreases in operating expense reimbursements to our advisor .
| net operating income is considered by management to be a helpful supplemental performance measure , as it enables management to evaluate the impact of occupancy , rents , leasing activity , and other controllable property operating results at our real estate properties , and it provides a consistent method for the comparison of our properties . we define net operating income as operating revenues less operating expenses , which exclude ( i ) depreciation and amortization , ( ii ) interest expense and other non-property related revenue and expenses items such as ( a ) general and administrative expenses , ( b ) advisory fees , ( c ) transaction-related expenses and ( d ) interest income . our net operating income may not be comparable to that of other reits and should not be considered to be more relevant or accurate in evaluating our operating performance than the current gaap methodology used in calculating net income ( loss ) . in determining the same store property pool , we include all properties that were owned for the entirety of both the current and prior reporting periods , except for properties during the current or prior year that were under development or redevelopment . comparison of the years ended december 31 , 2019 and 2018 the following table reconciles net income , calculated in accordance with gaap , to net operating income ( dollar amounts in thousands ) : replace_table_token_14_th a total of 392 properties were acquired before january 1 , 2018 and represent our “ same store ” properties during the years ended december 31 , 2019 and 2018 . “ non-same store ” properties , for purposes of the table below , includes properties acquired on or after january 1 , 2018 . 60 the following table details the components of net operating income broken out between same store and non-same store properties ( dollar amounts in thousands ) : replace_table_token_15_th ( 1 ) includes income from properties disposed of during the period . loss on extinguishment of debt the increase in loss on extinguishment of debt of $ 7.2 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , was
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the embassy suites chicago loan was scheduled to mature in march 2017 , and was available to be repaid without penalty at the end of december 2016. after repayment of the embassy suites chicago loan , we have 22 unencumbered hotels . as of december 31 , 2016 , the weighted average term to maturity of our debt is approximately four years , and 76.2 % of our debt , including the effects of interest rate swap agreements , is fixed rate with a weighted average interest rate of 4.74 % . the weighted average interest rate on all of our debt , which includes our variable-rate debt obligation based on the variable rate at december 31 , 2016 , is 4.29 % . operating activities revenues . substantially all of our revenues are derived from the operation of our hotels . specifically , our revenues consist of the following : · room revenue , which is the product of the number of rooms sold and the average daily room rate ( “ adr ” defined below ) ; · food and beverage revenue , which is comprised of revenue realized in the hotel food and beverage outlets as well as banquet and catering events ; and · other operating revenue , which includes ancillary hotel revenue and other items primarily driven by occupancy such as telephone/internet , parking , spa , resort and other facility fees , entertainment and other guest services . additionally , this category includes , among other things , attrition revenue , tenant revenue derived from hotel space leased by third parties , and any performance guarantee payments , as well as operating revenue from buyefficient , llc inc. ( “ buyefficient ” ) , an electronic purchasing platform that allowed members to procure food , operating supplies , furniture , fixtures and equipment , prior to its sale in september 2015. expenses . our expenses consist of the following : · room expense , which is primarily driven by occupancy and , therefore , has a significant correlation with room revenue ; · food and beverage expense , which is primarily driven by food and beverage sales and banquet and catering bookings and , therefore , has a significant correlation with food and beverage revenue ; 37 · other operating expense , which includes the corresponding expense of other operating revenue , advertising and promotion , repairs and maintenance , utilities , and franchise costs ; · property tax , ground lease and insurance expense , which includes the expenses associated with property tax , ground lease and insurance payments , each of which is primarily a fixed expense , however property tax is subject to regular revaluations based on the specific tax regulations and practices of each municipality ; · other property-level expenses , which includes our property-level general and administrative expenses , such as payroll and related costs , contract and professional fees , credit and collection expenses , employee recruitment , relocation and training expenses , management fees and other costs . additionally , this category includes general and administrative expenses from buyefficient prior to its sale in september 2015 ; · corporate overhead expense , which includes our corporate-level expenses , such as payroll and related costs , amortization of deferred stock compensation , acquisition and due diligence costs , legal expenses , contract and professional fees , entity-level state franchise and minimum taxes , travel expenses , office rent and other costs ; and · depreciation and amortization expense , which includes depreciation on our hotel buildings , improvements , furniture , fixtures and equipment , along with amortization on our franchise fees and certain intangibles . additionally , this category includes depreciation and amortization related to furniture , fixtures , and equipment ( “ ff & e ” ) for both our corporate office and buyefficient , as well as buyefficient 's intangible assets prior to its sale in september 2015. other revenue and expense . other revenue and expense consists of the following : · interest and other income , which includes interest we have earned on our restricted and unrestricted cash accounts and on the 11.0 % yield from the $ 25.0 million equity investment ( the “ preferred equity investment ” ) we received from the buyer in conjunction with our 2013 sale of the “ rochester portfolio , ” which included four hotels and a laundry facility in rochester , minnesota prior to its sale in july 2015 , as well as any energy rebates we have received or any gains or losses we have recognized on sales or redemptions of assets other than real estate investments ; · interest expense , which includes interest expense incurred on our outstanding fixed and variable-rate debt and capital lease obligation , gains or losses on derivatives , amortization of deferred financing fees , and any loan fees incurred on our debt ; · loss on extinguishment of debt , which includes losses recognized on amendments or early repayments of mortgages or other debt obligations from the accelerated amortization of deferred financing fees , along with any costs incurred ; · gain on sale of assets , which includes the gains we recognized on our sales of the sheraton cerritos in 2016 as well as buyefficient and the doubletree guest suites times square in 2015 , as none of these sales qualified as a discontinued operation ; · income tax benefit ( provision ) , which includes federal and state income taxes related to continuing operations charged to the company net of any refunds received , and any adjustments to unrecognized tax positions , along with any related interest and penalties incurred ; · income from discontinued operations , net of tax , which includes the results of operations for any hotels or other real estate investments sold during the reporting period that qualify as a discontinued operation , along with the gain or loss realized on the sale of these assets and any extinguishments of related debt or income tax provisions ; 38 · income from consolidated joint ventures attributable to story_separator_special_tag noncontrolling interests , which includes net income attributable to the outside 25.0 % interest in the joint venture that owns the hilton san diego bayfront , as well as preferred dividends , including related administrative fees , earned by preferred investors on their $ 0.1 million preferred equity interest in a subsidiary captive reit that owned the doubletree guest suites times square prior to its sale in december 2015 ; and · preferred stock dividends and redemption charge , which includes dividends accrued on our series d preferred stock until its redemption in april 2016 , as well as dividends accrued on our series e preferred stock and our series f preferred stock both of which were issued in 2016 , along with any redemption charges for preferred stock redemptions made in excess of net carrying values . operating performance indicators . the following performance indicators are commonly used in the hotel industry : · occupancy , which is the quotient of total rooms sold divided by total rooms available ; · average daily room rate , or adr , which is the quotient of room revenue divided by total rooms sold ; · revenue per available room , or revpar , which is the product of occupancy and adr , and does not include food and beverage revenue , or other operating revenue ; · comparable revpar , which we define as the revpar generated by hotels we owned as of the end of the reporting period , but excluding those hotels that we classified as held for sale , those hotels that are undergoing a material renovation or repositioning and those hotels whose room counts have materially changed during either the current or prior year . for hotels that were not owned for the entirety of the comparison periods , comparable revpar is calculated using revpar generated during periods of prior ownership . we refer to this subset of our hotels used to calculate comparable revpar as our “ comparable portfolio. ” currently our comparable portfolio includes 26 hotels , and is comprised of our total portfolio as of december 31 , 2016 , with the exception of the wailea beach resort due to its extensive repositioning disruption during the fourth quarter of 2015 as well as all of 2016 , and the fairmont newport beach which we classified as held for sale and subsequently sold in february 2017 ; · revpar index , which is the quotient of a hotel 's revpar divided by the average revpar of its competitors , multiplied by 100. a revpar index in excess of 100 indicates a hotel is achieving higher revpar than the average of its competitors . in addition to absolute revpar index , we monitor changes in revpar index ; · ebitda , which is net income ( loss ) excluding : noncontrolling interests ; interest expense ; benefit or provision for income taxes , including income taxes applicable to the sale of assets ; and depreciation and amortization ; · adjusted ebitda , which is ebitda adjusted to exclude : amortization of deferred stock compensation ; the impact of any gain or loss from asset sales ; impairment charges ; prior year property tax assessments or credits ; and any other non-recurring identified adjustments ; · funds from operations ( “ ffo ” ) attributable to common stockholders , which is net income ( loss ) , excluding : preferred stock dividends and any redemption charges ; noncontrolling interests ; gains and losses from sales of property ; real estate-related depreciation and amortization ( excluding amortization of deferred financing costs ) ; and real estate-related impairment losses ; and · adjusted ffo attributable to common stockholders , which is ffo attributable to common stockholders adjusted to exclude : penalties ; written-off deferred financing costs ; non-real estate-related impairment losses ; income tax benefits or provisions associated with the application of net operating loss carryforwards and uncertain tax positions ; and any other non-recurring identified adjustments . factors affecting our operating results . the primary factors affecting our operating results include overall demand for hotel rooms , the pace of new hotel development , or supply , and the relative performance of our operators in increasing revenue and controlling hotel operating expenses . 39 · demand . the demand for lodging generally fluctuates with the overall economy . in aggregate , demand for our hotels has improved each year since 2010. in 2015 , comparable portfolio revpar increased 5.8 % as compared to 2014 , with a 60 basis point increase in occupancy . these improving demand trends continued , albeit at a moderate pace , in 2016. as a result , our comparable portfolio revpar increased 1.3 % in 2016 as compared to 2015 , with a 10 basis point increase in occupancy . · supply . the addition of new competitive hotels affects the ability of existing hotels to absorb demand for lodging and therefore impacts the ability to drive revpar and profits . the development of new hotels is largely driven by construction costs and expected performance of existing hotels . in aggregate , we expect the u.s. hotel supply to increase over the near term . on a market-by-market basis , some markets may experience new hotel room openings at or greater than historic levels , including in chicago , houston , new york city and washington dc where there are currently higher-than-average supplies of new hotel room openings . additionally , an increase in the supply of vacation rental or sharing services such as airbnb also affects the ability of existing hotels to absorb demand for lodging . · revenues and expenses . we believe that marginal improvements in revpar index , even in the face of declining revenues , are a good indicator of the relative quality and appeal of our hotels , and our operators ' effectiveness in maximizing revenues . similarly , we also evaluate our operators ' effectiveness in minimizing incremental operating expenses in the context of increasing revenues or , conversely , in reducing operating expenses in the context of declining revenues .
| these increases to adr were partially offset by a weak chicago market , increased competition in new york city and weak energy markets in both new orleans and houston , combined with a loss of contract business in houston . 42 although we increased our total number of rooms sold by 4,565 during 2016 as compared to 2015 , occupancy decreased year-over-year as we increased our total rooms available by 18,971 due to 2016 being a leap year and due to the addition of rooms resulting from repositioning and renovation at the boston park plaza and the hilton times square . the overall increase in our total rooms sold during 2016 as compared to 2015 was comprised of an 8,294 increase in group room nights , partially offset by a 3,729 decrease in transient room nights . group room nights increased in orlando and san diego due to strong convention activity in these locales . overall , transient room nights decreased due to a weak chicago market , displacement from the complete hotel repositioning at the wailea beach resort , and weak energy markets in both new orleans and houston . during both 2016 and 2015 , the most significant renovation impacts to room revenue occurred at the boston park plaza and the wailea beach resort . during 2016 , a combined total of 33,165 room nights were out of service at these two hotels , displacing approximately $ 8.0 million in room revenue based on the hotels achieving a combined potential 78.7 % occupancy rate and revpar of $ 180.20 without the renovations . during 2015 , a combined total of 18,607 room nights were out of service at these two hotels , displacing approximately $ 2.9 million in room revenue based on the hotels achieving a combined potential 75.9 % occupancy rate and revpar of $ 144.40 without the renovations . room revenue increased $ 62.4 million , or 7.7 % , in 2015 as compared to 2014 as follows : we acquired one hotel subsequent to january 1 , 2014 , the wailea beach resort in july 2014 , which contributed additional room revenue of $ 25.6 million during 2015. in addition , we sold one
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our industry is subject to technological change , new product development , and product technological obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand . therefore , any significant unanticipated changes in demand or technological developments in excess of our current estimates could have a significant impact on the value of our inventory and our reported operating results . warranty costs we provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue . we offer warranty coverage for a majority of our thin-film products for periods typically ranging from 12 to 24 months after shipment . we warrant our solar inverter products for five to ten years and provide the option to purchase 28 additional warranty coverage up to 20 years . we estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs . the assumptions we use to estimate warranty accruals are reevaluated periodically , in light of actual experience , and when appropriate , the accruals are adjusted . should product failure rates differ from our estimates , actual costs could vary significantly from our expectations . intangible assets , goodwill and other long-lived assets we completed our acquisitions of solvix in november 2012 and refusol in april 2013 for total costs of $ 21.2 million and $ 87.2 million , respectively . the total cost of the solvix acquisition includes $ 5.3 million of contingent consideration to be paid out over a three-year period upon completion of specific milestones and reaching certain revenue thresholds . as a result of our acquisitions , we recorded intangible assets and goodwill . goodwill and indefinite-lived intangible assets are subject to annual impairment testing , as well as testing upon the occurrence of any event that indicates a potential impairment . the annual impairment test can be performed using an assessment of qualitative factors in determining if it is more likely than not that goodwill is impaired . if this assessment indicates that it is more likely than not that goodwill is impaired the next step of impairment testing compares the fair value of a reporting unit to its carrying value . goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of the goodwill . we performed an assessment of qualitative factors for our annual impairment test of the goodwill associated with our solar energy business in 2012 and the goodwill associated with our thin film business in 2013. the factors reviewed included macroeconomic conditions , industry and market conditions , cost factors , and overall financial performance of our solar inverter business . this assessment resulted in the conclusion that there is no impairment of goodwill in the respective years . for the 2013 annual impairment test of goodwill associated with our solar energy business unit , we performed a quantitative analysis by comparing the fair value of the solar energy reporting unit to its carrying value . this analysis uses projected future cash flows and market multiples of comparable companies to arrive at the fair value of the reporting . the analysis of the solar energy business unit resulted in the conclusion that there is no impairment of goodwill in 2013. finite-lived intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment . when we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment , we use the projected undiscounted cash flow method to determine whether an impairment exists , and then measure the impairment using discounted cash flows and other fair value measurements . the carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use . if our expectations of future results and cash flows are significantly diminished , intangible assets , long-lived assets , and goodwill may be impaired and the resulting charge to operations may be material . additionally , the estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control . changes in these estimates could result in significant revisions to our carrying value of these assets and may result in material charges to our results of operations as a result of the acquisition of the three phase string inverter product line , we assessed the overall solar product line for product optimization . through this assessment , it was determined that the intangible assets related to products acquired from pv powered were impaired . we performed an analysis using projected future cash flows and determined their carrying value was impaired resulting in an impairment of $ 31.9 million in 2013. income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . when structuring our operations , we have considered the impact on our effective tax rate . our effective tax rates differs from the us statutory rate due to factors such as foreign operations taxed at different tax rates , research and development tax credits , and non-deductible compensation . additionally , in 2013 , the company recognized significant tax benefit related to restructuring expenses incurred primarily in the u.s. our effective tax rate was -124.6 % , 32.3 % , and 27.0 % for 2013 , 2012 , and 2011 , respectively . our determination of our tax liability requires estimation and significant judgment and is subject to audit and review by applicable domestic and foreign tax authorities . our income tax rate is significantly affected by the tax rates that apply to our foreign earnings . story_separator_special_tag in addition to local country tax laws and regulations , our income tax rate depends on the extent that our earnings are indefinitely reinvested outside the u.s. indefinite reinvestment is determined by management 's judgment about and intentions concerning our future operations . at december 31 , 2013 , $ 119.2 million of earnings had been indefinitely reinvested outside the u.s. , primarily in active non-u.s. business operations . we do not intend to repatriate these earnings to fund u.s. operations and , accordingly , we do not provide for u.s. federal income and foreign withholding tax on these earnings . significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . although we believe our reserves are reasonable , no assurance can be given that the final tax outcome of these matters 29 will not be different from that which is reflected in our historical income tax provisions and accruals . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters is different from the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . the provision for income taxes includes the effect of reserves and any changes to the reserves that are considered appropriate , as well as the related net interest and penalties , if applicable . significant judgment is required in determining any valuation allowance recorded against deferred tax assets . in assessing the need for a valuation allowance , we consider all available evidence , including past operating results , estimates of future taxable income , and the feasibility of tax planning strategies . in the event that we change our determination as to the amount of deferred tax assets that can be realized , we will adjust our valuation allowance with a corresponding effect to the provision for income taxes in the period in which such determination is made . business environment and trends semiconductors investment in semiconductor capital equipment spending decreased overall worldwide by roughly 9 % in 2013. with the maturing integrated circuit end-markets largely correlated to worldwide gross domestic product and continuing consolidation at both the integrated circuit company level and the semiconductor equipment level , a relatively lackluster semiconductor capital investment rate was experienced in the first half of 2013. investments rose 22 % in the second half of the year as there were significant investments in 3d memory and capacity build-outs at the 20nm node in the foundry market . semiconductor equipment manufacturers are faced with increasing research and development challenges as they develop sub-20 nanometer ( `` nm '' ) technology node products and processes . the evolution of 3d devices and new materials drive an increase in the use of plasma processes and with it the need for advanced power supplies . new semiconductor equipment manufacturers continue to emerge in asia providing plasma processing tools for film deposition and etch . we believe that we are well positioned to offer both the depth and breadth of power delivery products required for the leading edge of product development at the larger oems and have the localization and customization positioning necessary to take advantage of the emerging asian-based semiconductor equipment companies . looking forward , we believe that semiconductor equipment investment will be up in the range of 5-10 % compared to 2013. we believe foundries and 3d nand customers will continue to invest for leading edge capability and to develop sub 20 nm capacity . furthermore , memory investments will likely pause in the first half of 2014 , with capital investments perhaps resuming in the second half of the year .. ae is a leader in advanced rf technologies and matching networks with enabling tune-while-pulsing capabilities for plasma control and should be well positioned to continue market penetration in etch , pecvd , and physical vapor deposition ( “ pvd ” ) applications . flat panel display growth in our flat panel display ( `` fpd '' ) market is driven by both capacity expansion and investment in new technologies , particularly in the development of next-generation high-definition liquid crystal display ( “ lcd ” ) and amoled displays for tvs , smart phones and tablet computers . in 2013 , fpd investment picked-up significantly from 2012 lows as the end market for displays grew with capacity expansions requiring capital equipment for generation 5.5 amoled displays in korea and generation 8 lcd in china . the pause in 2012 enabled improved manufacturer profitability , which in part enabled new lcd equipment purchases . overall , we expect flat panel display sales in 2014 to be flat to 2013 as customers continue investing in generation 5.5 and 6 amoled capacity and plan to build out generation 8 lcd lines in china with generation 8 amoled being pushed into future years . we believe we are well-positioned to benefit from growth in pvd process technologies where we hold strong technology and market positions . similar to the semiconductor market , korean fpd pvd equipment suppliers continue to capture market share in fpd . our continued investment in expanded localized korean capabilities brings us closer to the advanced technologies and manufacturing processed for lcd and amoled our customers implement in their factories enhancing our responsiveness to their evolving needs . 30 thin film renewables demand for our crystalline silicon ( `` c-si '' ) pv products in europe and china , which decreased significantly in 2012 remained at record low levels in 2013. declines in pv module prices , along with an oversupply of panel and capital equipment , kept thin-film renewables sales low throughout 2013. as a result of oversupply , end market pricing in the major pv markets , wafer , cell and module production capacity is likely to remain stalled until 2015 at the earliest .
| the following table sets forth , for the periods indicated , certain data derived from our consolidated statements of operations : replace_table_token_4_th the following table sets forth , for the periods indicated , the percentage of sales represented by certain items reflected in our consolidated statements of operations : replace_table_token_5_th 32 sales the following tables summarize annual net sales , and percentages of net sales , by segment for each of the years ended 2013 , 2012 , and 2011 : replace_table_token_6_th replace_table_token_7_th total sales total sales for the twelve months ended december 31 , 2013 increased 21.0 % to $ 547.0 million from $ 451.9 million for the twelve months ended december 31 , 2012 . the increase in sales was driven by an increase in spending in the semiconductor market . a majority of this increase was a result of large capital investment for technology changes in the thin film flat panel display market made during the early part of 2013 and , to a lesser extent , demand for our products in the semiconductor market . additionally , the acquisition of the three-phase string inverter product line drove higher sales in our solar business . total sales decreased 12.6 % to $ 451.9 million in 2012 as compared to $ 516.8 million in 2011 . the decrease in sales was driven by a significant decline in capital spending in all the thin-film markets that we serve . although there was softness in the semiconductor market throughout 2012 , the non-semiconductor market , particularly flat panel displays and thin film renewables , was the primary driver behind the decline in sales from 2011. excess manufacturing capacity and overall uncertainty in these markets significantly reduced demand in late 2011 and throughout 2012. the decline in sales for our thin films business unit was partially offset by increased sales in solar energy . solar energy sales were impacted positively by an increase in utility sales as well as the acquisition of the three-phase string product line ; however , those increases were partially offset by our product rationalization strategy in which we have started to phase out a portion of our transformer-based inverter line . thin films results for thin films for the twelve months ended december 31 , 2013 , 2012 , and 2011 are as follows ( in thousands ) : replace_table_token_8_th 33 2013 sales compared to 2012 thin
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34 other clinical trial expenses clinical trial expenses decreased $ 72,476 to $ 1,795,355 for the year ended october 31 , 2016 compared to $ 1,867,831 for the year ended october 31 , 2015. these expenses were related to the her2 study and were consistent with the comparable prior period . other expenses other expenses increased $ 96,241 to $ 861,484 for the year ended october 31 , 2016 compared to $ 765,243 for the year ended october 31 , 2015. the increase was primarily due to additional infrastructure costs incurred to support the increased headcount and laboratory expansion . general and administrative expenses general and administrative expenses primarily include salary and benefit costs for employees included in our finance , legal and administrative organizations , outside legal and professional services , and facilities costs . general and administrative expense increased $ 7,468,815 to $ 31,712,505 for the year ended october 31 , 2016 , compared with $ 24,243,690 for the year ended october 31 , 2015. there was an increase of approximately $ 6,925,600 in compensation related expense , including a non-cash increase in stock based compensation costs of approximately $ 2,600,000 , attributable to increases in our employees , the grant date fair value of stock awards and the number of awards . costs pertaining to the company 's infrastructure expansion , including leased space and information technology related costs , increased by approximately $ 1,564,900. business development costs increased by approximately $ 1,491,900. this was partially offset by a decrease in non-cash investor relations costs of approximately $ 2,200,000. we anticipate general and administrative expenses in the near term to remain comparable to current levels , exclusive of the impact of future stock awards and one-time expenses . interest income interest income was $ 331,529 for the year ended october 31 , 2016 , compared with $ 114,219 for the year ended october 31 , 2015. the increase in interest income earned was attributable to an increase in cash resulting from sales of the company 's common shares . the cash was invested in held-to-maturity investments and a savings account . changes in fair values for the year ended october 31 , 2016 , the company recorded non-cash income from changes in the fair value of the warrant liability of $ 69,055 due to a decrease in the fair value of liability warrants as a smaller range of share prices were used in the calculation of the bsm volatility input as well as a decrease in our share price from $ 11.09 at october 31 , 2015 to $ 8.09 at october 31 , 2016. for the year ended october 31 , 2015 , the company recorded non-cash expense from changes in the fair value of the warrant liability of $ 48,950 due to an increase in the fair value of liability warrants primarily resulting from a larger range of share prices used in the calculation of the black-scholes model ( “ bsm ” ) volatility input , as well as a significant increase in our share price from $ 3.18 at october 31 , 2014 to $ 11.09 at october 31 , 2015. this was partially offset by the expiration of some warrants . income tax benefit we may be eligible , from time to time , to receive cash from the sale of our net operating losses ( “ nols ” ) under the state of new jersey nol transfer program . during the year ended october 31 , 2016 , the company recorded income tax receivable of $ 2,549,862 from the sale of its state nols and research and development tax credits for the period ended october 31 , 2015. in addition , the company received a net cash amount of $ 35,764 in excess of what was recorded as income tax receivable at october 31 , 2015. we paid $ 50,000 in taiwanese withholding taxes in connection with the revenue generated from an annual exclusive license fee from gbp . during the year ended october 31 , 2015 , the company recorded income tax receivable of $ 1,609,349 from the sale of its state nols and research and development tax credits for the period ended october 31 , 2014. liquidity and capital resources our major sources of cash have been proceeds from various public and private offerings of our common stock , option and warrant exercises , and interest income . from october 2013 through october 2017 , we raised approximately $ 222.5 million in gross proceeds from various public and private offerings of our common stock . we have not yet commercialized any drug , and we may not become profitable . our ability to achieve profitability depends on a number of factors , including our ability to complete our development efforts , obtain regulatory approvals for our drug , successfully complete any post-approval regulatory obligations , successfully compete with other available treatment options in the marketplace , overcome any clinical holds that the fda may impose and successfully manufacture and commercialize our drug alone or in partnership . we may continue to incur substantial operating losses even after we begin to generate revenues from our drug candidates . as of october 31 , 2017 , the company had approximately $ 70.9 million in cash , restricted cash , cash equivalents and investments on its balance sheet . we believe our current cash position is sufficient to fund our business plan approximately into fiscal 2019. the actual amount of cash that we will need to operate is subject to many factors . since our inception through october 31 , 2017 , we reported accumulated net losses of approximately $ 301.1 million and recurring negative cash flows from operations . we anticipate that we will continue to generate significant losses from operations for the foreseeable future . story_separator_special_tag 35 cash flows operating activities cash used in operating activities for the year ended october 31 , 2017 was approximately $ 76.9 million ( including proceeds from the sale of our state nols and research and development ( r & d ) tax credits of approximately $ 2.5 million ) primarily from spending associated with our clinical trial programs and general and administrative spending . cash used in operating activities for the year ended october 31 , 2016 was approximately $ 9.1 million . spending associated with our clinical trial programs and general and administrative spending was partially offset by a $ 40 million upfront payment received from amgen in connection with the collaboration agreement as well as proceeds from the sale of our state nols and research and development ( r & d ) tax credits of approximately $ 1.6 million . cash used in operating activities for the year ended october 31 , 2015 was approximately $ 24.1 million ( including proceeds from the sale of our state nols and r & d tax credits of approximately $ 1.7 million ) primarily from spending associated with our clinical trial programs and general and administrative spending . investing activities cash used in investing activities for the year ended october 31 , 2017 was approximately $ 12.5 million resulting from restricted cash established with letter of credit agreement , held-to-maturity investments , purchases of property and equipment , legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . cash provided by investing activities for the year ended october 31 , 2016 was approximately $ 1.6 million resulting from net proceeds from investments in held-to-maturity investments , purchases of property and equipment , construction of cleanroom and laboratory facilities , legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . cash used in investing activities for the year ended october 31 , 2015 was approximately $ 47.4 million resulting from investments in held-to-maturity investments , purchases of property and equipment to support expansion , legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . financing activities cash provided by financing activities for the year ended october 31 , 2017 was approximately $ 528,000 , resulting from the sale of 92,145 shares of our common stock in two at-the-market transactions resulting in net proceeds of approximately $ 656,000 and proceed from the issuance of stock under an employee stock purchase plan of approximately $ 251,000. this was partially offset by approximately $ 357,000 of taxes paid related to the net share settlement of equity awards . cash provided by financing activities for the year ended october 31 , 2016 was approximately $ 53.7 million , resulting from the sale of 3,047,446 shares of our common stock to amgen resulting in net proceeds of approximately $ 25 million and a registered direct offering of 2,244,443 shares of our common stock resulting in net proceeds of approximately $ 28.2 million . in addition , approximately $ 614,000 in proceeds was received on option and warrant exercises . this was partially offset by approximately $ 36,000 of taxes paid related to the net share settlement of equity awards . cash provided by financing activities for the year ended october 31 , 2015 was approximately $ 120.5 million , resulting primarily from registered direct offerings of 8,806,165 shares of our common stock resulting in net proceeds of approximately $ 63.1 million and a public offering of 2,800,000 shares of common stock resulting in net proceeds of approximately $ 56.7 million . in addition , the company received approximately $ 2.4 million from the proceeds received on option and warrant exercises . this was partially offset by approximately $ 1.6 million of taxes paid related to the net share settlement of equity awards . our capital resources and operations to date have been funded primarily with the proceeds from public , private equity and debt financings , nol tax sales and income earned on investments and grants . we have sustained losses from operations in each fiscal year since our inception , and we expect losses to continue for the indefinite future , due to the substantial investment in research and development . as of october 31 , 2017 and october 31 , 2016 , we had an accumulated deficit of $ 301,142,227 and $ 207,706,825 , respectively , and shareholders ' equity of $ 54,260,167 and $ 119,302,194 , respectively . the company believes its current cash position is sufficient to fund its business plan approximately into fiscal 2019. we have based this estimate on assumptions that may prove to be wrong , and we could use available capital resources sooner than currently expected . because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates , we are unable to estimate the amount of increased capital outlays and operating expenses associated with completing the development of our current product candidates . the company recognizes it may need to raise additional capital in order to continue to execute its business plan . there is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the company or whether the company will become profitable and generate positive operating cash flow . if the company is unable to raise sufficient additional funds , it will have to scale back its business plan , extend payables and reduce overhead until sufficient additional capital is raised to support further operations . there can be no assurance that such a plan will be successful . 36 tabular disclosure of contractual obligations replace_table_token_6_th we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes which are cancelable at any time by us , generally upon 30 days prior written notice .
| 32 professional fees professional fees increased $ 6,652,634 to $ 14,453,151 for the year ended october 31 , 2017 compared to $ 7,800,517 for the year ended october 31 , 2016. the increase is primarily attributable to an increase in drug manufacturing process validation costs and drug stability studies in support of the maa . laboratory costs laboratory costs increased $ 5,859,125 to $ 8,610,682 for the year ended october 31 , 2017 compared to $ 2,751,557 for the year ended october 31 , 2016. the increase is primarily attributable to an increase in headcount and laboratory space , as well as support of the maa . other clinical trial expenses clinical trial expenses decreased $ 23,806 to $ 1,771,549 for the year ended october 31 , 2017 compared to $ 1,795,355 for the year ended october 31 , 2016 primarily as a result of the company decision not to proceed to the expansion phase of the her2 trial . other expenses other expenses increased $ 1,772,759 to $ 2,634,243 for the year ended october 31 , 2017 compared to $ 861,484 for the year ended october 31 , 2016. the increase was due to additional infrastructure costs incurred to support the increased headcount and laboratory expansion . partner reimbursements partner reimbursements for the year ended october 31 , 2017 were $ 10,500,000. the company received clinical development payments from amgen for adxs-neo totaling $ 7,500,000 and an additional payment of $ 3,000,000 from stendhal to support the aim2cerv program . general and administrative expenses general and administrative expenses primarily include salary and benefit costs for employees included in our finance , legal and administrative organizations , outside legal and professional services , and facilities costs . general and administrative expenses increased $ 6,945,960 to $ 38,658,464 for the year ended october 31 , 2017 , compared with $ 31,712,505 for the year ended october 31 , 2016. the increase is primarily attributable to an increase
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measurement of performance we monitor and evaluate the growth and operational performance of our business using net income and the following key metrics : ( a ) net revenue : the performance of an individual radio station or group of radio stations in a particular market is customarily measured by its ability to generate net revenue . net revenue consists of gross revenue , net of local and national agency and outside sales representative commissions consistent with industry practice . net revenue is recognized in the period in which advertisements are broadcast . net revenue also includes advertising aired in exchange for goods and services , which is recorded at fair value , revenue from sponsored events and other revenue . net revenue is recognized for our online business as impressions are delivered , as “ click throughs ” are made or ratably over contract periods , where applicable . net revenue is recognized for our cable television business as advertisements are run , and during the term of the affiliation agreements at levels appropriate for the most recent subscriber counts reported by the affiliate , net of launch support . ( b ) broadcast and digital operating income : net income ( loss ) before depreciation and amortization , income taxes , interest expense , interest income , noncontrolling interests in income of subsidiaries , other ( income ) expense , corporate selling , general and administrative expenses , stock-based compensation , impairment of long-lived assets , ( gain ) loss on retirement of debt and gain on sale-leaseback , is commonly referred to in the radio broadcasting industry as “ station operating income. ” however , given the diverse nature of our business , station operating income is not truly reflective of our multi-media operation and , therefore , we now use the term broadcast and digital operating income . broadcast and digital operating income is not a measure of financial performance under accounting principles generally accepted in the united states of america ( “ gaap ” ) . nevertheless , broadcast and digital operating income is a significant measure used by our management to evaluate the operating performance of our core operating segments . broadcast and digital operating income provides helpful information about our results of operations , apart from expenses associated with our fixed and long-lived intangible assets , income taxes , investments , impairment charges , debt financings and retirements , corporate overhead and stock-based compensation . our measure of broadcast and digital operating income is similar to industry use of station operating income ; however , it reflects our more diverse business and therefore is not completely analogous to “ station operating income ” or other similarly titled measures as used by other companies . broadcast and digital operating income does not represent operating loss or cash flow from operating activities , as those terms are defined under gaap , and should not be considered as an alternative to those measurements as an indicator of our performance . 35 ( c ) broadcast and digital operating income margin : broadcast and digital operating income margin represents broadcast and digital operating income as a percentage of net revenue . broadcast and digital operating income margin is not a measure of financial performance under gaap . nevertheless , we believe that broadcast and digital operating income margin is a useful measure of our performance because it provides helpful information about our profitability as a percentage of our net revenue . broadcast and digital operating margin includes results from all four segments ( radio broadcasting , reach media , digital and cable television ) . ( d ) adjusted ebitda : adjusted ebitda consists of net ( loss ) income plus ( 1 ) depreciation and amortization , income taxes , interest expense , noncontrolling interests in income of subsidiaries , impairment of long-lived assets , stock-based compensation , ( gain ) loss on retirement of debt , gain on sale-leaseback , employment agreement , incentive plan award expenses and other compensation , contingent consideration from acquisition , severance-related costs , cost method investment income , less ( 2 ) other income and interest income . net income before interest income , interest expense , income taxes , depreciation and amortization is commonly referred to in our business as “ ebitda. ” adjusted ebitda and ebitda are not measures of financial performance under gaap . we believe adjusted ebitda is often a useful measure of a company 's operating performance and is a significant measure used by our management to evaluate the operating performance of our business because adjusted ebitda excludes charges for depreciation , amortization and interest expense that have resulted from our acquisitions and debt financing , our taxes , impairment charges , and gain on retirements of debt . accordingly , we believe that adjusted ebitda provides useful information about the operating performance of our business , apart from the expenses associated with our fixed assets and long-lived intangible assets , capital structure or the results of our affiliated company . adjusted ebitda is frequently used as one of the measures for comparing businesses in the broadcasting industry , although our measure of adjusted ebitda may not be comparable to similarly titled measures of other companies , including , but not limited to the fact that our definition includes the results of all four of our operating segments ( radio broadcasting , reach media , digital and cable television ) . adjusted ebitda and ebitda do not purport to represent operating income or cash flow from operating activities , as those terms are defined under gaap , and should not be considered as alternatives to those measurements as an indicator of our performance . story_separator_special_tag summary of performance the table below provides a summary of our performance based on the metrics described above : replace_table_token_10_th 36 the reconciliation of net income to broadcast and digital operating income is as follows : replace_table_token_11_th the reconciliation of net ( loss ) income to adjusted ebitda is as follows : replace_table_token_12_th 37 urban one , inc. and subsidiaries story_separator_special_tag margin : 0pt 0 '' > corporate selling , general and administrative , excluding stock-based compensation replace_table_token_17_th corporate expenses consist of expenses associated with our corporate headquarters and facilities , including personnel as well as other corporate overhead functions . the decrease in expense for the year ended december 31 , 2020 , compared to the same period in 2019 was due to a decrease in compensation expense for the chief executive officer in connection with the valuation of the employment agreement award element in his employment agreement , which was partially offset by higher compensation costs . stock-based compensation replace_table_token_18_th the decrease in stock-based compensation for the year ended december 31 , 2020 , compared to the same period in 2019 , is primarily due to a decrease in grants and vesting of stock awards for certain executive officers and other management personnel . depreciation and amortization replace_table_token_19_th the decrease in depreciation and amortization expense for the year ended december 31 , 2020 , was due to the mix of assets approaching or near the end of their useful lives , most notably the company 's affiliate agreements . 40 impairment of long-lived assets replace_table_token_20_th the impairment of long-lived assets for the year ended december 31 , 2020 , was related to a non-cash impairment charge of approximately $ 15.9 million recorded to reduce the carrying value of our atlanta market and indianapolis market goodwill balances and a charge of approximately $ 68.5 million associated with our atlanta , cincinnati , dallas , houston , indianapolis , philadelphia , raleigh , richmond and st. louis radio market broadcasting licenses . the impairment of long-lived assets for the year ended december 30 , 2019 , was related to a non-cash impairment charge associated with our detroit and indianapolis markets ' radio broadcasting licenses as well as a non-cash impairment charge recorded to reduce the carrying value of our interactive one goodwill balance . interest expense replace_table_token_21_th interest expense decreased to approximately $ 74.5 million for the year ended december 31 , 2020 , compared to approximately $ 81.4 million for the same period in 2019 , due to lower overall debt balances outstanding and lower average interest rates on its 2017 credit facility . loss on retirement of debt replace_table_token_22_th on november 9 , 2020 , we completed an exchange ( the “ exchange offer ” ) of 99.15 % of our outstanding 7.375 % senior secured notes due 2022 ( the “ 7.375 % notes ” ) for $ 347 million aggregate principal amount of newly issued 8.75 % senior secured notes due december 2022 ( the “ 8.75 % notes ” ) . there was a net loss on retirement of debt of approximately $ 2.9 million for the year ended december 31 , 2020 associated with the exchange offer . other income , net replace_table_token_23_th other income , net , decreased to approximately $ 4.5 million for the year ended december 31 , 2020 , compared to approximately $ 7.1 million for the same period in 2019. we recognized other income in the amount of approximately $ 4.9 million and $ 6.9 million , for the years ended december 31 , 2020 and 2019 , respectively , related to our mgm investment . the decrease is due to the closure and partial re-opening of the mgm casino as a result of the covid-19 pandemic . ( benefit from ) provision for income taxes replace_table_token_24_th 41 during the year ended december 31 , 2020 , the benefit from income tax was approximately $ 34.5 million compared to a tax provision of approximately $ 10.9 million for the year ended december 31 , 2019. the decrease in the provision for income taxes was primarily due to the reduction of irc section 382 limitations . for the year ended december 31 , 2020 , the benefit consisted of deferred tax benefit of approximately $ 35.0 million and current tax expense of $ 552,000. for the year ended december 31 , 2019 , the provision consisted of deferred tax expense of approximately $ 10.3 million and current tax expense of $ 595,000. the company continues to maintain a valuation allowance of $ 277,000 against certain of its deferred tax assets ( “ dtas ” ) in jurisdictions where we do not expect these assets to be realized . the provision resulted in an effective tax rate of 84.0 % and 84.1 % for the years ended december 31 , 2020 and 2019 , respectively . the 2020 and 2019 annual effective tax rates primarily reflect taxes at statutory tax rates , the impact of permanent tax adjustments , and the valuation allowance release related to the realizability of certain of the company 's net operating losses . noncontrolling interests in income of subsidiaries replace_table_token_25_th the increase in noncontrolling interests in income of subsidiaries was primarily due to higher net income recognized by reach media for the year ended december 31 , 2020 , versus the same period in 2019. other data broadcast and digital operating income broadcast and digital operating income increased to approximately $ 163.9 million for the year ended december 31 , 2020 , compared to approximately $ 156.4 million for the year ended december 31 , 2019 , an increase of approximately $ 7.5 million or 4.8 % . this increase was due to higher broadcast and digital operating income in our reach media , cable television and digital segments , which was partially offset by a decrease in broadcast and digital operating income at our radio broadcasting segment .
| we recognized approximately $ 181.6 million from our cable television segment for the year ended december 31 , 2020 , compared to approximately $ 185.0 million of revenue for the same period in 2019 , due primarily to lower affiliate sales . net revenue from our digital segment increased $ 3.7 million and 11.5 % for the year ended december 31 , 2020 , compared to the same period in 2019 due primarily to stronger direct revenues . operating expenses programming and technical , excluding stock-based compensation replace_table_token_15_th programming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems , tower facilities , and studios used in the creation , distribution and broadcast of programming content on our radio stations . programming and technical expenses for the radio segment also include expenses associated with our programming research activities and music royalties . for our digital segment , programming and technical expenses include software product design , post-application software development and maintenance , database and server support costs , the help desk function , data center expenses connected with isp hosting services and other internet content delivery expenses . for our cable television segment , programming and technical expenses include expenses associated with technical , programming , production , and content management . the decrease in programming and technical expenses for the year ended december 31 , 2020 , compared to the same period in 2019 is primarily due to several cost-cutting initiatives at all our segments , specifically compensation savings from employee layoffs , furloughs and salary reductions and on-air talent reductions . our radio broadcasting segment generated a decrease of approximately $ 7.7 million for the year ended december 31 , 2020 , compared to the same period in 2019 due primarily to lower compensation costs , contract labor costs and music licensing fees . our reach media segment generated a decrease of approximately $ 3.8 million for the year ended december 31 , 2020 , compared to the same period in 2019 due primarily to contract labor and talent cost reductions . our cable television segment generated a decrease of approximately $ 12.3 million for
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further , the 2021 unified transportation program ( “ utp ” ) approved by the texas transportation commission in september 2020 provides for $ 75 billion through fiscal year 2030 to fund transportation projects ; more than double the fiscal year 2016 level , which was prior to the proposition 1 and proposition 7 funding initiatives . the funding available in any given year is separate and distinct from lettings , or the process of providing notice , issuing proposals , receiving proposals , and awarding contracts . in january 2021 , txdot updated its fiscal year 2021 lettings estimate to $ 9.6 billion up from $ 7.5 billion in fiscal year 2020 and $ 8.9 billion in fiscal year 2019. longer term , txdot has indicated a target of $ 8 billion per year in total state and local lettings . the texas comptroller released its biennial revenue estimate for fiscal year 2022 – 2023 in january 2021 and expects economic output to return to pre-pandemic levels in 2022 , and despite revenue shortfalls due to covid-19 it is expected that the state highway fund will be granted its full allotment of $ 2.5 billion for fiscal year 2021 and 2022 from proposition 7 funding . in december 2020 , utah updated its revenue estimate for transportation funding to $ 639 million in fiscal year 2021 ( which commenced july 1 , 2020 ) up from $ 614 million in fiscal year 2020 , with growth driven by increases in vehicle registration fees , diesel fuel tax and other revenue sources . in january 2020 , the utah department of transportation increased fees on electric and hybrid vehicles by 50 % in 2020 and another 33 % in 2021 and launched an alternative to a road usage charge program for those vehicles in the form of a pay per mile charge . in december 2019 , utah passed new legislation imposing a 4.85 % sales tax on gas purchases and a 6 cents per gallon increase to the diesel tax , with an additional 4 cents per gallon diesel tax increase in 2022. the tax is estimated to generate an additional $ 170 million for transportation investment in 2021. in january 2021 , the governor of kansas submitted a revised budget for fiscal year 2021 ( which commenced july 1 , 2020 ) and an initial budget recommendation for fiscal year 2022 with $ 1.9 billion in transportation funding budgeted in 2021 and $ 2.2 billion for 2022. transfers from the state highway fund ( “ shf ” ) to the state general fund ( “ sgf ” ) are expected to be eliminated by fiscal year 2023 with $ 134 million currently estimated to be transferred to the sgf in fiscal year 2021 and $ 67 million in fiscal year 2022. the elimination of transfers out of the shf is expected to help pave the way for the issuance of new transportation bonds and keep funds available to continue moving forward the 10-year , $ 10 billion eisenhower legacy plan that was approved by the kansas legislature in early 2020. the eisenhower legacy plan selects new modernization and expansion projects every two years , requires previously selected projects under the prior t-works program to be let prior to july 1 , 2023 and levies 16.2 % of the state sales tax for the benefit of the shf . in december 2020 , new missouri legislation was submitted that calls for five consecutive years of a two-cent gas tax increase starting in january 2022 , which would raise an incremental $ 100 million of revenue annually ; missouri currently has the second-lowest motor fuel tax in the united states at 17 cents per gallon . despite the impact of covid-19 , the missouri department of transportation had one of its strongest construction programs on record with payments to contractors of $ 821 million in calendar year-to-date november 2020 versus $ 662 million in the prior period and has now scheduled or is scheduled to let during the remainder of fiscal year 2021 ( which commenced july 1 , 2020 ) the entire $ 360 million of construction projects delayed in early 2020 as a result of covid-19 . the table below sets forth additional details regarding our four key states , including growth rates as compared to the u.s. as a whole : 41 table of contents replace_table_token_4_th ( 1 ) percentages based on our revenue by state for the year ended january 2 , 2021 and management 's estimates as to end markets . ( 2 ) source : 2019 pca ( 3 ) calculated using a weighted average based on each state 's percentage contribution to our total revenue . use and consumption of our products fluctuate due to seasonality . nearly all of the products used by us , and by our customers , in the private construction or public infrastructure industries are used outdoors . our highway operations and production and distribution facilities are also located outdoors . therefore , seasonal changes and other weather-related conditions , in particular extended rainy and cold weather in the spring and fall and major weather events , such as hurricanes , tornadoes , tropical storms , heavy snows and flooding , can adversely affect our business and operations through a decline in both the use of our products and demand for our services . in addition , construction materials production and shipment levels follow activity in the construction industry , which typically occurs in the spring , summer and fall . warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters . the first quarter of our fiscal year typically has lower levels of activity due to weather conditions . story_separator_special_tag we are subject to commodity price risk with respect to price changes in liquid asphalt and energy , including fossil fuels and electricity for aggregates , cement , ready-mix concrete and asphalt paving mix production , natural gas for hot mix asphalt production and diesel fuel for distribution vehicles and production related mobile equipment . liquid asphalt escalator provisions in most of our private and commercial contracts limit our exposure to price fluctuations in this commodity . we often obtain similar escalators on public infrastructure contracts . in addition , we enter into various firm purchase commitments , with terms generally less than one year , for certain raw materials . financial highlights— year ended january 2 , 2021 the principal factors in evaluating our financial condition and operating results for the year ended january 2 , 2021 are : net revenue increased 5.1 % or $ 104.1 million in 2020 as compared to 2019 , primarily resulting from organic growth and to a lesser extent , contributions from our acquisitions . our operating income increased 5.4 % or $ 11.6 million in 2020 as compared to 2019 , as pricing and volume increases exceeded the increases in cost of revenue . in august 2020 , we issued $ 700.0 million of 5.250 % senior notes due 2029 ( the “ 2029 notes ” ) , resulting in net proceeds of $ 690.4 million , after related fees and expenses . the proceeds from the 2029 notes were used to redeem the $ 650.0 million of 6.125 % senior notes due 2023 ( the “ 2023 notes ” ) at par . components of operating results total revenue we derive our revenue predominantly by selling construction materials and products and providing paving and related services . construction materials consist of aggregates and cement . products consist of related downstream products , including ready-mix concrete , asphalt paving mix and concrete products . paving and related services that we provide are primarily asphalt paving services . 42 table of contents revenue derived from the sale of construction materials is recognized when risks associated with ownership have passed to unaffiliated customers . typically this occurs when products are shipped . product revenue generally includes sales of aggregates , cement and related downstream products and other materials to customers , net of discounts or allowances and taxes , if any . revenue derived from paving and related services is recognized on the percentage-of-completion basis , measured by the cost incurred to date compared to estimated total cost of each project . this method is used because management considers cost incurred to be the best available measure of progress on these contracts . due to the inherent uncertainties in estimating costs , it is at least reasonably possible that the estimates used will change over the life of the contract . operating costs and expenses the key components of our operating costs and expenses consist of the following : cost of revenue ( excluding items shown separately ) cost of revenue consists of all direct production and delivery costs and primarily includes labor , repair and maintenance , utilities , raw materials , fuel , transportation , subcontractor costs , and royalties . our cost of revenue is directly affected by fluctuations in commodity energy prices , primarily diesel fuel , liquid asphalt and other petroleum-based resources . as a result , our adjusted cash gross profit margins can be significantly affected by changes in the underlying cost of certain raw materials if they are not recovered through corresponding changes in revenue . we attempt to limit our exposure to changes in commodity energy prices by entering into forward purchase commitments when appropriate . in addition , we have sales price adjustment provisions that provide for adjustments based on fluctuations outside a limited range in certain energy-related production costs . these provisions are in place for most of our public infrastructure contracts , and we seek to include similar price adjustment provisions in our private contracts . general and administrative expenses general and administrative expenses consist primarily of salaries and personnel costs , including stock-based compensation charges , for our sales and marketing , administration , finance and accounting , legal , information systems , human resources and certain managerial employees . additional expenses include audit , consulting and professional fees , travel , insurance , rental costs , property taxes and other corporate and overhead expenses . depreciation , depletion , amortization and accretion our business is capital intensive . we carry property , plant and equipment on our balance sheet at cost , net of applicable depreciation , depletion and amortization . depreciation on property , plant and equipment is computed on a straight-line basis or based on the economic usage over the estimated useful life of the asset . the general range of depreciable lives by category , excluding mineral reserves , which are depleted based on the units of production method on a site-by-site basis , is as follows : buildings and improvements 10 - 30 years plant , machinery and equipment 7 - 20 years office equipment 3 - 7 years truck and auto fleet 5 - 8 years mobile equipment and barges 6 - 8 years landfill airspace and improvements 10 - 30 years other 4 - 20 years amortization expense is the periodic expense related to leasehold improvements and intangible assets . the intangible assets were recognized with certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets . leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term . accretion expense is the periodic expense recorded for the accrued mining reclamation liabilities and landfill closure and post-closure liabilities using the effective interest method . 43 table of contents results of operations in late 2019 , a novel strain of the coronavirus ( `` covid-19 '' ) virus was first reported to have surfaced . covid-19 has since spread globally , including to every state in the united states .
| we generated organic volume growth of 3.6 % , 5.0 % and 4.7 % in aggregates , ready-mix concrete and asphalt , respectively , during 2020 over the prior year period , while our organic cement volumes declined 4.6 % compared to 2019. we had organic price growth in our cement , ready-mix and asphalt lines of business of 1.5 % , 4.7 % and 1.4 % , respectively , during 2020. operating income increased by $ 11.6 million in 2020 as compared to 2019 , primarily as net revenue gains exceeded increases in costs of revenue and general and administrative expenses . for the year ended january 2 , 2021 , our operating margin percentage remained flat as compared to the year ended december 28 , 2019 , due to the items noted above . adjusted ebitda , as defined below , increased by $ 23.6 million in the year ended january 2 , 2021 as compared to the year ended december 28 , 2019. as a vertically-integrated company , we include intercompany sales from materials to products and from products to services when assessing the operating results of our business . we refer to revenue inclusive of intercompany sales as gross revenue . these intercompany transactions are eliminated in the consolidated financial statements . gross revenue by line of business was as follows : replace_table_token_8_th * revenue by product includes intercompany and intracompany sales transferred at market value . the elimination of intracompany transactions is included in other . revenue from the liquid asphalt terminals is included in asphalt revenue . detail of our volumes and average selling prices by product for the years ended january 2 , 2021 and december 28 , 2019 were as follows : 46 table of contents replace_table_token_9_th ( 1 ) volumes are shown in tons for aggregates , cement and asphalt and in cubic yards for ready-mix concrete . ( 2 ) pricing is shown on a per ton basis for aggregates , cement and asphalt and on a per cubic yard basis for ready-mix concrete . revenue from aggregates increased $ 43.2 million in the year ended january 2 , 2021. in 2020 , increases in our northern texas and virginia markets were partially offset by organic aggregate volumes declines in missouri as flood repair work in 2020 was less than in 2019 and kentucky due to covid-19 impacts . overall , our average sales price in 2020 decreased over 2019 primarily as the product mix shifted away from higher priced flood repair products to lower priced products and the impact of lower priced acquisition related
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including the impact of the blue buffalo acquisition , net sales are expected to increase 9 to 10 percent . constant-currency adjusted operating profit is expected to increase 6 to 9 percent from the base of $ 2.7 billion reported in fiscal 2018. constant-currency adjusted diluted eps are expected to range between flat and down 3 percent from the base of $ 3.11 earned in fiscal 2018. this estimate includes a 4-cent headwind related to the blue buffalo acquisition , driven by the impact of purchase accounting . we continue to pursue our consumer first strategy and execute against our three key growth priorities : 1 ) competing effectively on all brands and across all geographies through strong innovation , effective consumer marketing , and excellent in-store execution ; 2 ) accelerating growth on our four differential growth platforms including h ä agen-dazs ice cream , snack bars , old el paso mexican food , and our portfolio of natural and organic food brands ; and 3 ) reshaping our portfolio through growth-enhancing transactions , including the recent acquisition of blue buffalo . we also intend to pursue divestitures of growth-dilutive businesses to further reshape our portfolio . by focusing on these priorities , we expect to generate consistent topline growth , which , when balanced with a disciplined focus on margin expansion , cash conversion , and cash returns , should create significant value for our shareholders . see the non-gaap measures section below for a description of our use of measures not defined by gaap . certain terms used throughout this report are defined in a glossary in item 8 of this report . 20 fiscal 2018 consolidated results of operations on april 24 , 2018 , we acquired blue buffalo , which became our pet operating segment . we are reporting the pet operating segment results on a one-month lag and accordingly , in fiscal 2018 , our results do not include pet segment operating results . in fiscal 2018 , net sales increased 1 percent compared to last year . operating profit margin of 15.9 percent was down 50 basis points from year-ago levels primarily driven by lower segment operating profit results partially offset by a decrease in restructuring , impairment , and other exit costs and favorable mark-to-market valuation of certain commodity positions . adjusted operating profit margin decreased 90 basis points to 17.2 percent , primarily driven by higher input costs including currency-driven inflation on imported products in certain markets partially offset by lower selling , general and administrative expenses . diluted earnings per share of $ 3.64 increased 31 percent compared to fiscal 2017 , and adjusted diluted eps , which excludes certain items affecting comparability , essentially matched year-ago levels on a constant-currency basis ( see the non-gaap measures section below for a description of our use of measures not defined by gaap ) . a summary of our consolidated financial results for fiscal 2018 follows : replace_table_token_3_th ( a ) see the non-gaap measures section below for our use of measures not defined by gaap . consolidated net sales were as follows : fiscal 2018 fiscal 2018 vs. fiscal 2017 fiscal 2017 net sales ( in millions ) $ 15,740.4 1 % $ 15,619.8 contributions from volume growth ( a ) ( 1 ) pt net price realization and mix 1 pt foreign currency exchange 1 pt ( a ) measured in tons based on the stated weight of our product shipments . the 1 percent increase in net sales in fiscal 2018 was primarily driven by favorable net price realization and mix and favorable foreign currency exchange , partially offset by lower contributions from volume growth . the convenience stores & foodservice and europe & australia segments contributed to the increase in net sales in fiscal 2018 compared to the same period last year , while the north america retail and asia & latin america segments decreased . organic net sales in fiscal 2018 were flat compared to fiscal 2017 , with contributions from organic volume growth in the convenience stores & foodservice segment offset by organic volume declines in the europe & australia and asia & latin america segments . 21 components of organic net sales growth are shown in the following table : fiscal 2018 vs. fiscal 2017 contributions from organic volume growth ( a ) ( 1 ) pt organic net price realization and mix 1 pt organic net sales growth flat foreign currency exchange 1 pt acquisitions and divestitures flat net sales growth 1 pt ( a ) measured in tons based on the stated weight of our product shipments . cost of sales increased $ 257 million in fiscal 2018 to $ 10,313 million . the increase included a $ 452 million increase attributable to product rate and mix and a $ 116 million decrease attributable to lower volume . we recorded a $ 32 million net decrease in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories as described in note 7 to the consolidated financial statements in item 8 of this report , compared to a net decrease of $ 14 million in fiscal 2017. in fiscal 2018 , we recorded $ 14 million of restructuring charges in cost of sales compared to $ 42 million in fiscal 2017. we also recorded $ 11 million of restructuring initiative project-related costs in cost of sales in fiscal 2018 compared to $ 44 million in fiscal 2017 ( please see note 4 to the consolidated financial statements in item 8 of this report ) . gross margin declined 2 percent in fiscal 2018 versus fiscal 2017. gross margin as a percent of net sales of 34 percent decreased 110 basis points compared to fiscal 2017. selling , general and administrative ( sg & a ) expenses decreased $ 49 million to $ 2,753 million in fiscal 2018 compared to fiscal 2017. the decrease in sg & a expenses primarily reflects savings from cost management initiatives and an 8 percentage point decrease in media and advertising expense . story_separator_special_tag in addition , we recorded $ 34 million of transaction and integration costs related to our acquisition of blue buffalo . sg & a expenses as a percent of net sales in fiscal 2018 decreased 40 basis points compared to fiscal 2017. restructuring , impairment , and other exit costs totaled $ 166 million in fiscal 2018 compared to $ 183 million in fiscal 2017. during the fourth quarter of fiscal 2018 , we executed our fiscal 2019 planning process and preliminary long-range planning process , which resulted in lower future sales and profitability projections in our plans for our businesses supporting the yoki , mountain high , and immaculate baking brand intangible assets . as a result , we recorded a $ 97 million impairment charge in the fourth quarter of fiscal 2018. in fiscal 2018 , we approved global cost savings initiatives designed to reduce administrative costs and align resources behind high growth initiatives . we recorded $ 49 million of restructuring charges relating to this action in fiscal 2018 . 22 other charges associated with our restructuring initiatives recognized in fiscal 2018 , 2017 and 2016 consisted of the following : as reported estimated in millions fiscal 2018 fiscal 2017 fiscal 2016 prior to fiscal 2016 future total charge cash charge cash charge cash charge cash charge cash charge cash savings ( b ) global reorganization $ ( 2.2 ) $ 40.3 $ 72.1 $ 20.0 $ - $ - $ - $ - $ - $ 8 $ 70 $ 68 closure of melbourne , australia plant 15.7 9.2 21.9 1.6 - - - - 2 ( 4 ) 40 7 restructuring of certain international product lines ( 0.1 ) 0.3 45.1 10.3 - - - - 1 ( 6 ) 46 5 closure of vineland , new jersey plant 12.8 2.7 41.4 7.3 - - - - - 1 54 11 project compass 0.4 3.4 ( 0.4 ) 12.8 54.7 36.1 - - - 1 55 53 project century 7.8 ( 5.2 ) 44.0 49.4 182.6 34.1 181.8 12.0 - 1 416 91 project catalyst - 1.4 - 1.3 ( 7.5 ) 47.8 148.4 45.0 - - 141 96 combination of certain operational facilities ( 1.0 ) ( 0.8 ) - 5.1 - 4.5 13.9 6.5 - 1 13 16 other - - - - - 0.1 ( 0.6 ) 0.1 - - ( 1 ) - total restructuring charges ( a ) 33.4 51.3 224.1 107.8 229.8 122.6 343.5 63.6 3 2 834 347 project-related costs classified in cost of sales 11.3 10.9 43.9 46.9 57.5 54.5 13.2 9.7 4 8 130 130 restructuring charges and project-related costs $ 44.7 $ 62.2 $ 268.0 $ 154.7 $ 287.3 $ 177.1 $ 356.7 $ 73.3 $ 7 $ 10 $ 964 $ 477 cumulative annual savings $ 700 ( a ) includes restructuring charges recorded in cost of sales of $ 14.0 million in fiscal 2018 , $ 41.5 million in fiscal 2017 , and $ 78.4 million in fiscal 2016 . ( b ) cumulative annual savings , versus fiscal 2015 base , in fiscal 2018. includes savings from sg & a cost reduction projects . does not include savings from global cost savings initiatives approved in the fourth quarter of fiscal 2018. please refer to note 4 to the consolidated financial statements in item 8 of this report for more information regarding our restructuring activities . interest , net for fiscal 2018 totaled $ 374 million , $ 79 million higher than fiscal 2017 , primarily driven by $ 36 million of charges related to the bridge term loan credit facility that provided backup financing for the blue buffalo acquisition , higher average debt balances , and $ 14 million of charges related to the repurchase of medium term notes , partially offset by changes in the mix of debt . our consolidated effective tax rate for fiscal 2018 was 2.7 percent compared to 28.8 percent in fiscal 2017. the 26.1 percentage point decrease was primarily due to the provisional net benefit of $ 524 million recorded in fiscal 2018 related to the tax cuts and jobs act ( tcja ) . our effective tax rate excluding certain items affecting comparability was 25.7 percent in fiscal 2018 compared to 29.2 percent in fiscal 2017 ( see the non-gaap measures section below for a description of our use of measures not defined by gaap ) . the 3.5 percentage point decrease in the effective tax rate excluding certain items affecting comparability was primarily due to the lower u.s. federal blended statutory rate for fiscal 2018 as a result of the tcja , partially offset by certain discrete events recorded during fiscal 2017. on december 22 , 2017 , the tcja was signed into law . the tcja significantly revised the u.s. corporate income tax system , including a reduction in the u.s. corporate income tax rate , implementation of a territorial system , and a one-time deemed repatriation tax on untaxed foreign earnings . the tcja also resulted in a u.s. federal blended statutory rate of 29.4 percent for us in fiscal 2018. generally , the impacts of the new legislation would be required to be recorded in the period of enactment , which for us was the third quarter of fiscal 2018. however , accounting standards update 2018-05 : income taxes ( topic 740 ) ( asu 2018-05 ) was issued with guidance allowing for the recognition of provisional amounts in the event that the accounting is not complete and 23 a reasonable estimate can be made . the guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the tcja . please see note 14 to the consolidated financial statements in item 8 of this report for additional information .
| net gain/loss on divestitures , and restructuring , impairment , and other exit costs because these items affecting operating profit are centrally managed at the corporate level and are excluded from the measure of segment profitability reviewed by our executive management . north america retail segment our north america retail operating segment reflects business with a wide variety of grocery stores , mass merchandisers , membership stores , natural food chains , drug , dollar and discount chains , and e-commerce grocery providers . our product categories in this business segment are ready-to-eat cereals , refrigerated yogurt , soup , meal kits , refrigerated and frozen dough products , dessert and baking mixes , frozen pizza and pizza snacks , grain , fruit and savory snacks , and a wide variety of organic products including refrigerated yogurt , nutrition bars , meal kits , salty snacks , ready-to-eat cereal , and grain snacks . north america retail net sales were as follows : replace_table_token_4_th ( a ) measured in tons based on the stated weight of our product shipments . the 1 percent decrease in north america retail net sales for fiscal 2018 was driven by declines in the u.s. yogurt operating unit partially offset by growth in the u.s. snacks and canada operating units . 28 the 7 percent decrease in north america retail net sales for fiscal 2017 was driven by declines in the u.s. meals & baking , u.s. yogurt , u.s. cereal , and canada operating units . the decline in net sales also includes the impact of the green giant divestiture from the u.s. meals & baking and canada operating units in fiscal 2016. the components of north america retail organic net sales growth are shown in the following table : fiscal 2018 vs. 2017 percentage change fiscal 2017 vs. 2016 percentage change contributions from organic volume growth ( a ) flat ( 9 ) pts organic net price realization and mix ( 1 ) pt 4 pts organic net sales growth ( 1 ) pt
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for the year ended december 31 , 2019 , 82 % of our revenues were generated from management fees and carried interest derived primarily from net interest income on senior secured loans . our primary expenses are compensation to our employees and general , administrative and other expenses . compensation includes salaries , discretionary bonuses , stock-based compensation , performance based compensation and benefits paid and payable to our employees . general and administrative expenses include costs primarily related to professional services , office rent and 53 related expenses , depreciation and amortization , travel and related expenses , information technology , communication and information services , placement fees and third-party marketing expenses and other general operating items . reorganization and initial public offering medley management inc. ( “ mdly ” ) was incorporated on june 13 , 2014 and commenced operations on september 29 , 2014 upon the completion of its ipo of its class a common stock . we raised $ 100.4 million , net of underwriting discounts , through the issuance of 6,000,000 shares of class a common stock at a public offering price of $ 18.00 per share . the offering proceeds were used to purchase 6,000,000 newly issued llc units from medley llc . prior to the ipo , medley management inc. had not engaged in any business or other activities except in connection with its formation and ipo . in connection with the ipo , medley management inc. issued 100 shares of class b common stock to medley group llc ( “ medley group ” ) , an entity wholly owned by the pre-ipo members of medley llc . for so long as the pre-ipo members and then-current medley personnel hold at least 10 % of the aggregate number of shares of class a common stock and llc units ( excluding those llc units held by medley management inc. ) then outstanding , the class b common stock entitles medley group to a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to 10 times the number of membership units held by such holder . in connection with the ipo , medley llc amended and restated its limited liability agreement to modify its capital structure by reclassifying the 23,333,333 interests held by the pre-ipo members into a single new class of units . the pre-ipo members also entered into an exchange agreement under which they ( or certain permitted transferees thereof ) have the right , subject to the terms of the exchange agreement , to exchange their llc units for shares of medley management inc. 's class a common stock on a one-for-one basis , subject to customary conversion rate adjustments for stock splits , stock dividends and reclassifications . in addition , pursuant to the amended and restated limited liability agreement , medley management inc. became the sole managing member of medley llc . our structure medley management inc. is a holding company and its sole material asset is a controlling equity interest in medley llc . medley management inc. operates and controls all of the business and affairs and consolidates the financial results of medley llc and its subsidiaries . we and our pre-ipo owners have also entered into an exchange agreement under which they ( or certain permitted transferees ) have the right ( subject to the terms of the exchange agreement ) , to exchange their llc units for shares of our class a common stock on a one-for-one basis , subject to customary conversion rate adjustments for stock splits , stock dividends and reclassifications . medley group llc , an entity wholly-owned by our pre-ipo owners , holds all 100 issued and outstanding shares of our class b common stock . for so long as our pre-ipo owners and then-current medley personnel hold at least 10 % of the aggregate number of shares of class a common stock and llc units ( excluding those llc units held by medley management inc. ) , which we refer to as the “ substantial ownership requirement , ” the class b common stock entitles medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to 10 times the number of llc units held by such holder . for purposes of calculating the substantial ownership requirement , shares of class a common stock deliverable to our pre-ipo owners and then-current medley personnel pursuant to outstanding equity awards will be deemed then outstanding and shares of class a common stock and llc units held by any estate , trust , partnership or limited liability company or other similar entity of which any pre-ipo owner or then-current medley personnel , or any immediate family member thereof , is a trustee , partner , member or similar party will be considered held by such pre-ipo owner or other then-current medley personnel . story_separator_special_tag from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will entitle medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to the number of llc units held by such holder . at the completion of our ipo , our pre-ipo owners were comprised of all of the non-managing members of medley llc . however , medley llc may in the future admit additional non-managing members that would not constitute pre-ipo owners . if at any time the ratio at which llc units are exchangeable for shares of our class a common stock changes from one-for-one as set forth in the exchange agreement , the number of votes to which class b common stockholders are entitled will be adjusted accordingly . holders of shares of our class b common stock will vote together with holders of our class a common stock as a single class on all matters on which stockholders are entitled to vote generally , except as otherwise required by law . 54 other than medley management inc. , holders of llc units , including our pre-ipo owners , were , subject to limited exceptions , prohibited from transferring any llc units held by them upon consummation of our ipo , or any shares of class a common stock received upon exchange of such llc units , until the third anniversary of our ipo without our consent . thereafter and prior to the fourth and fifth anniversaries of our ipo , such holders were not able to transfer more than 33 1/3 % and 66 2/3 % , respectively , of the number of llc units held by them upon consummation of our ipo , together with the number of any shares of class a common stock received by them upon exchange therefor , without our consent . while this agreement could have been amended or waived by us , our pre-ipo owners did not seek any waivers of these restrictions . the diagram below depicts our organizational structure ( excluding those operating subsidiaries with no material operations or assets ) as of march 20 , 2020 : ( 1 ) the class b common stock provides medley group llc with a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc . from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will provide medley group llc with a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock . ( 2 ) if our pre-ipo owners exchanged all of their vested and unvested llc units for shares of class a common stock , they would hold 80.8 % of the outstanding shares of class a common stock , entitling them to an equivalent percentage of economic interests and voting power in medley management inc. , medley group llc would hold no voting power or economic interests in medley management inc. and medley management inc. would hold 100 % of outstanding llc units and 100 % of the voting power in medley llc . ( 3 ) medley llc holds 96.5 % of the class b economic interests in medley ( aspect ) management llc . 55 ( 4 ) medley llc holds 100 % of the outstanding common interest , and db med investor i llc holds 100 % of the outstanding preferred interest in each of medley seed funding i llc and medley seed funding ii llc . ( 5 ) medley seed funding iii llc holds 100 % of the senior preferred interest , strategic capital advisory services , llc holds 100 % of the junior preferred interest , and medley llc holds 100 % of the common interest in strf advisors llc . ( 6 ) medley llc holds 95.5 % of the class b economic interests in mcof management llc . ( 7 ) medley llc holds 100 % of the outstanding common interest , and db med investor ii llc holds 100 % of the outstanding preferred interest in medley seed funding iii llc . ( 8 ) medley gp holdings llc holds 95.5 % of the class b economic interests in mcof gp llc . ( 9 ) certain employees , former employees and former members of medley llc hold approximately 40.3 % of the limited liability company interests in mof ii gp llc , the entity that serves as general partner of mof ii , entitling the holders to share the carried interest earned from mof ii . ( 10 ) medley gp holdings llc holds 96.5 % of the class b economic interests in medley ( aspect ) gp llc . ( 11 ) certain employees of medley llc hold approximately 70.1 % of the limited liability company interests in medley caddo investors llc , entitling the holders to share the carried earned from caddo investors holdings i llc . ( 12 ) certain employees of medley llc hold approximately 69.9 % of the limited liability company interests in medley real d investors llc , entitling the holders to share the carried earned from medley real d ( annuity ) llc . ( 13 ) certain employees of medley llc hold approximately 70.2 % of the limited liability company interests in medley avantor investors llc , entitling the holders to share the carried earned from medley tactical opportunities llc .
| the decrease was due primarily to lower reimbursable expenses and transaction fees from closed deals , offset by a $ 0.3 million increase in consulting fees for providing non-advisory services to one of our private long-dated funds . investment income . investment income increased by approximately $ 0.7 million to a net investment loss of $ 0.3 million during the year ended december 31 , 2019 compared to a net investment loss of $ 1.1 million during the year ended december 31 , 2018 . the increase was due primarily to an increase in carried interest earned during 2019 as compared to 2018. expenses compensation and benefits . compensation and benefits expenses decreased by $ 2.7 million , or 9 % , to $ 28.9 million for the year ended december 31 , 2019 as compared to 2018 . the decrease was due primarily to a 9 % decrease in average employee headcount in 2019 as compared to 2018. general , administrative and other expenses . general , administrative and other expenses decreased by $ 2.2 million , or 11 % , to $ 17.2 million during the year ended december 31 , 2019 compared to the same period in 2018 . the decrease was due primarily to a $ 1.0 million decrease in expenses associated with our consolidated fund , strf , and a $ 0.7 million decrease in professional fees . the reduction in expenses associated with strf is primarily attributed to the amortization of its deferred offering costs in 2018 as well as reductions in fund accounting and administration expenses . the reduction in professional fees is primarily driven by the timing and nature of services being provided in connection with our pending merger with sierra . other income ( expense ) dividend income . dividend income decreased by $ 3.2 million to $ 1.1 million during the year ended december 31 , 2019 compared to 2018 . the decrease was due to a reduction in dividend income from our investment in shares of mcc . interest expense . interest expense increased by $ 0.7 million , or 6 %
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if neither exists for a deliverable , the best estimate of the selling price ( “ esp ” ) is used for that deliverable based on list price , representing a component of management 's market strategy , and an analysis of historical prices for bundled and standalone arrangements . revenue allocated to an element is limited to revenue that is not subject to refund or otherwise represents contingent revenue . vsoe , tpe , and esp are periodically adjusted to reflect current market conditions . these adjustments are not expected to differ significantly from historical results . valuation of goodwill and identifiable intangible assets intangible assets include customer relationships , trade names , technology , non-compete agreements and goodwill . intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . the company reviews intangible assets with indefinite lives for impairment annually as of october 1 and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . 18 when performing the impairment assessment , the company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of our intangible assets with indefinite lives . if the company believes , as a result of the qualitative assessment , that it is more likely than not that the fair value of the indefinite-lived intangibles is less than their carrying amount , the company calculates the fair value using a market approach . if the carrying value of an intangible asset with an indefinite life exceeds its fair value , then the intangible asset is written-down to their fair values . the company did not recognize any impairment related to our indefinite-lived intangible assets during 2014 , 2013 , or 2012. goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized . all of the company 's goodwill is allocated to its reporting units , which are the same as its operating segments . goodwill is reviewed for impairment at least annually as of october 1 and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable . the company reviews for goodwill impairment by first assessing qualitative factors to determine whether any impairment may exist . if we believe , as a result of the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , a quantitative two-step test is required ; otherwise , no further testing is required . under the first step of the quantitative test , the fair value of the reporting unit is compared with its carrying value ( including goodwill ) . if the fair value of the reporting unit exceeds its carrying value , step two is not performed . if the fair value of the reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and the company performs step two of the impairment test ( measurement ) . under step two , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the fair value of that goodwill . the fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the fair value of the reporting unit goodwill . in instances when a step two is required , the fair value of the reporting unit is determined using an income approach and comparable market multiples . under the income approach , there are a number of inputs used to calculate the fair value using a discounted cash flow model , including operating results , business plans , projected cash flows and a discount rate . discount rates , growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment . discount rates are determined by using a weighted average cost of capital , which considers market and industry data . management develops growth rates and cash flow projections for each reporting unit considering industry and company-specific historical and projected information . terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant weighted average cost of capital and low long-term growth rates . under the market approach , the company considers its market capitalization , comparisons to other public companies ' data , and recent transactions of similar businesses within the company 's industry . the company performed a qualitative analysis as of october 1 , 2014 , which did not indicate that it was more likely than not that the carrying values of the reporting units exceeded fair value . no impairments were recorded during the years ended december 31 , 2014 , 2013 or 2012. income taxes the company uses the asset and liability method of accounting for income taxes . under that method , deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . valuation allowances , if any , are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized . the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained . story_separator_special_tag recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . management judgment is required to determine the provision for income taxes and to determine whether deferred income taxes will be realized in full or in part . such judgments include , but are not limited to , the likelihood we would realize the benefits of net operating loss carryforwards , the adequacy of valuation allowances , the election to capitalize or expense costs incurred , and the probability of outcomes of uncertain tax positions . it is possible that the various taxing authorities could challenge those judgments or positions and reach conclusions that would cause us to incur tax liabilities in excess of , or realize benefits less than , those currently recorded . in addition , changes in the geographical mix or estimated amount of annual pretax income could impact our overall effective tax rate . 19 business combinations the company uses the acquisition method of accounting for acquired businesses . under the acquisition method , the financial statements reflect the operations of an acquired business starting from the completion of the acquisition . the assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition . any excess of the purchase price over the estimated fair values of the indentifiable net assets acquired is recorded as goodwill . significant judgment is required in estimating the fair value of assets acquired , especially intangible assets . as a result , in the case of significant acquisitions we typically engage third-party valuation specialists in estimating fair values of tangible and intangible assets . the fair value estimates are based on available historical information and on expectations and assumptions about the future , considering the perspective of marketplace participants . while management believes those expectations and assumptions are reasonable , they are inherently uncertain . unanticipated market or macroeconomic events and circumstances may occur , which could impact the accuracy or validity of the estimates and assumptions . story_separator_special_tag investments in technology , research and service resources . selling , general and administrative expenses . selling , general and administrative expenses increased 7.1 % to $ 25.2 million in 2013 from $ 23.5 million in 2012 mainly due to additional expense in share based compensation , increases in annual software license fees and costs from the may 2013 recapitalization , which were partially offset by decreased incentive payments and marketing costs . selling , general , and administrative expenses remained constant as a percentage of revenue at 27.2 % for each of the years ended december 31 , 2013 and 2012 due to the leveraging of selling , general and administrative expenses against increased revenue . depreciation and amortization . depreciation and amortization expenses decreased 20.6 % to $ 3.7 million in 2013 from $ 4.7 million in 2012. this decrease was a result of a large software development project becoming fully depreciated and intangibles associated with an acquisition becoming fully amortized . depreciation and amortization expenses as a percentage of revenue decreased to 4.0 % in 2013 from 5.4 % in 2012. provision for income taxes . the provision for income taxes totaled $ 9.0 million ( 36.8 % effective tax rate ) for 2013 , compared to $ 7.1 million ( 32.1 % effective tax rate ) for 2012. the effective tax rate for the year ended december 31 , 2013 , is higher than the rate in the same period of 2012 primarily due to an adjustment to income taxes of $ 575,000 for decreases in deferred state tax rates resulting from legislative changes in 2012 and nondeductible fees associated with the may 2013 recapitalization that are part of the annualized effective rate . inflation and changing prices inflation and changing prices have not had a material impact on revenue or net income in the last three years . liquidity and capital resources the company believes that its existing sources of liquidity , including cash and cash equivalents , borrowing availability , and operating cash flow will be sufficient to meet its projected needs for the foreseeable future . the company made capital contributions to connect totaling $ 2.8 million through december 31 , 2014 and will make additional capital contributions up to $ 1.3 million on an as-needed basis as determined by the board of directors of connect . additionally , the company has a future obligation to purchase the other equity units in connect when certain targeted events have been achieved . if , at any time , connect has at least $ 12.5 million of annual recurring contract value , including the nrc contracts being serviced , and the members have approved a financial statement showing a pro forma minimum 35 % ebitda margin for revenue on a going-forward basis , then within 90 days thereafter nrc is required to purchase from the other members , and the other members shall be required to sell to nrc , all of their equity units not owned by nrc . as of december 31 , 2014 , the price at which the other members had the obligation to sell their equity units to nrc was $ 0 . 22 as of december 31 , 2014 , our principal sources of liquidity included $ 40.0 million of cash and cash equivalents and up to $ 6.5 million of unused borrowings under our revolving credit note . of this cash , $ 9.9 million was held in canada . all of the amounts held in canada are intended to be indefinitely reinvested in foreign operations . the amounts held outside of the u.s. are eligible for repatriation , but under current law , would be subject to u.s. federal income taxes less applicable foreign tax credits .
| selling , general and administrative expenses decreased 0.8 % to $ 25.0 million in 2014 , compared to $ 25.2 million in 2013 , mainly due to a decrease in legal and accounting fees of $ 518,000 that were associated with the may 2013 recapitalization . in addition , non-cash share-based compensation expense , primarily associated with the forfeitures of certain stock options and restricted share awards , decreased by $ 213,000. these decreases were partially offset by increased payroll and benefit costs and legal and accounting costs related to the october 2014 digital assent acquisition and investment . bad debt expense , recruiting fees , contracted service costs and building/equipment lease expense also partially offset these decreases . selling , general , and administrative expenses decreased as a percentage of revenue to 25.3 % in 2014 , from 27.2 % in 2013 , due to the leveraging of these costs over revenue . depreciation and amortization . depreciation and amortization expenses increased 1.9 % to $ 3.8 million in 2014 compared to $ 3.7 million in 2013 primarily due to increased depreciation from investments in computer software and increased amortization from the october 2014 acquisition . depreciation and amortization expenses as a percentage of revenue decreased to 3.8 % in 2014 from 4.0 % during in 2013. provision for income taxes . provision for income taxes was $ 9.9 million ( 35.4 % effective tax rate ) in 2014 , compared to $ 9.0 million ( 36.8 % effective tax rate ) in 2013. the effective tax rate for 2014 is lower than the rate in 2013 primarily due to lower projected state tax rates due to legislative changes , as well as non-deductible fees associated with the may 2013 recapitalization that were incurred during 2013 , partially offset by $ 179,000 increase in the liability for unrecognized tax benefit . 21 year ended december 31 , 2013 , compared to year ended december 31 , 2012 revenue . revenue increased 7.1 % in 2013 to $ 92.6 million from $ 86.4 million in 2012 which was driven by a combination of continued gains in market share and vertical
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as the price of fuel goes up or down , the company 's earnings increase or decrease with the dollar amount of transportation invoices . in 2019 , total fee revenue and other income increased $ 5,993,000 , or 6 % , net interest income after provision for loan losses increased $ 2,976,000 , or 7 % , total operating expenses increased $ 7,850,000 , or 7 % , and net income increased $ 136,000. this performance in 2019 was driven by new customer wins , increased business from existing customers , and the development and deployment of new revenue generating services , however late in the year was partially offset by a volatile business climate and competitive marketplace . the increase in total operating expense was due mainly to the company continuing to invest in technology and staff required to win new business and support service growth with existing clients , as well as integration costs related to the gyve on-line generosity platform that was acquired in september 2019. the asset quality of the company 's loans and investments as of december 31 , 2019 remained strong . currently , management views cass ' major opportunity as the continued expansion of its payment and information processing service offerings and customer base . management intends to accomplish this by maintaining the company 's leadership position in applied technology , which when combined with the security and processing controls of the bank , makes cass unique in the industry . impact of new and not yet adopted accounting pronouncements in february 2016 , the fasb issued asu no . 2016-02 , leases ( asc topic 842 ) . the asu improves financial reporting about leasing transactions . the asu affects all companies and other organizations that lease assets such as real estate , airplanes , and manufacturing equipment . consistent with current generally accepted accounting principles ( “ gaap ” ) , the recognition , measurement , and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease . however , unlike current gaap—which requires only capital leases to be recognized on the balance sheet—the new asu requires both types of leases to be recognized on the balance sheet . the asu also requires disclosures to help investors and other financial statement users better understand the amount , timing , and uncertainty of cash flows arising from leases . these disclosures include qualitative and quantitative requirements , providing additional information about the amounts recorded in the financial statements . the company elected to apply asu 2016-02 as of the beginning of the period of adoption ( january 1 , 2019 ) and has not restated comparative periods . the company has elected to apply the package of practical expedients allowed by the new standard under which the company need not reassess ( i ) whether any expired or existing contracts are or contain leases , ( ii ) the lease classification for any expired or existing leases and ( iii ) initial direct costs for any existing leases . adoption of the asu on january 1 , 2019 resulted in the recognition of lease liabilities totaling $ 7,808,000 and the right-of-use assets totaling $ 7,383,000. the initial balance sheet gross up upon adoption was related to operating leases of certain real estate properties . see note 18 – leases for additional disclosures related to leases . 17 in june 2016 , the fasb issued asu no . 2016-13 , financial instruments – credit losses ( topic 326 ) : measurement of credit losses on financial instruments . the asu requires measurement and recognition of expected credit losses for financial assets held , which include allowances for losses expected to be incurred over the life of the portfolio , rather than incurred losses , which include allowances for current known and inherent losses within the portfolio . under this standard , the company will be required to hold an allowance equal to the expected life-of-loan losses on the loan portfolio . the standard is effective for fiscal periods beginning after december 15 , 2019 and was adopted on january 1 , 2020. the company formed a cross-functional working group under the direction of the chief financial officer comprised of individuals from various functional areas including credit , risk management , finance , and accounting that addressed the adoption and implementation of the asu . the company currently expects the adoption of asu 2016-13 will result in a one-time cumulative effect adjustment to retained earnings and an increase of up to 25 % of the allowance for loan losses and the reserves for unfunded commitments . the expected increase is a result of changing from an incurred loss model , which encompasses allowances for current known and inherent losses within the portfolio , to an expected loss model , which encompasses allowances for losses expected to be incurred over the life of the portfolio . the asu also requires an allowance to be established for expected credit losses for certain debt securities and other financial assets , however the company does not expect these allowances to be significant . critical accounting policies the company has prepared the consolidated financial statements in this report in accordance with the fasb accounting standards codification . in preparing the consolidated financial statements , management makes estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . these estimates have been generally accurate in the past , have been consistent and have not required any material changes . there can be no assurances that actual results will not differ from those estimates . the accounting policy that requires significant management estimates and is deemed critical to the company 's results of operations or financial position has been discussed with the audit committee of the board of directors and is described below . allowance for loan losses . story_separator_special_tag the company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability . the level of the allowance for loan losses reflects management 's estimate of the collectability of the loan portfolio . although these estimates are based on established methodologies for determining allowance requirements , actual results can differ significantly from estimated results . these policies affect both segments of the company . the impact and associated risks related to these policies on the company 's business operations are discussed in the “ provision and allowance for loan losses ” section of this report . the company 's estimates have been materially accurate in the past , and accordingly , the company has continued to utilize the present processes through 2019 , after which current expected credit losses methodology will be adopted in 2020. summary of results replace_table_token_1_th ( 1 ) presented on a tax-equivalent basis . the tcja reduced the net interest margin by approximately 15 basis points in 2019 and 20 basis points in 2018 . 18 the results of 2019 compared to 2018 include the following significant items : overall , the company 's performance increased slightly as a result of new customer wins , increased business from existing customers , and the development and deployment of new revenue generating services , however late in the year was partially offset as a volatile business climate , competitive marketplace , and the impact of a lower interest rate environment combined to create headwinds . payment and processing fees increased 6 % and total processing volume decreased 4 % , respectively . the development and deployment of new revenue generating services were more than able to offset the decrease in processing volume as a historically robust 2018 created a difficult comparison for transportation and the loss of a high transaction volume facility expense customer at the beginning of the fourth quarter of 2019. total processing dollars increased 1 % as high spend customer acquisitions were able to overcome the transaction shortfall . average earning assets increased 5 % and net interest income after provision for loan losses increased 7 % year over year . the increase in net interest income after provision for loan losses was due to higher average earning assets and a slightly higher net interest margin . there was a loan loss provision recorded of $ 250,000 in 2019 while no provision was recorded in 2018. there were gains from the sale of securities in 2019 of $ 19,000 and $ 42,000 of losses on sales of securities in 2018. operating expenses increased $ 7,850,000 or 7 % , as the company continued to invest in technology and staff required to win new business and support service growth with existing clients , as well as integration costs related to the gyve on-line generosity platform that was acquired in september 2019. fee revenue and other income the company 's fee revenue is derived mainly from transportation and facility payment and processing fees . as the company provides its processing and payment services , it is compensated by service fees which are typically calculated on a per-item basis , discounts received for services provided to carriers and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income . processing volumes , fee revenue and other income were as follows : replace_table_token_2_th ( 1 ) includes energy , telecom and environmental fee revenue and other income in 2019 compared to 2018 include the following significant pre-tax components : in the transportation sector , invoice transaction and dollar volume decreased 4 % and 2 % , respectively , as a historically robust 2018 created a difficult comparison for 2019. with manufacturing companies representing an important component of the transportation customer base , the widely reported 2019 contraction in this sector created year-over-year trials for the division . expense management transaction volume decreased 4 % , mainly due to the loss of a high transaction volume customer , while dollar volume increased 8 % as new , high spend customer acquisitions overcame the transaction shortfall . there were gains from the sale of securities in 2019 of $ 19,000 and losses on sales of securities in 2018 of $ 42,000 . 19 net interest income net interest income is the difference between interest earned on loans , investments , and other earning assets and interest expense on deposits and other interest-bearing liabilities . net interest income is a significant source of the company 's revenues . the following table summarizes the changes in tax-equivalent net interest income and related factors : replace_table_token_3_th ( 1 ) presented on a tax-equivalent basis using a tax rate of 21 % in both 2019 and 2018 and 35 % in 2017. the net interest margin and yield on earning assets are lower by approximately 15 basis points in 2019 and 20 basis points in 2018 and net interest income was lower by approximately $ 2,300,000 in 2019 and $ 2,700,000 in 2018 as a result of a lower tax-equivalent adjustment due to tcja . net interest income in 2019 compared to 2018 : the increase in net interest income was primarily due to an increase in average earning assets and a slight increase in the net interest margin . more information is contained in the tables below and in item 7a of this report . total average investment in securities and certificates of deposit decreased $ 30,169,000 , or 7 % . the investment portfolio will expand and contract over time as the company manages its liquidity and interest rate position . average interest bearing deposits in other financial institutions decreased $ 8,192,000 , or 7 % . average federal funds sold and other short-term investments increased $ 57,705,000 , or 51 % . total average loans increased $ 49,307,000 , or 7 % , to $ 760,153,000. loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the company 's highest yielding earning assets for any given maturity .
| in february 2016 , one nonaccrual loan with a balance of $ 2,727,000 was paid in full . operating expenses operating expenses in 2019 compared to 2018 include the following significant pre-tax components : salaries and employee benefits expense increased $ 5,202,000 , or 6 % , to $ 91,083,000 as the company invested in staff and technology development to win new business and support service growth with existing clients . outside service expense increased $ 1,202,000 , or 15 % , for new services and continual technology advancements to support customers . equipment expense increased $ 530,000 , or 9 % , to $ 6,140,000 primarily due to depreciation of internally developed software . income tax expense income tax expense in 2019 totaled $ 7,062,000 compared to $ 6,079,000 in 2018. when measured as a percent of pre-tax income , the company 's effective tax rate was 19 % in 2019 and 17 % in 2018. the increase in 2019 compared to 2018 tax expense was primarily the result of three items : a decrease in tax-exempt interest from municipal bonds , an increase in state tax expense and a prior year reduction of tax expense recorded from the final analysis and measurement of the tcja . investment portfolio investment portfolio changes from december 31 , 2018 to december 31 , 2019 : state and political subdivision securities decreased $ 10,270,000 , or 3 % , to $ 324,447,000. u.s. government agency securities decreased $ 7,104,000 to $ 97,718,000. the investment portfolio provides the company with a significant source of earnings , secondary source of liquidity , and mechanisms to manage the effects of changes in loan demand and interest rates . therefore , the size , asset allocation and maturity distribution of the investment portfolio will vary over time depending on management 's assessment of current and future interest rates , changes in loan demand , changes in the company 's sources of funds and the economic outlook . during this period , the company did n't purchase any additional securities as the 2017 passage of the tcja has made tax-exempt interest
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notwithstanding near term headwinds and shocks to the business landscape , such as meaningful movements in foreign currency rates and lower priced oil , we believe we are well positioned to deliver increased earnings , an improvement in free cash flow and increased stockholder value over the next several years . the following is a summary of the key trends expected in our business segments : polyurethanes : strong mdi demand in the u.s. and asia , modest demand in europe improving mdi margins lower benzene raw material costs lower po/mtbe margins po/mtbe maintenance outage in the first quarter 2015 , approximate $ 60 million ebitda impact and $ 90 million maintenance cost performance products : benefits of european surfactants restructuring expected in 2015 improving downstream product margins 60 singapore polyetheramine facility expansion in mid-2016 lower oil prices reduces u.s. gulf coast manufacturing advantage advanced materials : strong aerospace market textile effects : selective growth above underlying market demand progressive environmental regulations impacting raw materials costs pigments and additives : approximately $ 130 million of synergies from integration of former rockwood businesses approximately $ 35 million of cost savings from planned titanium dioxide capacity rationalization in calais , france improving sales prices we expect to spend approximately $ 625 million in 2015 on capital expenditures , net of reimbursements , for growth initiatives , maintenance and restructuring . we expect our full year 2015 adjusted effective income tax rate to be in the low 30 % s . we believe our long-term effective income tax rate will be approximately 30 % . recent developments for a discussion of recent developments , see `` part i. item 1. businessrecent developments '' above . story_separator_special_tag $ 37 million , respectively , or 3 % each , as compared with 2013 , primarily related to higher acquisition and integration costs and higher foreign currency losses . restructuring , impairment and plant closing costs for the year ended december 31 , 2014 increased to $ 158 million from $ 151 million in 2013. for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . our interest expense and the interest expense of huntsman international for 2014 increased by $ 15 million and $ 11 million , respectively , or 8 % and 5 % , respectively , as compared with 2013. the increase was due primarily to additional borrowings in 2014 that were used to fund the rockwood acquisition . loss on early extinguishment of debt for the year ended december 31 , 2014 decreased to $ 28 million from $ 51 million in 2013. the loss in 2014 resulted from the redemption of our 2020 senior subordinated notes . the loss in 2013 resulted primarily from the repurchase of the remainder of our 5.50 % senior notes due 2016 ( `` 2016 senior notes '' ) . for more information , see `` note 13. debtdirect and subsidiary debtredemption of notes and loss on early extinguishment of debt '' to our consolidated financial statements . our income tax expense decreased and the income tax expense of huntsman international decreased by $ 74 million and $ 94 million , respectively , as compared with 2013 , primarily due to the benefit of utilizing u.s. foreign tax credits , which had been subject to a valuation allowance . excluding the impact of the u.s. foreign tax credits , our income tax expense increased and the income tax expense of huntsman international increased by $ 40 million and $ 41 million , respectively , as compared with 2013. for the year ended december 31 , 2014 , excluding the impact of the benefit of our u.s. foreign tax credits , our effective tax rate was 39 % , which is lower than our effective tax rate of 45 % for 2013 , primarily due to various valuation allowance releases in 2014 and because our textile effects segment 's restructuring charges in 2013 received nominal tax benefit . our tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate , as impacted by the presence of valuation allowances in certain tax jurisdictions . for further information concerning taxes , see `` note 17. income taxes '' to our consolidated financial statements . 68 segment analysis year ended december 31 , 2014 compared to year ended december 31 , 2013 replace_table_token_13_th 69 replace_table_token_14_th replace_table_token_15_th ( 1 ) excludes revenues from tolling arrangements , byproducts and raw materials . ( 2 ) excludes sales volumes of byproducts and raw materials . ( 3 ) includes the effects of the rockwood acquisition . polyurethanes the increase in revenues in our polyurethanes segment for 2014 compared to 2013 was primarily due to higher sales volumes and improved sales mix , partially offset by lower average selling prices . mdi sales volumes increased due to improved demand in the americas and asian regions and across most major markets . po/mtbe sales volumes decreased primarily as a result of two manufacturing disruptions at our port neches , texas facility in the second and third quarters of 2014. po/mtbe average selling prices decreased primarily due to less favorable market conditions . mdi average selling prices increased in the americas and european regions , partially offset by lower component pricing in china . the decrease in segment ebitda was primarily due to lower po/mtbe earnings , partially offset by higher mdi sales margins . during 2014 and 2013 , our polyurethanes segment recorded restructuring , impairment and plant closing costs of $ 19 million and $ 2 million , respectively . for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . performance products the increase in revenues in our performance products segment for 2014 compared to 2013 was primarily due to higher average selling prices , partially offset by lower sales volumes and unfavorable 70 changes in sales mix . story_separator_special_tag average selling prices increased in response to higher raw material costs and continued strong market conditions for amines , maleic anhydride and specialty surfactants . sales volumes decreased primarily due to a decline in sales volumes of surfactants , which resulted from the restructuring of our european surfactants business , partially offset by an increased demand for amines and maleic anhydride . the increase in segment ebitda was primarily due to the impact of our scheduled maintenance in the first quarter of 2013 , estimated at $ 55 million , and increased margins in amines and maleic anhydride , partially offset by higher restructuring charges . during 2014 and 2013 , our performance products segment recorded restructuring , impairment and plant closing costs of $ 28 million and $ 18 million , respectively . for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . advanced materials the decrease in revenues in our advanced materials segment for 2014 compared to 2013 was primarily due to lower sales volumes , partially offset by higher average selling prices and improved sales mix . sales volumes decreased primarily in our coatings and construction market due to our restructuring efforts , partially offset by higher demand in the wind market in the americas and asia pacific regions . during the fourth quarter of 2013 , we closed two of our base resins production units as we focus on higher value markets , such as aerospace and transportation and industrial . during 2014 , we also experienced an unplanned production outage due to a raw materials supply disruption in the americas region . average selling prices increased in all regions and across most markets primarily due to certain price increase initiatives and a focus on higher value markets . the increase in segment ebitda was primarily due to higher margins , improved sales mix , lower restructuring , impairment and plant closing costs and lower selling , general and administrative costs as a result of recent restructuring efforts . during 2014 and 2013 , our advanced materials segment recorded restructuring , impairment and plant closing costs of $ 11 million and $ 34 million , respectively . for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . textile effects the increase in revenues in our textile effects segment for 2014 compared to 2013 was primarily due to higher average selling prices , partially offset by lower sales volumes . average selling prices increased primarily in response to higher raw material costs . sales volumes decreased primarily due to the de-selection of lower value business . the increase in segment ebitda was primarily due to higher margins , lower manufacturing costs and lower restructuring , impairment and plant closing and transition costs , partially offset by higher selling , general and administrative costs . during 2014 and 2013 , our textile effects segment recorded restructuring , impairment and plant closing and transition costs of $ 28 million and $ 87 million , respectively . for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . pigments and additives the increase in revenues in our pigments and additives segment for 2014 compared to 2013 was primarily due to the impact of the rockwood acquisition . other than the impact of the rockwood acquisition , sales volumes remained flat as a result of higher end-use demand in the european and north american regions , offset by lower demand in the africa , latin america and middle east regions . average selling prices decreased primarily as a result of high industry inventory levels , partially offset by the strength of the euro against the u.s. dollar . the decrease in segment ebitda was primarily due to lower margins , higher acquisition expenses and integration costs and higher restructuring costs , partially offset by lower selling , general and administrative costs . during 2014 and 71 2013 , our pigments and additives segment recorded acquisition expenses and integration costs of $ 43 million and $ 8 million , respectively . during 2014 and 2013 , our pigments and additives segment recorded restructuring , impairment and plant closing costs of $ 60 million and $ 4 million , respectively . for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . corporate and other corporate and other includes unallocated corporate overhead , unallocated foreign exchange gains and losses , last-in first-out ( `` lifo '' ) inventory valuation reserve adjustments , loss on early extinguishment of debt , unallocated restructuring , impairment and plant closing costs , nonoperating income and expense , benzene sales and gains and losses on the disposition of corporate assets . for 2014 , ebitda from corporate and other for huntsman corporation increased by $ 33 million to a loss of $ 228 million from a loss of $ 261 million for 2013. for 2014 , ebitda from corporate and other for huntsman international increased by $ 32 million to a loss of $ 230 million from a loss of $ 262 million for 2013. the increase in ebitda from corporate and other resulted primarily from a decrease in loss on early extinguishment of debt of $ 23 million ( $ 28 million loss in 2014 compared to $ 51 million loss in 2013 ) . for more information regarding the loss on early extinguishment of debt , see `` note 13. debtdirect and subsidiary debtredemption of notes and loss on early extinguishment of debt '' to our consolidated financial statements .
| however , these measures should not be considered in isolation or viewed as substitutes for net income attributable to huntsman corporation or huntsman international , as appropriate , or other measures of performance determined in accordance with gaap . moreover , ebitda and adjusted ebitda as used herein are not necessarily comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation . our management believes these measures are useful to compare general operating performance from period to period and to make certain related management decisions . ebitda and adjusted ebitda are also used by securities analysts , lenders and others in their evaluation of different companies because they exclude certain items that can vary widely across different industries or among companies within the same industry . for example , interest expense can be highly dependent on a company 's capital structure , debt levels and credit ratings . therefore , the impact of interest expense on earnings can vary significantly among companies . in addition , the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate . as a result , effective tax rates and tax expense can vary considerably among companies . finally , companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets . this can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies . nevertheless , our management recognizes that there are material limitations associated with the use of ebitda and adjusted ebitda in the evaluation of our company as compared to net income attributable to huntsman corporation or huntsman international , as appropriate , which reflects overall financial performance . for example , we have borrowed money in order to finance our operations and interest expense is a necessary element of our costs and ability to generate revenue . our management compensates for the limitations of using ebitda and adjusted ebitda by using these measures to supplement gaap results to provide a more complete understanding of the factors and
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gas marketing segment : the risks of competition ; fluctuations in natural gas prices ; new national infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; and the effect of natural gas price volatility on the business . further information regarding how management seeks to manage these key variables is discussed below . gas utility the utilities seek to provide reliable natural gas services at a reasonable cost , while maintaining and building secure and dependable infrastructures . the utilities ' strategies focus on improving both performance and the ability to recover their authorized distribution costs and rates of return . the utilities ' distribution costs are the essential , primarily fixed , expenditures it must incur to operate and maintain more than 58,000 miles of mains and services comprising the natural gas distribution systems and related storage facilities for spire missouri , spire alabama and the subsidiaries of spire energysouth . the utilities ' distribution costs include wages and employee benefit costs , depreciation and maintenance expenses , and other regulated utility operating expenses , excluding natural and propane gas expense . distribution costs are considered in the rate-making process , and recovery of these types of costs is included in revenues generated through the utilities ' tariff rates . spire missouri 's tariff rates are approved by the mopsc , whereas spire alabama 's tariff rates are approved by the apsc . the subsidiaries of spire energysouth , spire gulf and spire mississippi , have tariff rates that are approved by the apsc and mississippi public service commission ( mspsc ) , respectively . spire missouri also has an off-system sales and capacity release income stream that is regulated by tariff . 28 spire missouri 's income from off-system sales and capacity release remains subject to fluctuations in market conditions . spire missouri is allowed to retain the following portions of annual income ( shown by service territory ) : replace_table_token_12_th some of the factors impacting the level of off-system sales include the availability and cost of spire missouri 's natural gas supply , the weather in its service area , and the weather in other markets . when spire missouri 's service area experiences warmer-than-normal weather while other markets experience colder weather or supply constraints , some of spire missouri 's natural gas supply is available for off-system sales . the utilities work actively to reduce the impact of wholesale natural gas price volatility on their costs by strategically structuring their natural gas supply portfolios to increase their gas supply availability and pricing alternatives . they may also use derivative instruments to hedge against significant changes in the commodity price of natural gas . nevertheless , the overall cost of purchased gas remains subject to fluctuations in market conditions . the purchased gas adjustment ( pga ) clause of spire missouri , spire gulf , and spire mississippi and spire alabama 's gas supply adjustment ( gsa ) rider allow the utilities to flow through to customers , subject to prudence review by the public service commissions , the cost of purchased gas supplies , including costs , cost reductions , and related carrying costs associated with the use of derivative instruments to mitigate volatility in the cost of natural gas , as well as gas inventory carrying costs . as of september 30 , 2017 , spire missouri had active derivative positions , but spire alabama has had no gas supply derivative instrument activity since 2010. the utilities believe they will continue to be able to obtain sufficient gas supply . the price of natural gas supplies and other economic conditions may affect sales volumes , due to the conservation efforts of customers , and cash flows associated with the timing of collection of gas costs and related accounts receivable from customers . the utilities rely on short-term credit and long-term capital markets , as well as cash flows from operations , to satisfy their seasonal cash requirements and fund their capital expenditures . the utilities ' ability to issue commercial paper , access their lines of credit , issue long-term bonds , or obtain new lines of credit is dependent on current conditions in the credit and capital markets . management focuses on maintaining a strong balance sheet and believes it currently has adequate access to credit and capital markets and will have sufficient capital resources to meet their foreseeable obligations . see the liquidity and capital resources section for additional information . gas marketing spire marketing is engaged in the marketing of natural gas and providing energy services to both on-system utility transportation customers and customers outside of the utilities ' traditional service areas . spire marketing utilizes its natural gas supply agreements , transportation agreements , park and loan agreements , storage agreements , and other executory contracts to support a variety of services to its customers at competitive prices . it closely monitors and manages the natural gas commodity price and volatility risks associated with providing such services to its customers through the use of a variety of risk management activities , including the use of exchange-traded/cleared derivative instruments and other contractual arrangements . spire marketing is committed to managing commodity price risk while it seeks to expand the services that it now provides . nevertheless , income from the gas marketing operations is subject to more fluctuations in market conditions than the utilities ' operations . the gas marketing business is directly impacted by the effects of competition in the marketplace , the impacts of new infrastructure , surplus natural gas supplies , and the addition of new demand from exports , power generation and industrial load . spire marketing 's management expects a growing need for marketing services across the country as customers manage seasonal variability and marketplace volatility . story_separator_special_tag 29 in addition to its operating cash flows , spire marketing relies on spire 's parental guarantees to secure its purchase and sales obligations of natural gas , and it also has access to spire 's liquidity resources . a large portion of spire marketing 's receivables are from customers in the energy industry . it also enters into netting arrangements with many of its energy counterparties to reduce overall credit and collateral exposure . although spire marketing 's uncollectible amounts are closely monitored and have not been significant , increases in uncollectible amounts from customers are possible and could adversely affect gas marketing 's liquidity and results of operations . spire marketing carefully monitors the creditworthiness of counterparties to its transactions . it performs in-house credit reviews of potential customers and may require credit assurances such as prepayments , letters of credit , or parental guarantees when appropriate . credit limits for customers are established and monitored . as a result of infrastructure optimization activities and an abundance of natural gas supply , spire marketing can not be certain that all of its wholesale purchase and sale transactions will settle physically . as such , certain transactions are designated as trading activities for financial reporting purposes , due to their settlement characteristics . results of operations from trading activities are reported on a net basis in gas marketing operating revenues ( or expenses , if negative ) , which may cause volatility in the company 's operating revenues , but have no effect on operating income or net income . in the course of its business , spire marketing enters into commitments associated with the purchase or sale of natural gas . in accordance with us generally accepted accounting principles ( gaap ) , some of its purchase and sale transactions are not recognized in earnings until the natural gas is physically delivered , while other energy-related transactions , including those designated as trading activities , are required to be accounted for as derivatives , with the changes in their fair value ( representing unrealized gains or losses ) recorded in earnings in periods prior to settlement . because related transactions of a purchase and sale strategy may be accounted for differently , there may be timing differences in the recognition of earnings under gaap and economic earnings realized upon settlement . the company reports both gaap and net economic earnings ( non-gaap ) , as discussed below . other in addition to the gas utility and gas marketing segments , other non-utility activities of the company include : unallocated corporate items , including certain debt and associated interest costs ; spire stl pipeline , a subsidiary of spire planning construction and operation of a proposed 65-mile federal energy regulatory commission ( ferc ) regulated pipeline to deliver natural gas into eastern missouri ; and spire 's subsidiaries engaged in the operation of a propane pipeline , compression of natural gas and risk management , among other activities . earnings net income reported by spire , spire missouri and spire alabama is determined in accordance with gaap . management also uses the non-gaap financial measures of net economic earnings , net economic earnings per share and contribution margin when internally evaluating and reporting results of operations . these non-gaap operating metrics should not be considered as alternatives to , or more meaningful than , gaap measures such as net income , earnings per share and operating income . reconciliations of non-gaap financial measures to the most directly comparable gaap measures are provided on the following pages . non-gaap measures - net economic earnings and net economic earnings per share net economic earnings and net economic earnings per share are non-gaap measures that exclude from net income the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions as well as acquisition , divestiture , and restructuring activities . these fair value and timing adjustments are made in instances where the accounting treatment differs from what management considers the economic substance of the underlying transaction , including the following : net unrealized gains and losses on energy-related derivatives that are required by gaap fair value accounting associated with current changes in the fair value of financial and physical transactions prior to their completion and settlement . these unrealized gains and losses result primarily from two sources : 1 ) changes in the fair values of physical and or financial derivatives prior to the period of settlement ; and , 2 ) ineffective portions of accounting hedges , required to be recorded in earnings prior to settlement , due to differences in commodity price changes between the locations of the forecasted physical purchase or sale transactions and the locations of the underlying hedge instruments ; 30 lower of cost or market adjustments to the carrying value of commodity inventories resulting when the market price of the commodity falls below its original cost , to the extent that those commodities are economically hedged ; and realized gains and losses resulting from the settlement of economic hedges prior to the sale of the physical commodity . these adjustments eliminate the impact of timing differences and the impact of current changes in the fair value of financial and physical transactions prior to their completion and settlement . unrealized gains or losses are recorded in each period until being replaced with the actual gains or losses realized when the associated physical transactions occur . while management uses these non-gaap measures to evaluate both the utilities and non-utility businesses , the net effect of adjustments on the utilities ' earnings is minimal because gains or losses on their natural gas derivative instruments are deferred pursuant to state regulation . management believes that excluding the earnings volatility caused by recognizing changes in fair value prior to settlement and other timing differences associated with related purchase and sale transactions provides a useful representation of the economic effects of only the actual settled transactions and their effects on results of operations .
| million for fiscal 2017 compared with 183.3 million for fiscal 2016 . 36 spire alabama summary operating results replace_table_token_18_th operating revenues for the twelve months ended september 30 , 2017 increased $ 32.0 versus the comparable period ended september 30 , 2016 . of the increase , $ 19.2 of the increase related to lower rse return on equity revenue adjustments and higher ccm benefits in the current year , $ 11.2 resulted from weather/temperature adjustments , along with slightly higher gross receipts taxes of $ 1.6. contribution margin increased $ 13.2 versus prior year , as $ 19.2 in favorable rse , ccm adjustments and return on capital more than offset negative weather and usage impacts of $ 6.0. contributing to the favorable current year rse return on equity adjustment impact was a fiscal 2016 reduction in revenues relating to a legal settlement of $ 6.0. there was no impact to net income , as this revenue adjustment offset a corresponding $ 6.0 gain recorded in other income . o & m expenses for the twelve months ended september 30 , 2017 decreased $ 3.1 versus the year ended september 30 , 2016 . the decrease in other operating expenses was driven primarily by lower employee-related costs , which were favorably impacted by the warmer weather in the current year . depreciation and amortization was $ 2.1 higher versus the same period last year , the result of continued infrastructure investment throughout spire alabama 's service territory . income tax expense increased $ 3.4 , primarily due to the higher pre-tax book income earned in the current year . temperatures in spire alabama 's service area during the twelve months ended september 30 , 2017 were 35 % warmer than normal and 15 % warmer than the same period a year earlier . spire alabama 's total therms sold and transported were 900.6 million for the twelve months ended september 30 , 2017 , compared with 878.1 million
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cash generated from continuing operations in 2014 from changes in operating assets and liabilities ( primarily a reduction in staffing segment accounts receivable ) was $ 26.6 million and $ 9.0 million from operating activities resulting in net cash generated from continuing operations of $ 35.6 million . of this amount , $ 18.1 million was used to reduce borrowing as our receivable collateral amount reduced and $ 17.5 million was used in funding the discontinued computer systems segment . on november 2 , 2014 we had $ 27.4 million borrowing available under the short-term financing program based on eligible collateral , and a maximum of $ 80.0 million available to fund increased eligible staffing segment receivable growth . our fiscal year ends on the sunday nearest october 31 st . as a result , most fiscal years contain 52 weeks and a 53 rd week is added every five or six years . the 2014 and 2012 fiscal years consisted of 52 weeks while the 2013 fiscal year consisted of 53 weeks . recent developments on december 1 , 2014 , we sold our computer systems segment to newnet communication technologies , llc ( “ newnet ” ) , a wholly-owned subsidiary of skyview capital , llc . in accordance with the applicable accounting guidance for the disposal of long-lived assets , the results of our computer systems segment are presented as discontinued operations and , as such , have been excluded from continuing operations for all periods presented . on january 9 , 2015 , the board of directors of the company approved a new share repurchase program of up to 1,500,000 shares of the company 's common stock during a 36-month period commencing january 19 , 2015. the board of directors also terminated the existing share repurchase program that was authorized on june 2 , 2008 . 20 consolidated results of continuing operations and financial highlights ( fiscal 2014 vs. fiscal 2013 ) results of continuing operations by segment ( fiscal 2014 vs. fiscal 2013 ) replace_table_token_3_th non-gaap proforma table replace_table_token_4_th 21 consolidated results of continuing operations ( fiscal 2014 vs. fiscal 2013 ) net revenue : net revenue in fiscal 2014 decreased $ 307.5 million to $ 1,710.0 million from $ 2,017.5 million in fiscal 2013 , and proforma net revenue decreased by $ 304.1 million , or 15.1 % , to $ 1,707.3 million from $ 2,011.4 million in fiscal 2013. the change in revenue , including the impact of fiscal 2014 consisting of 52 weeks while fiscal 2013 consisted of 53 weeks , was primarily the result of decreased staffing services revenues of $ 300.7 million ( proforma of $ 296.9 million ) resulting from lower demand primarily at our large enterprise customers , our continuing initiative to reduce exposure to customers with unfavorable business terms , and with respect to gaap results $ 3.8 million higher net staffing unrecognized revenue . direct cost of staffing services revenue : direct cost of staffing services revenue in fiscal 2014 decreased $ 268.2 million , or 16.5 % , to $ 1,359.0 million from $ 1,627.2 million in fiscal 2013. this decrease was primarily the result of fewer contingent staff on assignment consistent with the related decrease in revenues and to a lesser extent by improved margins . direct margin of staffing services revenue as a percent of proforma staffing revenue in 2014 was 14.9 % from 14.1 % in 2013 primarily resulting from our initiative focusing on achieving acceptable operating income and exiting or reducing business levels with customers where profitability or business terms are unfavorable , and higher margins on our call center , games testing and other project based revenue . cost of other revenue : cost of other revenue in fiscal 2014 decreased $ 2.1 million , or 2.2 % , to $ 92.4 million from $ 94.5 million in fiscal 2013. this decrease was primarily due to lower costs of publishing and printing and telecommunication infrastructure and security services consistent with lower revenues , offset by increased costs at slightly lower margins for our information technology infrastructure services . selling , administrative and other operating costs : selling , administrative and other operating costs in fiscal 2014 decreased $ 33.9 million , or 12.8 % , to $ 231.1 million from $ 265.0 million in fiscal 2013. the first quarter of fiscal 2013 included a $ 3.0 million indirect tax recovery related to multiple years . adjusting for the indirect tax recovery , selling , administrative and other operating costs decreased $ 36.9 million , or 13.8 % , primarily from lower recruiting and sales and marketing costs , lower vendor management system development costs resulting from the divestiture of procurestaff in the first quarter of 2014 , and lower msp administrative costs . restructuring costs : restructuring costs in fiscal 2014 were primarily comprised of workforce reductions in our staffing services segment resulting from the restructuring of our traditional staffing services and our divestiture of procurestaff . restructuring costs in fiscal 2013 were comprised of workforce reductions in our staffing services segment in connection with our focus on achieving acceptable operating income from our traditional time and materials staffing services in north america and exiting or reducing business levels with customers where profitability or business terms are unfavorable . restatement , investigations and remediation : restatement , investigations and remediation were comprised of financial and legal consulting , audit , and related costs and in fiscal 2014 amounted to $ 5.3 million compared to $ 24.8 million in fiscal 2013. the decreased costs were a result of completion of delayed filings during the first quarter of 2014. operating income ( loss ) : operating results in fiscal 2014 improved $ 12.1 million to income of $ 4.8 million from a loss of $ 7.3 million in 2013 , and proforma results improved $ 15.4 million to proforma income of $ 2.1 million from a proforma loss of $ 13.3 million in 2013. the staffing services segment operating income decreased $ 1.7 million to $ story_separator_special_tag 26.0 million from $ 27.7 million in 2013 , however proforma operating income increased by $ 2.1 million , or 9.4 % , to $ 23.5 million from $ 21.4 million in 2013 primarily resulting from lower revenues , although at higher direct margin rates , offset by a decrease in administrative and other operating costs . this was primarily the result of our continuing initiative to reduce exposure to customers with unfavorable business terms , improved results in our call center , games testing and other project-based staffing , improved msp results and lower costs as a result of the divestiture of procurestaff . operating income in fiscal 2014 of $ 4.8 million ( proforma $ 2.1 million ) included restatement , investigations and remediation expenses of $ 5.3 million , restructuring costs of $ 2.5 million ( $ 0.5 million reflected in corporate general and administrative ) , and a $ 1.0 million cost in our workers compensation program related to multiple years . without these items we would have had operating income of $ 13.6 million and proforma operating income of $ 10.9 million . operating loss in fiscal 2013 of $ 7.3 million ( proforma $ 13.3 million ) included restatement , investigations and remediation expenses of $ 24.8 million , restructuring costs of $ 0.8 million , a $ 3.0 million indirect tax recovery related to multiple years and approximately $ 1.1 million of operating income from the 53 rd week in 2013. without these items we would have had operating income of $ 14.2 million and proforma operating income of $ 8.2 million . 22 other income ( expense ) , net : other expense in fiscal 2014 increased $ 0.3 million , or 14.7 % , to $ 2.9 million from $ 2.6 million in fiscal 2013 , primarily related to increased interest expense and non-cash foreign exchange gains and losses on intercompany balances . income tax provision : income tax provision in fiscal 2014 amounted to $ 5.2 million compared to $ 2.9 million in fiscal 2013 , primarily related to locations outside of the united states . we have a valuation allowance for substantially all united states domestic net deferred tax assets because our three-year cumulative loss raises significant doubt that future taxable income will be available to offset them . results of continuing operations by segments ( fiscal 2014 vs. fiscal 2013 ) staffing services net revenue : the segment 's net revenue in fiscal 2014 decreased $ 300.7 million to $ 1,599.0 million from $ 1,899.7 million in fiscal 2013 , and proforma net revenue decreased by $ 296.9 million , or 15.7 % , to $ 1,596.5 million from $ 1,893.4 million in fiscal 2013. the decrease in revenue , including the impact of fiscal 2014 consisting of 52 weeks while fiscal 2013 consisted of 53 weeks , was primarily the result of lower demand primarily at our large enterprise customers , our continuing initiative to reduce exposure to customers with unfavorable business terms , and with respect to gaap results $ 3.8 million higher net staffing unrecognized revenue . direct cost of staffing services revenue : direct cost of staffing services revenue in fiscal 2014 decreased $ 268.2 million , or 16.5 % , to $ 1,359.0 million from $ 1,627.2 million in fiscal 2013. this decrease was primarily the result of fewer contingent staff on assignment consistent with the related decrease in revenues and to a lesser extent by improved margins . direct margin of staffing services revenue as a percent of proforma staffing revenue in 2014 was 14.9 % from 14.1 % in 2013 primarily resulting from our initiative focusing on achieving acceptable operating income and exiting or reducing business levels with customers where profitability or business terms are unfavorable , and higher margins on our call center , games testing and other project based revenue . selling , administrative and other operating costs : the segment 's selling , administrative and other operating costs in fiscal 2014 decreased $ 31.5 million , or 12.9 % , to $ 212.5 million from $ 244.0 million in fiscal 2013. the first quarter of fiscal 2013 included a $ 3.0 million indirect tax recovery related to multiple years . adjusting for the indirect tax recovery , selling , administrative and other operating costs decreased $ 34.5 million , or 14.0 % , primarily from lower recruiting and sales and marketing costs , lower vendor management system development costs resulting from the divestiture of procurestaff in the first quarter of 2014 , and lower managed service program administrative costs . as a percent of proforma staffing revenue in 2014 these costs were 13.3 % and 12.9 % in 2013. restructuring costs : restructuring costs in fiscal 2014 were primarily comprised of workforce reductions resulting from the restructuring of our traditional staffing services and our divestiture of procurestaff . restructuring costs in fiscal 2013 were comprised of workforce reductions in our staffing services segment in connection with our focus on achieving acceptable operating income from our traditional time and materials staffing services in north america and exiting or reducing business levels with customers where profitability or business terms are unfavorable . segment operating income : the segment 's operating income in fiscal 2014 decreased $ 1.7 million to $ 26.0 million from $ 27.7 million in fiscal 2013 , however proforma operating income increased by $ 2.1 million , or 9.4 % , to $ 23.5 million from $ 21.4 million in fiscal 2013. this was the result of decreased revenue primarily at our large enterprise customers , lower costs resulting from the reorganization of our north american staffing operations and in response to the decline in traditional staffing revenues , partially offset by improved results in our call center , games testing and other project-based staffing , improved msp results and lower costs as a result of the divestiture of procurestaff .
| we now evaluate each opportunity against our top priority of achieving profitability that is consistent with or exceeds our competitors in the areas we choose to compete in . consistent with this goal , throughout 2014 our staffing services segment focused on improving operating income , particularly in our north america traditional time and materials staffing services , and reducing exposure to customers where profitability or business terms are unfavorable . this resulted in revenue contraction , and may continue to do so in the near term , however we believe that focusing on profitability will drive higher shareholder value . in addition , we are focusing on superior delivery of our staffing services , which we believe will ultimately drive higher revenues at improved margins . during the first quarter of 2014 we reorganized our staffing services segment separating our recruiting and delivery function from sales and moving our enterprise customers into a national service model separate from retail customers served from our local branches . we organized our enterprise teams around industry verticals and are focusing on where we have the greatest experience and expertise and therefore can offer superior customer experiences that will lead to greater profitability and long-term growth . we have organized our delivery organization into regional centers and local hubs focused on the specialized skillsets where we have the deepest knowledge of candidates and the candidate characteristics that customers look for . enterprise customers refers to our customers that require multi-location , coordinated account management and service delivery in multiple skillsets , while our retail customers are in primarily a single location with sales and delivery handled from a geographically local team and with relatively few headcount on assignment in one or two skillsets . in reviewing our performance we consider several key financial measures . we look at average daily revenue , direct margin , gross margin , and operating income , and gauge our operating performance based on trends in these measures . average daily revenue excludes fees from
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quantitative and qualitative disclosures about market risk , the acquisition has increased our exposure to risks associated with exchange rate fluctuations between the u.s. dollar and canadian dollar . the acquisition was partially funded by $ 490 million in net proceeds from our issuance of senior notes in april 2013 ( see note 6 of notes to consolidated financial statements ) . as discussed in the financial liquidity and capital resources section below , we believe that we will be able to meet the obligations associated with the acquisition of aurizon and the related debt ; however , a number of factors could impact our ability to meet the debt obligations and fund our other projects . we make our strategic plans in the context of significant uncertainty about future availability of ore to mine and process . to sustain operations , we must find new opportunities that require many years and substantial expenditures from discovery to production . we approach this challenge by investing in exploration and capital in districts with known mineralization . on june 15 , 2015 , we completed the acquisition of revett , giving us 100 % ownership of the rock creek project , a significant undeveloped silver and copper deposit in northwestern montana . in addition , on september 13 , 2016 , we completed the acquisition of mines management , giving us 100 % ownership of the montanore project , another significant undeveloped silver and copper deposit located approximately 10 miles from our rock creek project . see note 15 of notes to consolidated financial statements for more information on these acquisitions . development of rock creek and montanore has been challenged by non-governmental organizations at various times , and there can be no assurance that we will be able to obtain the permitting required to develop these projects . in risk factors , see legal challenges could prevent the rock creek or montanore projects from ever being developed for more information . 55 volatility in global financial markets poses a significant challenge to our ability to access credit and equity markets , should we need to do so , and to predict sales prices for our products . we utilize forward contracts to manage exposure to declines in the prices of silver , gold , zinc and lead contained in our concentrates that have been shipped but have not yet settled , and zinc and lead that we forecast for future concentrate shipments . in addition , we have in place a $ 100 million revolving credit agreement under which $ 97 million was available as of the filing date of this report . during the third quarter of 2015 , we made a development decision to mine near surface , high grade portions of silver and gold deposits at our san sebastian project in mexico . ore production commenced from the pits in the fourth quarter of 2015 and continued until the end of 2017. in addition , work began in the first quarter of 2017 to develop new and rehabilitate old underground access which would allow us to mine deeper portions of the deposits at san sebastian , allowing limited underground ore production to began in january 2018. see the san sebastian segment section below for more information . we generated positive cash flows at san sebastian in 2016 and 2017 , and we believe that we will continue to do so over the next approximately three years . however , our ability to generate positive cash flows at san sebastian may be impacted by changes in estimated costs , precious metals prices , or other factors , and there can be no assurance that we will be able to develop and operate san sebastian as anticipated . unionized employees at our lucky friday unit , our only operation where some of our employees are subject to a collective bargaining agreement , went on strike in mid-march 2017 , and have been on strike since that time . production has been limited at lucky friday during the strike period . see the lucky friday segment section below for more information . in february 2018 , we reached an agreement for binding third-party arbitration with the union , subject to ratification by the union membership . we can not predict whether the union members will approve the arbitration , the outcome of the arbitration , or how long the strike will last or whether an agreement will be reached if the arbitration is not agreed to . as a result of the strike or other events related to labor at lucky friday , operations at lucky friday could continue to be disrupted , which could adversely affect our financial condition and results of operations . additionally , if we enter into a new labor agreement with any union that significantly increases our labor costs relative to our competitors , our ability to compete may be materially and adversely affected . finally , it is possible operations at our other units , including san sebastian in mexico , could be subject to disruptions or union-organizing activity due to sympathy or coordinated action with the union or striking employees at the lucky friday unit . we strive to achieve excellent mine safety and health performance . we seek to implement this goal by : training employees in safe work practices ; establishing , following and improving safety standards ; investigating accidents , incidents and losses to avoid recurrence ; involving employees in the establishment of safety standards ; and participating in the national mining association 's coresafety program . we attempt to implement reasonable best practices for mine safety and emergency preparedness . we work to address issues outlined in msha 's investigations and inspections and continue to evaluate our safety practices . as a result of industry-wide fatal accidents in recent years , primarily at underground coal mines , there has been an increase in mine regulation . story_separator_special_tag in addition , under the dodd-frank wall street reform and consumer protection act , the sec was directed to issue rules regarding the disclosure of mine safety data . our ability to achieve and maintain compliance with msha regulations will be challenging and may increase our operating costs . see item 1a . risk factors - we face substantial governmental regulation , including the mine safety and health act , various environmental rules and regulations and the 1872 mining law . another challenge we face is the risk associated with environmental matters and ongoing reclamation activities . as described in risk factors and note 7 of notes to consolidated financial statements , it is possible that our estimate of these liabilities ( and other liabilities ) may change in the future , affecting our strategic plans . we are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs , as well as our strategic plans , may be significantly impacted as a result of these matters or new matters that may arise . we strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on as favorable terms as possible . reserve estimation is a major risk inherent in mining . our reserve estimates , which drive our mining and investment plans , the valuation of a significant portion of our long-term assets , and depreciation , depletion and amortization expense , may change based on economic factors and actual production experience . until ore is mined and processed , the volumes and grades of our reserves must be considered as estimates . our reserves are depleted as we mine . reserves can also change as a result of changes in economic and operating assumptions . 56 story_separator_special_tag in 2017 compared to a loss of $ 2.9 million in 2016 and a gain of $ 24.6 million in 2015. as discussed in note 10 of notes to consolidated financial statements , in 2016 we initiated hedging programs to manage our exposure to fluctuations in the exchange rate between the u.s. dollar and canadian dollar and mexican peso and the impact on our future operating costs at our casa berardi and san sebastian units . interest expense , net of amounts capitalized , of $ 38.0 million in 2017 compared to $ 21.8 million in 2016 and $ 25.4 million in 2015. the interest is primarily related to our senior notes issued in april 2013 , with the net proceeds used to partially fund the acquisition of aurizon , and additional issuances in 2014 to satisfy the funding requirements for one of our defined benefit pension plans ( see notes 6 and 16 of notes to consolidated financial statements ) . the increase in 2017 was due to a reduction in amount capitalized as a result of completion of the # 4 shaft project at lucky friday in january 2017. in addition , interest expense in 2017 included $ 0.9 million in costs related to our proposed private offering of new senior notes in june 2017 and concurrent tender offer to purchase our existing senior notes , which were not completed . 58 exploration and pre-development expense increased to $ 29.0 million in 2017 from $ 17.9 million in 2016 and $ 22.0 million in 2015. our activity in 2017 included a continuation of extensive exploration work at our greens creek unit , on our land package near durango , mexico , and at the casa berardi mine and other projects on our land packages near our lucky friday mine in idaho , and in quebec and british columbia , canada . `` pre-development expense '' is defined as costs incurred in the exploration stage that may ultimately benefit production , such as underground ramp development , which are expensed due to the lack of proven and probable reserves . pre-development in 2016 and 2017 was primarily related to advancement of our montanore and rock creek projects . research and development expense of $ 3.3 million in 2017 compared to $ 0.2 million in 2016 , with no amount incurred in 2015 , related to evaluation and development of technologies that would be new to our operations . gross profit at our san sebastian unit in 2017 of $ 62.1 million compared to $ 82.7 million in 2016 , with no profit or loss reported there in 2015 as metal sales commenced there in the first quarter of 2016. gross profit at lucky friday of $ 6.4 million in 2017 was lower than gross profit of $ 18.3 million in 2016 , but higher than gross profit of $ 1.1 million in 2015. at casa berardi , gross profit of $ 12.0 million in 2017 was lower than $ 21.4 million in 2016 , but higher than $ 4.9 million in 2015. gross profit at greens creek in 2017 of $ 76.5 million was higher than $ 69.1 million in 2016 and $ 32.6 million in 2015. see the greens creek segment , lucky friday segment , casa berardi segment , and san sebastian segment sections below . provision for closed operations and environmental matters increased to $ 6.7 million in 2017 from $ 5.7 million in 2016 , but was lower than the $ 12.2 million in 2015. the 2015 provision includes a net $ 8.7 million charge for potentially resolving the exposure to liability at the south dakota and colorado superfund sites related to coca mines , inc. , which is in addition to $ 1.2 million in charges recognized in prior years . reclassifications of $ 1.0 million and $ 3.0 million in unrealized losses on certain marketable securities from other comprehensive income to current earnings in 2016 and 2015 , respectively . the losses were recognized in current earnings in each period because the securities were deemed to be other than temporarily impaired .
| due to the time elapsed between shipment of concentrates and final settlement with customers , we must estimate the prices at which sales of our metals will be settled . previously recorded sales are adjusted to estimated settlement metal prices each period through final settlement . for 2017 , we recorded net positive price adjustments to provisional settlements of $ 0.7 million compared to net negative price adjustments to provisional settlements of $ 0.9 million in 2016 and net positive adjustments of $ 0.6 million in 2015. the price adjustments related to silver , gold , zinc and lead contained in our concentrate sales were largely offset by gains and losses on forward contracts for those metals for each year ( see note 10 of notes to consolidated financial statements for more information ) . the gains and losses on these contracts are included in revenues and impact the realized prices for silver , gold , lead and zinc . realized prices are calculated by dividing gross revenues for each metal ( which include the price adjustments and gains and losses on the forward contracts discussed above ) by the payable quantities of each metal included in concentrate and doré shipped during the period . for the year ended december 31 , 2017 , we reported a loss applicable to common stockholders of $ 24.1 million compared to income of $ 69.0 million in 2016 and a loss of $ 87.5 million in 2015. the following factors contributed to those differences : net mark-to-market loss on base metal forward contracts of $ 21.3 million in 2017 compared to net gains of $ 4.4 million in 2016 and $ 8.3 million in 2015. these losses and gains are related to financially-settled forward contracts on forecasted zinc and lead production as part of a risk management program , and resulted from changes in zinc and lead prices during each period . we do not include silver and gold in this program . lucky friday suspension costs of $ 17.1 million in 2017. these costs , along with $
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an interest rate swap executed in september 2017 effectively converts the floating rate of interest on the remaining $ 10.0 million in outstanding junior subordinated debt from 90-day libor plus 1.37 % , or 2.96 % as of december 31 , 2017 , to a fixed rate of 3.72 % through the junior subordinated debt 's final maturity date of march 15 , 2036. critical accounting policies the sec defines `` critical accounting policies '' as those that require application of management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods . our significant accounting policies are described in note 1 in the notes to consolidated financial statements in item 8 of this report . not all of these significant accounting policies require management to make difficult , subjective or complex judgments or estimates . management believes that the following policies would be considered critical under the sec 's definition . allowance for loan losses : the company maintains an allowance to reflect inherent losses in its loan portfolio as of the balance sheet date . the company performs regular credit reviews of the loan portfolio to determine the credit quality and adherence to underwriting standards . when loans are originated , they are assigned a risk rating that is reassessed periodically during the term of the loan through the credit review process . the company 's risk rating methodology assigns risk ratings ranging from 1 to 10 , where a higher rating represents higher risk . these risk ratings are then consolidated into five classes , which include pass , special mention , substandard , doubtful and loss . these classes are a primary factor in determining an appropriate amount for the allowance for loan losses . each class is assessed an inherent credit loss factor that determines an amount of allowance for loan losses provided for that group of loans . this allowance is then adjusted for qualitative factors , by segment and class . qualitative factors are based on management 's assessment of current trends that may cause losses inherent in the current loan portfolio to differ significantly from historical losses . some factors that management considers in determining the qualitative adjustment to the general reserve include loan quality trends in our own portfolio , the degree of concentrations of large borrowers in our loan portfolio , national and local economic trends , business conditions , underwriting policies and standards , trends in local real estate markets , effects of various political activities , peer group data , and internal factors such as underwriting policies and expertise of the company 's employees . regular credit reviews of the portfolio also identify loans that are considered potentially impaired . a loan is considered impaired when based on current information and events , we determine that we will probably not be able to collect all amounts due according to the loan contract , including scheduled interest payments . when we identify a loan as impaired , we measure the impairment using discounted cash flows , except when the sole remaining source of the repayment for the loan is the liquidation of the collateral . in these cases , we use the current fair value of the collateral , less selling costs , instead of discounted cash flows . the analysis of collateral dependent loans includes appraisals on loans secured by real property , management 's assessment of the current market , recent payment history and an evaluation of other sources of repayment . the company obtains appraisals on real and personal property that secure its loans during the loan origination process in accordance with regulatory guidance and its loan policy . the company obtains updated appraisals on loans secured by real or personal property based upon its assessment of changes in the current market or particular projects or properties , information from other current appraisals and other sources of information . the company uses the information provided in these updated appraisals along with its evaluation of all other information available on a particular property as it assesses the collateral coverage on its performing and nonperforming loans and the impact that may have on the adequacy of its allowance . if we determine that the value of the impaired loan is less than the recorded investment in the loan , we either recognize an impairment reserve as a specific component to be provided for in the allowance or charge-off the impaired balance on collateral dependent loans if it is determined that such amount represents a confirmed loss . the combination of the risk rating-based allowance component and the impairment reserve allowance component lead to an allocated allowance for loan losses . finally , the company assesses the overall adequacy of the allowance based on several factors including the level of the allowance as compared to total loans and nonperforming loans in light of current economic conditions . this portion of the allowance is deemed “ unallocated ” because it is not allocated to any segment or class of the loan portfolio . this portion of the allowance provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk rating-based component or in the specific impairment component of the allowance and acknowledges the inherent imprecision of all loss prediction models . 29 the unallocated portion of the allowance is based upon management 's evaluation of various factors that are not directly measured in the determination of the allocated portions of the allowance . such factors include uncertainties in identifying triggering events that directly correlate to subsequent loss rates , uncertainties in economic conditions , risk factors that have not yet manifested themselves in loss allocation factors , and historical loss experience data that may not precisely correspond to the current portfolio . story_separator_special_tag in addition , the unallocated reserve may fluctuate based upon the direction of various risk indicators . examples of such factors include the risk as to current and prospective economic conditions , the level and trend of charge offs or recoveries , and the risk of heightened imprecision or inconsistency of appraisals used in estimating real estate values . although this allocation process may not accurately predict credit losses by loan type or in aggregate , the total allowance for credit losses is available to absorb losses that may arise from any loan type or category . due to the subjectivity involved in the determination of the unallocated portion of the allowance , the relationship of the unallocated component to the total allowance may fluctuate from period to period . based on our methodology and its components , management believes the resulting allowance is adequate and appropriate for the risk identified in the company 's loan portfolio . given current processes employed by the company , management believes the segments , classes , and estimated loss rates currently assigned are appropriate . it is possible that others , given the same information , may at any point in time reach different reasonable conclusions that could be material to the company 's financial statements . in addition , current loan classes and fair value estimates of collateral are subject to change as we continue to review loans within our portfolio and as our borrowers are impacted by economic trends within their market areas . although we have established an allowance that we consider adequate , there can be no assurance that the established allowance will be sufficient to offset losses on loans in the future . in addition , a substantial percentage of our loan portfolio is secured by real estate ; as a result , a significant decline in real estate market values may require an increase in the allowance . valuation of goodwill and other intangibles : goodwill and other intangible assets with indefinite lives are not amortized but instead are periodically tested for impairment . management performs an impairment analysis for the intangible assets with indefinite lives on an annual basis as of december 31. additionally , goodwill and other intangible assets with indefinite lives are evaluated on an interim basis when events or circumstances indicate impairment potentially exists . the impairment analysis requires management to make subjective judgments . events and factors that may significantly affect the estimates include , among others , competitive forces , customer behaviors and attrition , changes in revenue growth trends , cost structures , technology , changes in discount rates and specific industry and market conditions . there can be no assurance that changes in circumstances , estimates or assumptions may result in additional impairment of all , or some portion of , goodwill or other intangible assets . the company performed its annual goodwill impairment testing at december 31 , 2017 and 2016 in accordance with the policy described in note 1 to the financial statements included with this report . at december 31 , 2017 , the company performed its annual impairment test by performing the first step of the comprehensive impairment analysis . the company estimated the fair value of the company using four valuation methodologies including a comparable transactions approach , a control premium approach , a public market peers approach and a discounted cash flow approach . we then compared the estimated fair value of the company to the carrying value and concluded that no potential impairment existed as of december 31 , 2017. valuation of oreo : oreo represents properties acquired through foreclosure or its equivalent . prior to foreclosure , the carrying value is adjusted to the fair value , less cost to sell , of the real estate to be acquired by an adjustment to the allowance for loan loss . the amount by which the fair value less cost to sell is greater than the carrying amount of the loan plus amounts previously charged off is recognized in earnings . any subsequent reduction in the carrying value is charged against earnings . management 's evaluation of fair value is based on appraisals or discounted cash flows of anticipated sales . the amounts ultimately recovered from the sale of oreo may differ from the carrying value of the assets because of market factors beyond the company 's control or due to changes in the company 's strategies for recovering the investment . mortgage servicing rights : the company measures mortgage servicing rights ( `` msrs '' ) at fair value on a recurring basis and reports changes in fair value through earnings in mortgage banking income in the period in which the change occurs . fair value adjustments encompass market-driven valuation changes and the decrease in value that occurs from the passage of time , which are separately reported . retained msrs are measured at fair value as of the date of sale . initial and subsequent fair value measurements are determined using a discounted cash flow model . in order to determine the fair value of the msr , the present value of expected net future cash flows is estimated . assumptions used include market discount rates , anticipated prepayment speeds , escrow calculations , delinquency rates and ancillary fee income net of servicing costs . the model assumptions are also compared to publicly filed information from several large msr holders , as available . fair value : a hierarchical disclosure framework associated with the level of pricing observability is utilized in measuring financial instruments at fair value . the degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability . financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value .
| these changes were only partially offset by a $ 1.3 million increase in net interest income and a $ 4.6 million decrease in compensation expense - rml acquisition payments in 2017 compared to 2016. the decrease in net income in 2016 compared to 2015 was primarily due to an increase of $ 2.9 million in salaries and other personnel expense and an increase of $ 554,000 in the provision for loan losses , as well as decreases of $ 1.3 million and $ 552,000 in other operating income and net interest income , respectively , in 2016 as compared to 2015. net interest income / net interest margin net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings . net interest income in 2017 was $ 57.7 million , compared to $ 56.4 million in 2016 , and $ 56.9 million in 2015 . the increase in 2017 as compared to 2016 was mainly due to increased interest income earned on long- and short-term investments and loans primarily due to higher yields in 2017 compared to the prior year . the decrease in 2016 as compared to 2015 was primarily due to decreased interest income earned on loans and loans held for sale mainly due to lower yields , which was only partially offset by increased interest income on long-term investments due to higher balances . changes in net interest income result from changes in volume and spread , which in turn affect our margin . for this purpose , volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities , spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities , and margin refers to net interest income divided by average interest-earning assets . changes in net interest income are influenced by yields and the level and relative mix of interest-earning assets and interest-bearing liabilities . during the years ended december 31 , 2017 , 2016 , and 2015 , net interest margins were 4.22 % , 4.14 % , and 4.27 % , respectively . the increase in the net interest margin in 2017 as compared to 2016 is primarily the result of
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innovations and advancements in led , power and rf technologies continue to expand the potential commercial application for our products , particularly in the general illumination , power electronics and wireless markets . however , new technologies or standards could emerge or improvements could be made in existing technologies that could reduce or limit the demand for our products in certain markets . regulatory standards concerning energy efficiency . government agencies are involved in setting standards for energy efficient lighting , which can affect market acceptance and the availability of rebates from government agencies or third parties such as utilities . while this trend is generally positive , these regulations are affected by changing political priorities and evolving technical standards which can modify or limit the effectiveness of these new regulations . intellectual property issues . market participants rely on patented and non-patented proprietary information relating to product development , manufacturing capabilities and other core competencies of their business . protection of intellectual property is critical . therefore , steps such as additional patent applications , confidentiality and non-disclosure agreements , as well as other security measures are generally taken . to enforce or protect intellectual property rights , litigation or threatened litigation is common . fiscal 2015 overview the following is a summary of our financial results for the year ended june 28 , 2015 : our year-over-year revenue remained flat at $ 1.6 billion . gross margin decreased to 29 % . gross profit decreased by $ 144 million to $ 475 million . operating loss was $ 73 million in fiscal 2015 compared to operating income of $ 134 million in fiscal 2014 . net loss per diluted share was $ 0.57 in fiscal 2015 compared to net income per diluted share of $ 1.01 in fiscal 2014 . combined cash , cash equivalents and short-term investments decreased to $ 0.7 billion at june 28 , 2015 compared to $ 1.2 billion at june 29 , 2014 . cash provided by operating activities was $ 181 million in fiscal 2015 , compared to $ 319 million in fiscal 2014 . we spent $ 550 million to repurchase 16 million shares of our common stock . inventories decreased to $ 281 million at june 28 , 2015 compared to $ 285 million at june 29 , 2014 . we spent $ 206 million on purchases of property and equipment in fiscal 2015 compared to $ 179 million in fiscal 2014 . business outlook we project that the markets for our products will expand , but remain highly competitive during fiscal 2016. we anticipate focusing on the following key areas , among others , to position the company to take advantage of the growing market opportunities while responding to the competitive environment : build financial momentum . we target overall company revenue growth of approximately 10 % in fiscal 2016 with operating margins increasing for the year . the key components are : grow our commercial lighting business and improve product margins ; stabilize our led business ; expand our power and rf business ; and manage our operating expenses to improve operating leverage . innovate to continue to lead in each of our business segments . we have established ourselves as the innovation leader in lighting , leds and wide bandgap power and rf . we 're focused on continuing to develop new products that deliver fundamentally more value to drive new customer demand and build our brand . promote future growth in power and rf . cree announced its intent to spin-off its power and rf products business with an initial public offering in fiscal 2016 to raise capital to support the business 's targeted future growth . cree believes that this transaction will allow cree shareholders to better realize the full value of both businesses . 30 story_separator_special_tag power and rf products revenue represented approximately 8 % , 6 % , and 6 % of our total revenue for fiscal 2015 , 2014 , and 2013 , respectively . power and rf products revenue was $ 123.9 million , $ 107.5 million , and $ 89.4 million for fiscal 2015 , 2014 , and 2013 , respectively . power and rf products revenue increased 15 % to $ 123.9 million in fiscal 2015 from $ 107.5 million in fiscal 2014 . this increase was primarily the result of increased market adoption of power products that resulted in an overall increase in the number of units 32 sold due to increased demand for sic based devices . the overall number of units sold increased 21 % in fiscal 2015 compared to fiscal 2014 . power and rf products revenue increased 20 % to $ 107.5 million in fiscal 2014 from $ 89.4 million in fiscal 2013 . this increase was primarily the result of 39 % higher rf product unit sales in fiscal 2014 compared to fiscal 2013 . the increased volume was partially offset by an overall reduction in asp . the overall asp decreased 12 % in fiscal 2014 compared to fiscal 2013 primarily due to a higher mix of new lower priced power and rf products . gross profit and gross margin gross profit and gross margin were as follows ( in thousands , except percentages ) : replace_table_token_6_th our consolidated gross profit decreased 23 % to $ 475.0 million in fiscal 2015 from $ 618.8 million in fiscal 2014 . our consolidated gross margin decreased to 29 % in fiscal 2015 from 38 % in fiscal 2014 . our consolidated gross profit increased 18 % to $ 618.8 million in fiscal 2014 from $ 523.3 million in fiscal 2013 . our consolidated gross margin remained consistent at 38 % in fiscal 2014 and fiscal 2013 . lighting products segment gross profit and gross margin lighting products gross profit was $ 235.5 million , $ 197.3 million , and $ 148.9 million in fiscal 2015 , 2014 , and 2013 , respectively . story_separator_special_tag lighting products gross margin was 26 % , 28 % , and 30 % in fiscal 2015 , 2014 , and 2013 , respectively . lighting products gross profit increased 19 % to $ 235.5 million in fiscal 2015 from $ 197.3 million in fiscal 2014 , due to growth in led lighting products sales as discussed above . lighting products gross margin decreased to 26 % in fiscal 2015 from 28 % in fiscal 2014 , primarily due to lower led bulb margins resulting from a more competitive pricing environment . lighting products gross profit increased 32 % to $ 197.3 million in fiscal 2014 from $ 148.9 million in fiscal 2013 , due to growth in led lighting products sales as discussed above . lighting products gross margin decreased to 28 % in fiscal 2014 from 30 % in fiscal 2013 , primarily due to changes in product mix driven primarily by higher sales of led bulbs , which have lower gross margins . led products segment gross profit and gross margin our led products gross profit was $ 190.9 million , $ 381.0 million , and $ 344.6 million in fiscal 2015 , 2014 , and 2013 , respectively . led products gross margin was 32 % , 46 % , and 43 % in fiscal 2015 , 2014 , and 2013 , respectively . led products gross profit decreased 50 % to $ 190.9 million in fiscal 2015 from $ 381.0 million in fiscal 2014 , and led products gross margin decreased to 32 % in fiscal 2015 from 46 % in fiscal 2014 . led products gross profit and gross margin decreased due to lower units sold , lower pricing , increases in channel inventory reserves and inventory reserves pursuant to our restructuring plan , all of which are discussed above , and lower factory utilization resulting from lower demand and our targeted actions in the latter half of fiscal 2015 to reduce inventory balances for our led products and lighting products segments . led products gross profit increased 11 % to $ 381.0 million in fiscal 2014 from $ 344.6 million in fiscal 2013 , and led products gross margin increased to 46 % in fiscal 2014 from 43 % in fiscal 2013 . led products gross profit and gross margin increased during fiscal 2014 due to higher revenue , factory cost reductions , the introduction of new lower cost products and higher factory utilization . these benefits more than offset the reduction in asp in fiscal 2014 as compared to fiscal 2013 . 33 power and rf products segment gross profit and gross margin power and rf products gross profit was $ 67.8 million , $ 60.7 million , and $ 48.1 million in fiscal 2015 , 2014 , and 2013 , respectively . power and rf products gross margin was 55 % , 56 % , and 54 % in fiscal 2015 , 2014 , and 2013 , respectively . power and rf products gross profit increased 12 % to $ 67.8 million in fiscal 2015 from $ 60.7 million in fiscal 2014 primarily due to higher revenue . power and rf products gross margin decreased to 55 % in fiscal 2015 from 56 % in fiscal 2014 primarily due to changes in product mix . power and rf products gross profit increased 26 % to $ 60.7 million in fiscal 2014 from $ 48.1 million in fiscal 2013 . power and rf products gross margin increased to 56 % in fiscal 2014 from 54 % in fiscal 2013 . power and rf products gross profit and gross margin increases were due primarily to higher revenue , factory cost reductions , increased factory utilization , and introduction of new lower cost products . these benefits more than offset the reduction in asp in fiscal 2014 as compared to fiscal 2013 . unallocated costs unallocated costs were $ 19.3 million , $ 20.2 million , and $ 18.5 million for fiscal 2015 , 2014 , and 2013 , respectively . these costs consisted primarily of manufacturing employees ' stock-based compensation , expenses for profit sharing and quarterly or annual incentive plans and matching contributions under our 401 ( k ) plan . these costs were not allocated to the reportable segments ' gross profit because our codm does not review them regularly when evaluating segment performance and allocating resources . unallocated costs decreased by $ 1.0 million in fiscal 2015 compared to fiscal 2014 , primarily due to lower incentive and stock-based compensation incurred as a result of declining business performance year over year . unallocated costs increased by $ 1.8 million in fiscal 2014 as compared to fiscal 2013 , primarily due to higher incentive and stock-based compensation incurred as a result of improved business performance year over year . for further information on the allocation of costs to segment gross profit , refer to note 13 , “ reportable segments , ” in our consolidated financial statements included in item 8 of this annual report . research and development research and development expenses include costs associated with the development of new products , enhancements of existing products and general technology research . these costs consisted primarily of employee salaries and related compensation costs , occupancy costs , consulting costs and the cost of development equipment and supplies . the following sets forth our research and development expenses in dollars and as a percentage of revenue ( in thousands , except percentages ) : replace_table_token_7_th research and development expenses increased slightly in fiscal 2015 at $ 182.8 million compared to $ 181.4 million in fiscal 2014 , which was a 16 % increase from $ 155.9 million in fiscal 2013 . in fiscal 2014 , the increase was primarily due to increased spending on research and development activities focused on new higher performance and lower cost products in all our product lines .
| lighting products revenue and power and rf products revenue increased by 28 % and 15 % , respectively , while led products revenue decreased by 28 % . for the fiscal year ended 2014 , our consolidated revenue increased 19 % to $ 1.6 billion from $ 1.4 billion for the fiscal year ended 2013. this increase was driven by the 43 % increase in lighting products revenue and the 20 % increase in power and rf products revenue . lighting products segment revenue lighting products revenue represented approximately 55 % , 43 % , and 36 % of our total revenue for fiscal 2015 , 2014 and 2013 respectively . lighting products revenue was $ 906.5 million , $ 706.4 million , and $ 495.1 million for fiscal 2015 , 2014 , and 2013 respectively . lighting products revenue increased 28 % to $ 906.5 million in fiscal 2015 from $ 706.4 million in fiscal 2014 . this increase was the result of an overall increase in the number of units sold , partially offset by a reduction in average selling prices ( asp ) . the overall number of units sold increased 44 % in fiscal 2015 compared to fiscal 2014 primarily driven by led bulb products due to increased market adoption of led lighting products . the asp decreased 11 % in fiscal 2015 compared to fiscal 2014 primarily due to a higher mix of lower priced led bulb products . lighting products revenue increased 43 % to $ 706.4 million in fiscal 2014 from $ 495.1 million in fiscal 2013 . this increase was the result of an overall increase in the number of units sold , partially offset by a reduction in asp . the overall number of units sold increased 104 % in fiscal 2014 compared to fiscal 2013 primarily driven by led bulb products . the asp decreased 30 % in fiscal 2014 compared to fiscal 2013 primarily due to a higher mix of lower priced led bulb products . led products segment revenue led products revenue represented 37 % ,
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volatility in the cryptocurrency market , including changes in the prices of cryptocurrencies , can impact demand for our products and our ability to estimate demand for our products . changes to cryptocurrency standards and processes including , but not limited to , the pending ethereum 2.0 standard may also create increased aftermarket resales of our gpus and may reduce demand for our new gpus . additionally , consumer behavior during the covid-19 pandemic , such as increased demand for our gaming , data center and mobile workstation and laptop products and suppressed corporate demand for desktop workstations , has made it more difficult for us to estimate future demand , and these challenges may be more pronounced in the future if and when the effects of the pandemic subside . in estimating demand and evaluating trends , we make multiple assumptions , any of which may prove to be incorrect . covid-19 the worldwide covid-19 pandemic is prompting governments and businesses to take unprecedented measures including restrictions on travel , temporary business closures , quarantines and shelter-in-place orders . it has significantly impacted global economic activity and caused volatility and disruption in global financial markets . since march 2020 , most of our employees have been working remotely and we have temporarily prohibited most business travel . our gaming and data center market platforms have benefited from stronger demand as people continue to work , learn , and play from home . in professional visualization , mobile workstations continue to benefit from work-from-home trends , and desktop workstation demand has started to recover , although not back to pre-covid levels . in automotive , covid is no longer having a significant impact on demand . throughout our supply chain , stronger demand globally has limited the availability of capacity and components , particularly in gaming . as the covid-19 pandemic continues , the timing and overall demand from customers and the availability of supply chain , logistical services and component supply may have a material net negative impact on our business and financial results . refer to part i , item 1a of this annual report on form 10-k for additional information under the heading “ risk factors ” . we believe our existing balances of cash , cash equivalents and marketable securities , along with commercial paper and other short-term liquidity arrangements , will be sufficient to satisfy its working capital needs , capital asset purchases , dividends , debt repayments and other liquidity requirements associated with its existing operations . story_separator_special_tag nio , li auto , xpeng , robotaxi-maker zoox , and cabless truck-maker einride ; announced that nvidia is powering the new mercedes-benz ai cockpit in the first half of 2021 ; announced that hyundai motor group 's entire lineup of hyundai , kia and genesis models will come standard with nvidia drive in-vehicle infotainment systems starting in 2022 ; and expanded the nvidia drive sensor ecosystem with new solutions . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , cost of revenue , expenses and related disclosure of contingencies . on an on-going basis , we evaluate our estimates , including those related to business combinations , inventories , revenue recognition , income taxes , and goodwill . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . we believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements . our management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors . the audit committee has reviewed our disclosures relating to our critical accounting policies and estimates in this annual report on form 10-k. business combinations the application of acquisition accounting to a business acquisition requires that we identify the individual assets acquired and liabilities assumed and estimate the fair value of each . the fair value of assets acquired and liabilities assumed in a business acquisition are recognized at the acquisition date , with the purchase price exceeding the fair values being recognized as goodwill . determining fair value of identifiable assets , particularly intangibles , liabilities acquired and contingent obligations assumed requires management to make estimates . in certain circumstances , the allocations of the purchase price are based upon preliminary estimates and assumptions and subject to revision when we receive final information , including appraisals and other analyses . accordingly , the measurement period for such purchase price allocations will end when the information , or the facts and circumstances , becomes available , but will not exceed twelve months . we will recognize measurement-period adjustments during the period of resolution , including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date . goodwill and intangible assets often represent a significant portion of the assets acquired in a business combination . we recognize the fair value of an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights , or when it can be separated or divided from the acquired entity and sold , transferred , licensed , rented or exchanged , either individually or in combination with a related contract , asset or liability . intangible assets consist primarily of technology , customer relationships , order backlog and trade name acquired in a business combination and in-process research and development , or ipr & d . story_separator_special_tag we generally assess the estimated fair values of acquired intangibles using a combination of valuation techniques . to estimate fair value , we are required to make certain estimates and assumptions , including future economic and market conditions , revenue growth , technology migration curve , and risk-adjusted discount rates . our estimates require significant judgment and are based on historical data , various internal estimates , and external sources . our assessment of ipr & d also includes consideration of the risk of the projects not achieving technological feasibility . inventories inventory cost is computed on an adjusted standard basis , which approximates actual cost on an average or first-in , first-out basis . we charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory . most of our inventory provisions relate to excess quantities of products or components , based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions . situations that may result in excess or obsolete inventory include changes in business and economic conditions , changes in market conditions , sudden and significant decreases in demand for our products , inventory obsolescence because of changing technology and customer requirements , failure to estimate customer demand properly , or 32 unexpected competitive pricing actions by our competition . in addition , cancellation or deferral of customer purchase orders could result in our holding excess inventory . the overall net effect on our gross margin from inventory provisions and sales of items previously written down was insignificant in fiscal years 2021 and 2020. as a fabless semiconductor company , we must make commitments to purchase inventory based on forecasts of future customer demand . in doing so , we must account for our third-party manufacturers ' lead times and constraints . we also adjust to other market factors , such as product offerings and pricing actions by our competitors , new product transitions , and macroeconomic conditions - all of which may impact demand for our products . refer to the gross profit and gross margin discussion below in this management 's discussion and analysis for further discussion . revenue recognition we derive our revenue from product sales , including hardware and systems , license and development arrangements , and software licensing . we determine revenue recognition through the following steps : ( 1 ) identification of the contract with a customer ; ( 2 ) identification of the performance obligations in the contract ; ( 3 ) determination of the transaction price ; ( 4 ) allocation of the transaction price to the performance obligations in the contract ( where revenue is allocated on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation ) ; and ( 5 ) recognition of revenue when , or as , we satisfy a performance obligation . product sales revenue revenue from product sales is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products . certain products are sold along with support or extended warranty . support and extended warranty revenue is recognized ratably over the service period , or as services are performed . revenue is recognized net of allowances for returns , customer programs and any taxes collected from customers . for products sold with a right of return , we record a reduction to revenue by establishing a sales return allowance for estimated product returns at the time revenue is recognized , based primarily on historical return rates . however , if product returns for a fiscal period are anticipated to exceed historical return rates , we may determine that additional sales return allowances are required to properly reflect our estimated exposure for product returns . our customer programs involve rebates , which are designed to serve as sales incentives to resellers of our products in various target markets , and marketing development funds , or mdfs , which represent monies paid to our partners that are earmarked for market segment development and are designed to support our partners ' activities while also promoting nvidia products . we account for customer programs as a reduction to revenue and accrue for potential rebates and mdfs based on the amount we expect to be claimed by customers . license and development arrangements our license and development arrangements with customers typically require significant customization of our intellectual property components . as a result , we recognize the revenue from the license and the revenue from the development services as a single performance obligation over the period in which the development services are performed . we measure progress to completion based on actual cost incurred to date as a percentage of the estimated total cost required to complete each project . if a loss on an arrangement becomes probable during a period , we record a provision for such loss in that period . refer to note 1 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . income taxes we recognize federal , state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction . we recognize federal , state and foreign deferred tax assets or liabilities , as appropriate , for our estimate of future tax effects attributable to temporary differences and carryforwards ; and we record a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that , based on available evidence and judgment , are not expected to be realized . our calculation of deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws .
| additionally , acquisition-related and other costs of $ 411 million primarily include $ 190 million in non-recurring intangible amortization of mellanox order backlog , $ 123 million in recurring amortization of mellanox intangible assets , and $ 40 million related to the pending acquisition of arm . income from operations for fiscal year 2021 was $ 4.53 billion , up 59 % from a year earlier . net income and net income per diluted share for fiscal year 2021 were $ 4.33 billion and $ 6.90 , up 55 % and 53 % , respectively , from a year earlier . cash , cash equivalents and marketable securities were $ 11.56 billion as of january 31 , 2021 , compared with $ 10.90 billion as of january 26 , 2020. the increase primarily reflects the issuance of the $ 5 billion of notes in march 2020 and cash-flow generation , partially offset by acquisitions . we paid $ 395 million in quarterly cash dividends in fiscal year 2021. market platform highlights during fiscal year 2021 , in our gaming platform , we announced the launch of new laptop models powered by nvidia geforce gpus ; unveiled geforce rtx 30 series gpus including our second generation nvidia rtx ; expanded nvidia geforce now ; announced that a range of games now support nvidia rtx ray tracing and dlss ai super resolution ; unveiled nvidia reflex and nvidia broadcast ; expanded the rtx studio lineup powered by new geforce rtx super gpus ; and released dlss 2.0. in our professional visualization platform , we launched mobile workstations with acer , dell , hp , lenovo and microsoft based on nvidia quadro graphics for professional creators ; released nvidia quadro view ; collaborated with adobe to bring gpu-accelerated neural filters to adobe photoshop ai-powered tools ; powered autodesk 's latest 3d visualization software with nvidia quadro rtx ; and collaborated with many other independent software vendors to help incorporate nvidia rtx and ai technology in their applications . in our data center platform , we announced the nvidia a100 tensor core gpu and dgx a100 , the first products based on the nvidia ampere architecture ; announced more than 50 nvidia a100-powered systems with oem partners and released
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corporate activities include general corporate expenses , elimination of intersegment transactions , interest income and expense and other unallocated charges , which have not been allocated to business segments . as such , the segment results provided herein may not be comparable to other companies . in addition , our chief operating decision maker uses adjusted ebitda of each reportable segment to evaluate the operating performance of such segments . adjusted ebitda of the reportable segments does not include certain unallocated charges that are presented within corporate activities . these unallocated charges include certain restructuring and other business transformation charges that have been incurred to align and reposition the company to the current reporting structure , acquisition related costs ( including transaction costs , integration costs and recognition of backlog intangible assets recorded in purchase accounting ) and share-based compensation charges . for the years ended september 30 , 2019 , 2018 and 2017 , our segments accounted for the following percentage of our revenues : replace_table_token_3_th organic growth drivers market growth we maintain a leading position among customers in growing industries that utilize water as a critical part of their operations or production processes , including pharmaceuticals and health sciences , microelectronics , food and beverage , hydrocarbon and chemical processing , power , general manufacturing , municipal drinking and wastewater , marine and aquatics . water treatment is an essential , non‑discretionary market that is growing in importance as access to clean water has become an international priority . underpinning this growth are a number of global , long‑term trends that have resulted in increasingly stringent effluent regulations , along with a growing demand for cleaner and sustainable waste streams for reuse . these trends include the growing global population , increasing levels of urbanization and continued global economic growth , and we have seen these trends manifest themselves within our various end markets creating multiple avenues of growth . for example , within the industrial market , water is an integral and meaningful component in the production of a wide‑range of goods spanning from consumer electronics to automobiles . our existing customer base we believe our strong brands , leading position in highly fragmented markets , scalable and global offerings , leading installed base and unique ability to provide complete treatment solutions will enable us to capture a larger share of our existing customers ' water treatment spend while expanding with existing and new customers into adjacent end‑markets and underpenetrated regions , including by investing in our sales force and cross‑selling to existing customers . we believe we are uniquely positioned to further penetrate our core markets , with over 200,000 installations across over 38,000 global customers . we maintain a customer‑intimate business model with strong brand value and provide solutions‑focused offerings capable of serving a customer 's full lifecycle water treatment needs , both in current and new geographic regions . 49 our service model we selectively target high value projects with opportunities for recurring business through service , parts and other aftermarket opportunities over the lifecycle of the process or capital equipment . in particular , we have developed internet‑connected monitoring technologies through the deployment of our waterone® service platform , which enables customers to outsource their water treatment systems and focus on their core business , offering customers system optimization , predictive and proactive service , and simplified billing and pricing . our waterone® platform also enables us to transition our customers to pricing models based on usage , which otherwise would not have been possible without technological advancement . our technology solutions provide customers with increased stability and predictability in water‑related costs , while enabling us to optimize our service route network and on demand offerings through predictive analytics , which we believe will result in market share gains , improved service levels , increased barriers to entry and reduced costs . product and technology development we develop our technologies through in‑house research , development and engineering and targeted tuck‑in , vertical market and geography‑expanding , technology-enhancing acquistions . we have a reservoir of recently launched technologies and a strong pipeline of new offerings designed to provide customers with innovative , value‑enhancing solutions . furthermore , since april 2016 , we have successfully completed thirteen acquisitions that expand our vertical markets and geographic reach and enhance our technologies , strengthening our existing capabilities and adding new capabilities and cross selling opportunities in areas such as mobile wastewater treatment , soil and air treatment , regenerative media filtration , anodes , uv and ozone disinfection , aerobic and anaerobic biological treatment technologies and electrochemical and electrochlorination cells . we are able to rapidly scale new technologies using our leading direct and third‑party sales channels and our relationships with key influencers , including municipal representatives , engineering firms , designers and other system specifiers . we believe our continued investment in driving penetration of our recently launched technologies , robust pipeline of new capabilities and best‑in‑class channels to market will allow us to continue to address our customer needs across the water lifecycle . operational excellence we believe that continuous improvement of our operations , processes and organizational structure is a key driver of our earnings growth . effective october 1 , 2018 , we restructured our business into two reportable operating segments , which we expect to result in cost savings in the range of $ 15 million to $ 20 million on an annualized basis once fully implemented . we have separately identified and are pursuing a number of discrete initiatives which , if successful , we expect could result in additional cost savings over the next two years . these initiatives include our supply chain improvement program to consolidate and manage global spending , our improved logistics and transportation management program , capturing benefits of our waterone® platform and further optimizing our engineering cost structure , our global shared services organization and our sales , inventory and operations planning . story_separator_special_tag these improvements focus on creating value for customers through reduced leadtimes , improved quality and superior customer support , while also creating value for shareholders through enhanced earnings growth . furthermore , as a result of significant investments we have made in our footprint and facilities , we believe we have capacity to support our planned growth without commensurate increase in fixed costs . 50 acquisitions we believe that capex-like , tuck‑in acquisitions present a key opportunity within our overall growth strategy , which we will continue to evaluate strategically . these strategic acquisitions will enable us to accelerate our growth by extending the critical mass in existing markets as well as expand in new geographies and new end market verticals . our existing customer relationships , best‑in‑class channels to market and ability to rapidly commercialize technologies provide a strong platform to drive rapid growth in the businesses we acquire . to capitalize on these opportunities , we have built an experienced team dedicated to mergers and acquisitions that has , since april 2016 , successfully completed thirteen acquisitions that expand our vertical markets and geographic reach and enhance our technologies , with purchase prices ranging from approximately $ 2.0 million to approximately $ 283.7 million , and pre‑acquisition revenues ranging from approximately $ 3.1 million to approximately $ 55.7 million . during the year ended september 30 , 2019 , we acquired all of the issued and outstanding equity securities of atg uv technology limited ( “ atg uv ” ) . see note 3 , “ acquisitions and divestitures , ” in item 8 in this annual report on form 10-k for a complete discussion of this acquisition . during the year ended september 30 , 2018 , we acquired substantially all of the assets of le groupe ish20top inc. ( “ isotope ” ) and pure water solutions , llc ( “ pure water ” ) and all of the issued and outstanding equity securities of proact services corporation ( “ proact ” ) and pacific ozone technology , inc. ( “ pacific ozone ” ) . during the year ended september 30 , 2017 , we acquired all of the issued and outstanding equity securities of olson irrigation systems ( “ olson ” ) and adi systems north america inc. , geomembrane technologies inc. and lange containment systems , inc. ( collectively , “ adi ” ) from adi group inc. , and substantially all of the assets of noble water technologies , inc. ( “ noble ” ) and environmental treatment systems inc. ( “ ets ” ) . we will continue to actively evaluate acquisition opportunities that are consistent with our business strategy . we maintain a robust pipeline of potential acquisition targets , developed by our management team as well as various outside industry experts and consultants . key factors and trends affecting our business and financial statements various trends and other factors affect or have affected our operating results , including : overall economic trends . the overall economic environment and related changes in industrial , commercial and municipal spending impact our business . in general , positive conditions in the broader economy promote industrial , commercial and municipal customer spending , while economic weakness results in a reduction of new industrial , commercial and municipal project activity . macroeconomic factors that can affect customer spending patterns , and thereby our results of operations , include population growth , total water consumption , municipal budgets , employment rates , business conditions , the availability of credit or capital , interest rates , tax rates , imposition of tariffs and regulatory changes . since the businesses of our customers vary in cyclicality , periodic downturns in any specific sector typically have modest impacts on our overall business . changes in costs and availability . we have significant exposures to certain commodities , including steel , caustic , carbon , calcium nitrate and iridium , and volatility in the market price and availability of these commodity input materials has a direct impact on our costs and our business . for example , the u.s. government and other governments have recently imposed greater restrictions on international trade , including tariffs and or other trade restraints on certain materials . these restrictions , particularly those related to china , have increased and could further increase the cost of our products and have restricted and could further restrict availability of certain commodities , which may result in delays in our execution of projects . although we have offset a portion of these cost increases through price increases , there can be no assurance that we will be able to continue to recuperate additional cost increases from our customers through further product price increases . if we are unable to manage commodity fluctuations through pricing actions , cost savings projects and sourcing decisions as well as through consistent productivity improvements , it may adversely impact our gross profit and gross margin . further , additional potential acquisitions and international expansion will place increased demands on our operational , managerial , administrative and other resources . managing our growth effectively will require us to continue to enhance our management systems , financial and management controls and information systems . we will also be required to hire , train and retain operational and sales personnel , which affects our operating margins . 51 inflation and deflation trends . our financial results can be expected to be directly impacted by substantial increases in costs due to commodity cost increases or general inflation which could lead to a reduction in our revenues as well as greater margin pressure as increased costs may not be able to be passed on to customers . fluctuation in quarterly results . our quarterly results have historically varied depending upon a variety of factors , including funding , readiness of projects , regulatory approvals and significant weather events . in addition , our contracts for large capital water treatment projects , systems and solutions for industrial , commercial and municipal applications are generally fixed‑price contracts with milestone billings .
| million . the gross margin for services declined as the company continues to leverage costs that are more fixed in nature as revenue volumes increase . operating expenses -operating expenses increased $ 25.6 million , or 7.4 % , to $ 371.3 million in year ended september 30 , 2019 from $ 345.7 million in the prior year . the increase was primarily driven by the acquisitions of pacific ozone , proact , isotope , and atg uv which increased expenses by $ 16.6 million . share-based compensation expense also increased by $ 4.2 million . the net change in foreign currency translation resulted in an increase in operating expenses of $ 5.1 million . included in 2019 was a loss from unfavorable foreign currency translation of $ 11.2 million , whereas included in 2018 was a loss from unfavorable foreign currency translation of $ 6.0 million . these increases were partially offset by 62 a $ 1.4 million reduction from the change in the estimate of certain acquisitions achieving their earn-out targets in the prior year . a discussion of operating expenses by category is as follows : research and development expense -research and development ( “ r & d ” ) expense decreased $ 0.6 million , or 3.8 % , to $ 15.3 million in the year ended september 30 , 2019 from $ 15.9 million in the prior year due to the company 's continued efforts to reduce spending . sales and marketing expense -sales and marketing expense increased $ 2.9 million , or 2.1 % , to $ 138.9 million in the year ended september 30 , 2019 from $ 136.0 million in the prior year mainly due to the proact acquisition made in the prior year . general and administrative expense -general and administrative expense increased $ 23.3 million , or 12.0 % , to $ 217.1 million in the year ended september 30 , 2019 from $ 193.8 million
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we review our goodwill for impairment at the reporting unit level as of july 31 every year , or more frequently if events or circumstances dictate . if the estimated fair value of any of our reporting units is less than the reporting unit 's carrying value , goodwill is written down based on the difference between the reporting unit 's carrying amount and its estimated fair value , limited to the amount of goodwill allocated to the reporting unit . the estimation of our reporting unit fair value includes numerous assumptions that are subject to various risks and uncertainties . our pause in guest cruise operations and the possibility of further extensions created some uncertainty in forecasting the operating results and future cash flows used in our impairment analyses . the principal assumptions used in our goodwill impairment reviews consist of : the timing of our return to service , changes in market conditions and port or other restrictions forecasted revenues net of our most significant variable costs , which are travel agent commissions , costs of air and other transportation , and certain other costs that are directly associated with onboard and other revenues including credit and debit card fees the allocation of new ships and the timing of the transfer or sale of ships amongst brands , as well as the estimated proceeds from ship sales f-47 table of conten t s weighted-average cost of capital of market participants , adjusted for the risk attributable to the geographic regions in which these cruise brands operate refer to our consolidated financial statements for additional discussion of our goodwill accounting policy , impairment reviews and goodwill impairment charges recognized during 2020. we believe that we have made reasonable estimates and judgments . contingencies we periodically assess the potential liabilities related to any lawsuits or claims brought against us , as well as for other known unasserted claims , including environmental , legal , regulatory and guest and crew matters . while it is typically very difficult to determine the timing and ultimate outcome of these matters , we use our best judgment to determine the appropriate amounts to record in our consolidated financial statements . we accrue a liability and establish a reserve when we believe a loss is probable and the amount of the loss can be reasonably estimated . in assessing probable losses , we make estimates of the amount of probable insurance recoveries , if any , which are recorded as assets where appropriate . such accruals and reserves are typically based on developments to date , management 's estimates of the outcomes of these matters , our experience in contesting , litigating and settling other similar matters , historical claims experience , actuarially determined estimates of liabilities and any related insurance coverage . given the inherent uncertainty related to the eventual outcome of these matters and potential insurance recoveries , it is possible that all or some of these matters may be resolved for amounts materially different from any provisions or disclosures that we may have made . in addition , as new information becomes available , we may need to reassess the amount of asset or liability that needs to be accrued related to our contingencies . all such changes in our estimates could materially impact our results of operations and financial position . refer to our consolidated financial statements for additional discussion of contingencies . results of operations we have historically earned substantially all of our cruise revenues from the following : sales of passenger cruise tickets and , in some cases , the sale of air and other transportation to and from airports near our ships ' home ports and cancellation fees . we also collect fees , taxes and other charges from our guests . the cruise ticket price typically includes the following : accommodations most meals , including snacks at numerous venues access to amenities such as swimming pools , water slides , water parks , whirlpools , a health club and sun decks supervised youth programs entertainment , such as theatrical and comedy shows , live music and nightclubs visits to multiple destinations sales of onboard goods and services not included in the cruise ticket price . this generally includes the following : beverage sales internet and communication services casino gaming full service spas shore excursions specialty restaurants retail sales art sales photo sales laundry and dry cleaning services these goods and services are provided either directly by us or by independent concessionaires , from which we receive either a percentage of their revenues or a fee . concession revenues do not have direct expenses because the costs and services incurred for concession revenues are borne by our concessionaires . we earn our tour and other revenues from our hotel and transportation operations , long-term leasing of ships and other revenues . f-48 table of conten t s we incur cruise operating costs and expenses for the following : the costs of passenger cruise bookings , which include travel agent commissions , cost of air and other transportation , port fees , taxes , and charges that directly vary with guest head counts and credit and debit card fees onboard and other cruise costs , which include the costs of beverage sales , costs of shore excursions , costs of retail sales , communication costs , credit and debit card fees , other onboard costs , costs of cruise vacation protection programs and pre- and post-cruise land packages payroll and related costs , which include the costs of officers and crew in bridge , engineering and hotel operations . substantially all costs associated with our shoreside personnel are included in selling and administrative expenses fuel costs , which include fuel delivery costs food costs , which include both our guest and crew food costs other ship operating expenses , which include port costs that do not vary with guest head counts ; repairs and maintenance , including minor improvements story_separator_special_tag we review our goodwill for impairment at the reporting unit level as of july 31 every year , or more frequently if events or circumstances dictate . if the estimated fair value of any of our reporting units is less than the reporting unit 's carrying value , goodwill is written down based on the difference between the reporting unit 's carrying amount and its estimated fair value , limited to the amount of goodwill allocated to the reporting unit . the estimation of our reporting unit fair value includes numerous assumptions that are subject to various risks and uncertainties . our pause in guest cruise operations and the possibility of further extensions created some uncertainty in forecasting the operating results and future cash flows used in our impairment analyses . the principal assumptions used in our goodwill impairment reviews consist of : the timing of our return to service , changes in market conditions and port or other restrictions forecasted revenues net of our most significant variable costs , which are travel agent commissions , costs of air and other transportation , and certain other costs that are directly associated with onboard and other revenues including credit and debit card fees the allocation of new ships and the timing of the transfer or sale of ships amongst brands , as well as the estimated proceeds from ship sales f-47 table of conten t s weighted-average cost of capital of market participants , adjusted for the risk attributable to the geographic regions in which these cruise brands operate refer to our consolidated financial statements for additional discussion of our goodwill accounting policy , impairment reviews and goodwill impairment charges recognized during 2020. we believe that we have made reasonable estimates and judgments . contingencies we periodically assess the potential liabilities related to any lawsuits or claims brought against us , as well as for other known unasserted claims , including environmental , legal , regulatory and guest and crew matters . while it is typically very difficult to determine the timing and ultimate outcome of these matters , we use our best judgment to determine the appropriate amounts to record in our consolidated financial statements . we accrue a liability and establish a reserve when we believe a loss is probable and the amount of the loss can be reasonably estimated . in assessing probable losses , we make estimates of the amount of probable insurance recoveries , if any , which are recorded as assets where appropriate . such accruals and reserves are typically based on developments to date , management 's estimates of the outcomes of these matters , our experience in contesting , litigating and settling other similar matters , historical claims experience , actuarially determined estimates of liabilities and any related insurance coverage . given the inherent uncertainty related to the eventual outcome of these matters and potential insurance recoveries , it is possible that all or some of these matters may be resolved for amounts materially different from any provisions or disclosures that we may have made . in addition , as new information becomes available , we may need to reassess the amount of asset or liability that needs to be accrued related to our contingencies . all such changes in our estimates could materially impact our results of operations and financial position . refer to our consolidated financial statements for additional discussion of contingencies . results of operations we have historically earned substantially all of our cruise revenues from the following : sales of passenger cruise tickets and , in some cases , the sale of air and other transportation to and from airports near our ships ' home ports and cancellation fees . we also collect fees , taxes and other charges from our guests . the cruise ticket price typically includes the following : accommodations most meals , including snacks at numerous venues access to amenities such as swimming pools , water slides , water parks , whirlpools , a health club and sun decks supervised youth programs entertainment , such as theatrical and comedy shows , live music and nightclubs visits to multiple destinations sales of onboard goods and services not included in the cruise ticket price . this generally includes the following : beverage sales internet and communication services casino gaming full service spas shore excursions specialty restaurants retail sales art sales photo sales laundry and dry cleaning services these goods and services are provided either directly by us or by independent concessionaires , from which we receive either a percentage of their revenues or a fee . concession revenues do not have direct expenses because the costs and services incurred for concession revenues are borne by our concessionaires . we earn our tour and other revenues from our hotel and transportation operations , long-term leasing of ships and other revenues . f-48 table of conten t s we incur cruise operating costs and expenses for the following : the costs of passenger cruise bookings , which include travel agent commissions , cost of air and other transportation , port fees , taxes , and charges that directly vary with guest head counts and credit and debit card fees onboard and other cruise costs , which include the costs of beverage sales , costs of shore excursions , costs of retail sales , communication costs , credit and debit card fees , other onboard costs , costs of cruise vacation protection programs and pre- and post-cruise land packages payroll and related costs , which include the costs of officers and crew in bridge , engineering and hotel operations . substantially all costs associated with our shoreside personnel are included in selling and administrative expenses fuel costs , which include fuel delivery costs food costs , which include both our guest and crew food costs other ship operating expenses , which include port costs that do not vary with guest head counts ; repairs and maintenance , including minor improvements
| as a result of the effects of covid-19 on our expected future operating cash flows , we recognized goodwill impairment charges of $ 2.1 billion and ship impairment charges of $ 1.8 billion during 2020. f-52 table of conten t s key performance non-gaap financial indicators the table below reconciles adjusted net income ( loss ) and adjusted ebitda to net income ( loss ) and adjusted earnings per share to earnings per share for the periods presented : replace_table_token_53_th explanations of non-gaap financial measures we use adjusted net income ( loss ) and adjusted earnings per share as non-gaap financial measures of our cruise segments ' and the company 's financial performance . these non-gaap financial measures are provided along with u.s. gaap net income ( loss ) and u.s. gaap diluted earnings per share . we believe that gains and losses on ship sales , impairment charges , restructuring costs and other gains and losses are not part of our core operating business and are not an indication of our future earnings performance . therefore , we believe it is more meaningful for these items to be excluded from our net income ( loss ) and earnings per share and , accordingly , we present adjusted net income ( loss ) and adjusted earnings per share excluding these items . adjusted ebitda is a non-gaap measure , and we believe that the presentation of adjusted ebitda provides additional information to investors about our operating profitability adjusted for certain non-cash items and other gains and expenses that we believe are not part of our core operating business and are not an indication of our future earnings performance . further , we believe that the presentation of adjusted ebitda provides additional information to investors about our ability to operate our business in compliance with the restrictions set forth in our debt agreements . we define adjusted ebitda as adjusted net income ( loss ) adjusted for ( i ) interest , ( ii ) taxes and , ( iii ) depreciation and amortization . there are material limitations to using adjusted ebitda .
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according to ods-petrodata , at the end of 2013 , 2012 and 2011 , there were 233 , 186 and 146 rigs , respectively ; under construction and the expected delivery dates for the rigs under construction on december 31 , 2013 are as follows : replace_table_token_9_th regulation the demand for the company 's products and services is also affected by laws and regulations relating to the oil and gas industry in general , including those specifically directed to offshore operations . the adoption of new laws and regulations , or changes to existing laws or regulations that curtail exploration and development drilling for oil and gas for economic or other policy reasons could adversely affect the company 's operations by limiting 30 demand for its products . for a description of certain actions taken by the u.s. government related to the deepwater horizon incident , see commitments and contingencies in note 9 of notes to consolidated financial statements . business environment oil and gas prices and the level of offshore drilling and production activity have been characterized by significant volatility in recent years . worldwide military , political , economic and other events have contributed to oil and natural gas price volatility and are likely to continue to do so in the future . oil and gas prices fell from previously high historic levels beginning in mid-2008 and continuing into 2009 , and began to stabilize somewhat in the latter half of 2009. brent crude oil prices in 2010 ranged from $ 67.18 per barrel to $ 93.63 per barrel . in 2011 , brent crude oil prices peaked at $ 126.64 per barrel and ended the year at $ 108.09 per barrel . in 2012 the brent crude oil prices ranged between $ 88.69 per barrel and $ 128.14 per barrel with an average price of $ 111.57 per barrel and ended the year at $ 110.80 per barrel . in 2013 brent crude oil prices ranged between $ 96.84 per barrel and $ 118.90 per barrel with an average price of $ 108.56 per barrel and ended the year at $ 109.95 per barrel . the company expects continued volatility in both crude oil and natural gas prices , as well as in the level of drilling and production related activities . even during periods of high prices for oil and natural gas , companies exploring for oil and gas may cancel or curtail programs , or reduce their levels of capital expenditures for exploration and production for a variety of reasons . in addition , a significant and prolonged decline in hydrocarbon prices would likely have a material adverse effect on the company 's results of operations . the company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is , therefore , subject to the risks customarily attendant to international operations and investments in foreign countries . these risks include nationalization , expropriation , war , acts of terrorism and civil disturbance , restrictive action by local governments , limitation on repatriation of earnings , change in foreign tax laws and change in currency exchange rates , any of which could have an adverse effect on either the company 's ability to manufacture its products in its facilities abroad or the demand in certain regions for the company 's products or both . to date , the company has not experienced any significant problems in foreign countries arising from local government actions or political instability , but there is no assurance that such problems will not arise in the future . interruption of the company 's international operations could have a material adverse effect on its overall operations . see item 1a . risk factorsour international operations expose us to instability and changes in economic and political conditions and other risks inherent to international business , which could have a material adverse effect on our results of operations , financial position or cash flows. revenues . dril-quip 's revenues are generated from two sources : products and services . product revenues are derived from the sale of offshore drilling and production equipment . service revenues are earned when the company provides technical advisory assistance for installation of the company 's products , reconditioning services and rental of running tools for installation and retrieval of the company 's products . in 2013 , the company derived 84 % of its revenues from the sale of its products and 16 % of its revenues from services compared to 83 % and 17 % in 2012 and 85 % and 15 % in 2011 , respectively . service revenues generally correlate to revenues from product sales because increased product sales typically generate increased demand for technical advisory services during installation and rental of running tools . the company has substantial international operations , with approximately 67 % , 74 % and 69 % of its revenues derived from foreign sales in 2013 , 2012 and 2011 , respectively . substantially all of the company 's domestic revenue relates to operations in the u. s. gulf of mexico . domestic revenue approximated 33 % , 26 % and 31 % , respectively , of the company 's total revenues for 2013 , 2012 and 2011. product contracts are typically negotiated and sold separately from service contracts . in addition , service contracts are not typically included in the product contracts or related sales orders and are not offered to the 31 customer as a condition of the sale of the company 's products . the demand for products and services is generally based on world-wide economic conditions in the offshore oil and gas industry , and is not based on a specific relationship between the two types of contracts . substantially all of the company 's sales are made on a purchase order basis . purchase orders are subject to change and or termination at the option of the customer . story_separator_special_tag in case of a change or termination , the customer is required to pay the company for work performed and other costs necessarily incurred as a result of the change or termination . generally , the company attempts to raise its prices as its costs increase . however , the actual pricing of the company 's products and services is impacted by a number of factors , including competitive pricing pressure , the level of utilized capacity in the oil service sector , maintenance of market share , the introduction of new products and general market conditions . the company accounts for larger and more complex projects that have relatively longer manufacturing time frames on a percentage-of-completion basis . during both 2013 and 2012 , there were 21 projects that were accounted for using the percentage-of-completion method , which represented approximately 15 % and 20 % , respectively , of the company 's total revenues and 18 % and 24 % of the company 's product revenues , respectively . during 2011 , there were 18 projects representing 20 % of the company 's total revenues and 23 % of the company 's product revenues . this percentage may fluctuate in the future . revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete , which is used to determine the revenue earned and the appropriate portion of total estimated cost of sales . accordingly , price and cost estimates are reviewed periodically as the work progresses , and adjustments proportionate to the percent complete are reflected in the period when such estimates are revised . losses , if any , are recorded in full in the period when they become known . amounts received from customers in excess of revenues recognized are classified as a current liability . see item 1a . risk factorswe may be required to recognize a charge against current earnings because of percentage-of-completion accounting. the following table sets forth , for the periods indicated , a breakdown of the company 's u.s. gulf of mexico products and services revenues : replace_table_token_10_th during 2013 , numerous subsea equipment orders were completed and shipped , contributing to the large increase in subsea equipment revenue for the year as compared to 2012 and 2011. as the oil and gas industry continues to recover from the deepwater horizon incident , the number of floating rigs ( the rig type where dril-quip equipment is normally utilized ) actively drilling in the u.s. gulf of mexico continues to increase . during 2013 , an average of 37 floating rigs were actively drilling compared to an average of 29 in 2012 and 18 in 2011. the change in offshore rig equipment revenues in 2013 compared to 2012 resulted primarily from a reduction of revenues from projects accounted for under the percentage-of-completion method in the u.s. gulf of mexico . in 2013 , service revenues totaled 6.1 % of total revenues compared to 6.9 % in 2012 and 4.3 % in 2011. the company will continue to monitor any remaining effects of the u.s. drilling moratorium and the subsequent permitting delays on its ongoing business operations . 32 cost of sales . the principal elements of cost of sales are labor , raw materials and manufacturing overhead . cost of sales as a percentage of revenues is influenced by the product mix sold in any particular period , costs from projects accounted for under the percentage-of-completion method and market conditions . the company 's costs related to its foreign operations do not significantly differ from its domestic costs . selling , general and administrative expenses . selling , general and administrative expenses include the costs associated with sales and marketing , general corporate overhead , compensation expense , stock-based compensation expense , legal expenses , foreign currency transaction gains and losses and other related administrative functions . engineering and product development expenses . engineering and product development expenses consist of new product development and testing , as well as application engineering related to customized products . income tax provision . the company 's overall effective income tax rate has historically been lower than the statutory rate primarily due to foreign income tax rate differentials , research and development credits and deductions related to domestic manufacturing activities . story_separator_special_tag engineering and product development expenses . for 2012 , engineering and product development expenses increased by approximately $ 2.9 million , or 8.4 % , to $ 37.5 million from $ 34.6 million in 2011. the increase was primarily due to additional personnel required to meet the demands of the higher backlog related to long-term projects . engineering and product development expenses as a percentage of revenues decreased to 5.1 % in 2012 from 5.8 % in 2011. special items . in october 2011 , j. mike walker retired and stepped down from his positions as chairman of the board of directors and chief executive officer . under the circumstances of mr. walker 's retirement , he was entitled to severance under his employment agreement with the company . pursuant to mr. walker 's employment agreement , the company was obligated to pay mr. walker , among other things , his base salary and his annual bonus through his remaining employment period ( october 27 , 2014 ) . in addition , stock options owned by mr. walker that were outstanding at the date of the termination of his employment were immediately vested . accordingly , the company recognized a pre-tax expense of $ 4.7 million during the fourth quarter of 2011. the amount includes base salary and bonus , including payroll taxes , which totaled $ 3.3 million . the acceleration of the vesting of his stock options increased pre-tax non-cash expenses by $ 1.4 million . 35 income tax provision . income tax expense for 2012 was $ 42.9 million on income before taxes of $ 162.1 million , resulting in an effective income tax rate of approximately 26.4 % .
| cost of sales increased by $ 62.2 million , or approximately 13.8 % , to $ 513.9 million for 2013 from $ 451.7 million for the same period in 2012. as a percentage of revenues , cost of sales were approximately 58.9 % in 2013 and 61.6 % in 2012. cost of sales as a percentage of revenue decreased in 2013 primarily due to changes in the product mix and decreases in unabsorbed manufacturing overhead expenses . selling , general and administrative expenses . for 2013 , selling , general and administrative expenses increased by approximately $ 12.6 million , or 15.3 % , to $ 94.8 million from $ 82.2 million in 2012. the increase in selling , general and administrative expenses was primarily due to increased personnel and related expenses , foreign currency transactions and an increase in stock-based compensation . personnel and related expenses were higher by $ 6.1 million in 2013 as compared to 2012. the company recognized approximately $ 6.0 million in foreign currency transaction losses during 2013 compared to approximately $ 5.2 million of losses during 2012. stock-based compensation expense for 2013 totaled $ 8.9 million compared to $ 5.7 million in 2012. selling , general and administrative expenses as a percentage of revenues were 10.9 % in 2013 and 11.2 % in 2012. engineering and product development expenses . for 2013 , engineering and product development expenses increased by approximately $ 2.6 million , or 6.9 % , to $ 40.1 million from $ 37.5 million in 2012. the increase was primarily due to additional personnel required to meet the demands of the higher backlog related to long-term projects . engineering and product development expenses as a percentage of revenues decreased to 4.6 % in 2013 from 5.1 % in 2012. income tax provision . income tax expense for 2013 was $ 54.3 million on income before taxes of $ 224.1 million , resulting in an effective income tax rate of approximately 24.2 % . income tax expense in 2012 was $ 42.9 million on income before taxes of $ 162.1 million , resulting in an effective tax rate of approximately 26.4 % . the decrease in the effective income tax
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arrangement consideration that is fixed or determinable was allocated among the separate units of accounting using the relative selling price method , and the applicable revenue recognition criteria , as described above , was applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition . we determined the estimated selling price for deliverables within each agreement using vendor-specific objective evidence , or vsoe , of selling price , if available , third-party evidence , or tpe , of selling price if vsoe is not available , or management 's best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . determining the besp for a unit of accounting requires significant judgment . in developing the besp for a unit of accounting , we considered applicable market conditions and relevant entity-specific factors , including factors that were contemplated in negotiating the agreement with the customer and estimated costs . contract manufacturing revenue we recorded deferred revenue when we received payments in advance of the delivery of products or the performance of services . as part of the sale of our sumavel dosepro business in may 2014 to endo , we allocated a portion of the total consideration received as payments in advance of the delivery of product under the endo supply agreement that was concurrently entered into with the asset sale . we initially recorded $ 9.1 million of deferred revenue , which was being recognized as contract manufacturing revenue when earned on a “ proportional performance ” basis as product was delivered . as a result , a portion of our contract manufacturing revenue reported included deferred revenue from this transaction being recognized when earned . under the proportional performance method , revenue recognition is based on products delivered to date relative to the total expected products to be delivered over the performance period as this is considered to be representative of the delivery of service under the arrangement . management exercises judgment to estimate the total expected products to be delivered under the endo supply agreement and actual results may differ from these estimates . the performance period under the endo supply agreement was initially estimated to be 8 years , the minimum contractual term under the agreement . changes in estimates of total expected products to be delivered or service obligation time period were accounted for prospectively as a change in estimate . in the fourth quarter of 2016 , as a result of endo 's intent to terminate the supply agreement by the first half of 2017 , we revised our estimates of total expected products to be delivered under the arrangement and recognized revenue for the inception-to-date effect of the change in estimate . the effect of this change in estimate resulted in an increase to 2016 revenue by $ 4.9 million . all remaining deferred revenue related to the endo supply agreement was recognized in 2017. the termination agreements with durect and endo related to relday and sumavel dosepro , respectively , will enable us to focus our resources on the development of zx008 , our lead product candidate . as of september 30 , 2017 , we no longer have a source of recurring revenue . unless and until we obtain regulatory approval of and commercialize zx008 , our ability to generate any meaningful revenue will be limited . contingent consideration liabilities resulting from a business combination in conjunction with our business combination we have recorded contingent consideration liabilities payable upon the achievement of specified development , regulatory approval or sales-based milestone events . the contingent consideration liabilities are measured at their respective fair values as of the acquisition date . the models used in valuing the contingent consideration liabilities are based on significant unobservable inputs , including but not limited to : estimates of revenues related to the products or product candidates ; the probability of success for unapproved product candidates considering their stages of development ; the time to complete the development and approval of product candidates ; 53 the life of the potential commercialized products and associated risks , including the inherent difficulties and uncertainties in developing a product candidate such as obtaining fda and other regulatory approvals ; risks related to the viability of and potential alternative treatments in any future target markets ; and risk adjusted discount rates . we revalue contingent consideration obligations each quarter following the acquisition and record increases or decreases in fair value within the change in fair value of contingent consideration line item in our consolidated statements of operations . increases or decreases in the fair value of our contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones , changes in projected revenues , changes in time periods to attain events or revenue targets , or changes in discount rates . significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period . updates to assumptions could have a significant impact on our results of operations in any given period . actual results may differ from estimates . we believe the fair values used to record contingent consideration liabilities incurred in connection with the business combination are based upon reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates . goodwill and indefinite-lived intangible assets goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually in the fourth quarter , and more frequently if events or other changes in circumstances indicate that the carrying amount of the assets may not be recoverable . impairment of goodwill and indefinite-lived intangibles is determined to exist when the fair value is less than the carrying value of the net assets being tested . goodwill we determined that we have only one operating segment and reporting unit . accordingly , our review of goodwill impairment indicators is performed at the entity-wide level . story_separator_special_tag in performing each annual impairment assessment and any interim impairment assessment , we determine if we should qualitatively assess whether it is more likely than not that the fair value goodwill is less than its carrying amount ( the qualitative impairment test ) . some of the factors considered in the assessment include general macro-economic conditions , conditions specific to the industry and market , cost factors , the overall financial performance and whether there have been sustained declines in the company 's share price . if we conclude it is more likely than not that the fair value of the reporting unit is less than its carrying amount , or elect not to use the qualitative impairment test , a quantitative impairment test is performed using a two-step process . the first step of the goodwill qualitative impairment assessment compares the fair value of the reporting unit to its carrying value . if the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired , and the second step of the impairment test is not required . we use our market capitalization as an indicator of fair value . we believe that since our reporting unit is publicly traded , the ability of a controlling shareholder to benefit from synergies and other intangible assets that arise from control might cause the fair value of our reporting unit as a whole to exceed our market capitalization . however , we believe that the fair value measurement need not be based solely on the quoted market price of an individual share of our common stock , but also can consider the impact of a control premium in measuring the fair value of its reporting unit . should our market capitalization be less than our total stockholder 's equity as of our annual test date or as of any interim impairment testing date , we would also consider market comparables , recent trends in our stock price over a reasonable period and , if appropriate , use an income approach ( discounted cash flow ) to determine whether the fair value of our reporting unit is greater than our carrying amount . if we were to use an income approach , we would establish a fair value by estimating the present value of our projected future cash flows expected to be generated from our business . the discount rate applied to the projected future cash flows to arrive at the present value would be intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows . our discounted cash flow methodology would consider projections of financial performance for a period of several years combined with an estimated residual value . the most significant assumptions we would use in a discounted cash flow methodology are the discount rate , the residual value and expected future revenues , gross margins and operating costs , along with considering any implied control premium . the second step , if required , compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill . if the carrying amount of the reporting unit 's goodwill exceeds its implied fair value , an impairment charge is recognized in an amount equal to that excess . implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities . in 2017 , we elected to bypass the qualitative goodwill impairment assessment . as of october 1 , 2017 , we have determined through a quantitative impairment test that the fair value significantly exceeded the carrying value of our single reporting unit , and concluded that goodwill was not impaired . we did not recognize any goodwill impairment in any of the years presented . 54 indefinite-lived intangible asset our indefinite-lived intangible asset consists of in-process research and development ( “ ipr & d ” ) acquired in a business combination that are used in research and development activities but have not yet reached technological feasibility , regardless of whether they have alternative future use . the primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region . we classify in-process research and development acquired in a business combination as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts . upon completion of the associated research and development efforts , we perform a final test for impairment and will determine the useful life of the technology and begin amortizing the assets to reflect their use over their remaining lives . upon permanent abandonment , we would write-off the remaining carrying amount of the associated in-process research and development intangible asset in performing each annual impairment assessment and any interim impairment assessment , we determine if we should qualitatively assess whether it is more likely than not that the fair value of our ipr & d asset is less than its carrying amount ( the qualitative impairment test ) . if we conclude that is the case , or elect not to use qualitative impairment test , we would proceed with quantitatively determining the fair value of the ipr & d asset and comparing its fair value to its carrying value to determine the amount of impairment , if any ( the quantitative impairment test ) . in performing the qualitative impairment test , the company considers the results of the most recent quantitative impairment test and identifies the most relevant divers of the fair value for the ipr & d asset . the most relevant drivers of fair value we have identified are consistent with the assumptions used in the quantitative estimate of the ipr & d asset discussed below .
| ” in april 2017 , we completed enrollment of study 1 and , in september 2017 , we announced positive top-line results for the 119 patients included in the study 1 phase 3 trial . the study 1 trial met its primary objective of demonstrating that zx008 , at a dose of 0.8 mg/kg/day , is superior to placebo as adjunctive therapy in the treatment of dravet syndrome in children and young adults based on change in the frequency of convulsive seizures between the 6-week baseline observation period and the 14-week treatment period ( p < 0.001 ) . in the trial , zx008 at a dose of 0.8 mg/kg/day also demonstrated statistically significant improvements versus placebo in all key secondary measures , including the proportion of patients with clinically meaningful reductions in seizure frequency ( 50 % or greater ) and longest seizure-free interval . the same analyses comparing a 0.2 mg/kg/day zx008 dose versus placebo also demonstrated statistically significant improvement compared with placebo . zx008 was generally well tolerated without any signs or symptoms of valvulopathy or pulmonary hypertension . in september 2016 , we initiated part 1 of study 1504 , a two-part , double blind , randomized , two arm pivotal phase 3 clinical trial of zx008 in dravet syndrome patients who are taking stiripentol , valproate and or clobazam as part of their baseline standard care . part 1 investigated the pharmacokinetic profile and safety of zx008 when co-administered with the stiripentol regimen ( stiripentol , valproate and clobazam ) . based on the results of the pharmacokinetic and safety portion of the trial , in february 2017 we initiated the safety and efficacy portion of study 1504 , a two-arm study that compares zx008 versus placebo across the titration and 12-week maintenance periods at multiple sites , which currently includes sites in france , the netherlands , united states , canada , germany , the united kingdom and spain . study 1504 is targeted to enroll approximately 40 patients per treatment group . in january 2018 , we completed enrollment of this study and
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also during 2017 , we recorded a $ 1.7 million excess tax benefit for stock based compensation . excluding these tax items , the effective tax rate would have been 13.1 % in 2018 compared to 9.6 % in 2017 , primarily due to the u.s. tax reform implementation of the global intangible low taxes income ( gilti ) tax provision effective january 1 , 2018. we have been granted certain tax incentives , including tax holidays , for our subsidiaries in china , malaysia and thailand that will expire at various dates , unless extended or otherwise renegotiated , through 2018 in china , 2021 in malaysia , and 2028 in thailand . we expect to submit an application for a new tax incentive in china during the second half of 2019. see note 10 to the consolidated financial statements in item 8 of this report . net income ( loss ) we reported a net income of $ 22.8 million , or $ 0.49 per diluted share for 2018 , compared with a net loss of $ 31.9 million , or $ 0.64 per diluted share , for 2017. the net increase of $ 70.2 million in 2018 is primarily the result of the tax expense related to the effects of the 2017 u.s. tax reform discussed above . 34 2017 compared with 2016 sales sales for 2017 were $ 2.5 billion , a 6 % increase from sales of $ 2.3 billion in 2016. the percentages of our sales by sector were as follows : replace_table_token_9_th industrials . 2017 sales decreased 9 % to $ 496.4 million from $ 543.8 million in 2016 primarily as a result of softness across several of our top customers . aerospace and defense . 2017 sales increased 6 % to $ 391.7 million from $ 369.7 million in 2016 primarily due to increased demand from our defense customers . computing . 2017 sales increased 21 % to $ 540.4 million from $ 447.2 million in 2016. the increase is primarily due to increased strength from our existing storage customers and new security programs . medical . 2017 sales increased 8 % to $ 373.8 million from $ 346.0 million in 2016 from higher demand and program ramps from new and existing customers . test & instrumentation . 2017 sales increased 42 % to $ 346.3 million from $ 243.4 million in 2016. the increase reflected strong growth in our precision machining serving the semi-capital equipment market . telecommunications . 2017 sales decreased 18 % to $ 305.9 million from $ 372.2 million in 2016. the decrease is primarily due to sales from new programs not offsetting lower demand from our existing customer base . during 2017 and 2016 , 47 % and 45 % , respectively , of our sales were from international operations . gross profit gross profit increased 5 % to $ 225.9 million for 2017 from $ 214.7 million in 2016. during 2017 , we incurred a $ 1.0 million charge for the write-down of inventory associated with the insolvency of a customer . gross margin was 9.2 % in both 2017 and 2016. selling , general and administrative expenses sg & a increased to $ 130.4 million in 2017 from $ 113.4 million in 2016. the increase was primarily a result of increased variable and stock-based compensation , investments in our sales and marketing organization and a $ 1.7 million charge for a provision to accounts receivable associated with the insolvency of a customer . including this provision to accounts receivable , sg & a , as a percentage of sales , increased to 5.3 % in 2017 from 4.9 % in 2016 . 35 excluding this provision to accounts receivable , sg & a as a percentage of sales increased to 5.2 % in 2017 from 4.9 % in 2016. amortization of intangible assets amortization of intangible assets decreased to $ 10.1 million in 2017 from $ 11.8 million in 2016 due primarily to certain customer relationship intangible assets that became fully amortized as of december 31 , 2016. restructuring charges and other costs during 2017 , we recognized $ 4.9 million of restructuring charges in connection with reductions in workforce of certain facilities primarily in the americas . in addition , we incurred $ 3.7 million in costs related to the relocation and transition of our corporate headquarters to arizona . during 2016 , we recognized $ 4.7 million of restructuring charges in connection with reductions in workforce of certain facilities primarily in the americas , and $ 0.1 million of integration costs . in 2016 , we also recognized $ 4.3 million of costs in connection with a proxy contest relating to our 2016 annual shareholders meeting , $ 3.0 million in connection with the separation of our former chief executive officer in september 2016 and $ 0.4 million in other charges . interest income interest income increased to $ 5.4 million in 2017 from $ 2.1 million in 2016 due to investment of higher levels of available cash in interest bearing cash equivalents at higher interest rates . income tax expense income tax expense of $ 102.9 million in 2017 represented a 144.9 % effective tax rate for 2017 , compared with $ 5.5 million for 2016 that represented an effective tax rate of 7.9 % . in 2017 , we incurred a net estimated tax expense of $ 97.7 million due to the one-time mandatory transition tax on the deemed repatriation of undistributed foreign earnings and the re-measurement of u.s. deferred tax assets and liabilities as a result of the u.s. tax reform . also during 2017 , we recorded a $ 1.7 million excess tax benefit for stock based compensation . in 2016 , we recorded the reversal of uncertain tax benefits of $ 8.3 million relating to the expiration of the statute of limitations for a liquidated foreign subsidiary . story_separator_special_tag excluding these tax items , the effective tax rate would have been 9.6 % in 2017 compared to 19.8 % in 2016. the decrease in the effective tax rate results primarily from a taxable loss in the u.s. and higher taxable income in geographies with lower tax rates . net income ( loss ) we reported a net loss of $ 31.9 million , or $ 0.64 per diluted share , for 2017 , compared with net income of $ 63.9 million , or $ 1.28 per diluted share for 2016. the net decrease of $ 95.8 million in 2017 is primarily the result of the tax expense related to the effects of the 2017 u.s. tax reform discussed above . liquidity and capital resources we have historically financed our organic growth and operations through funds generated from operations and occasional borrowings under our revolving credit facility . cash and cash equivalents totaled $ 458.1 million at december 31 , 2018 and $ 742.5 million at december 31 , 2017 , of which $ 154.4 million and $ 673.4 million , respectively , were held outside the u.s. in various foreign subsidiaries . during 2018 , we repatriated $ 560.6 million of foreign earnings to the u.s. cash provided by operating activities was $ 76.7 million in 2018. the cash provided by operations during 2018 consisted primarily of $ 22.8 million of net income , adjusted for $ 51.8 million of depreciation and amortization , a $ 34.0 million increase in accounts receivable , a $ 43.3 million increase in inventories , a $ 23.8 million decrease in 36 income tax liabilities , net and a $ 61.4 million increase in accounts payable . the increase in accounts payable was a result of the timing of payments . working capital was $ 0.9 billion at december 31 , 2018 and $ 1.2 billion at december 31 , 2017. we purchase components only after customer orders or forecasts are received , which mitigates , but does not eliminate , the risk of loss on inventories . supplies of electronic components and other materials used in operations are subject to industry-wide shortages . in certain instances , suppliers may allocate available quantities to us . if shortages of these components and other material supplies used in operations occur , vendors may not ship the quantities we need for production , and we may be forced to delay shipments , which can increase backorders and impact cash flows . cash used in investing activities was $ 68.8 million in 2018 primarily due to purchases of additional property , plant and equipment totaling $ 62.8 million . the purchases of property , plant and equipment were primarily for machinery and equipment in the americas and asia . cash used in financing activities was $ 291.0 million in 2018. share repurchases totaled $ 211.9 million , net principal payments on long-term debt totaled $ 58.0 million , dividends paid totaled $ 21.0 million , and we received $ 3.6 million from the exercise of stock options . under the terms of our $ 650.0 million credit agreement , in addition to the term loan facility , we have a $ 500.0 million five-year revolving credit facility to be used for general corporate purposes , both with a maturity date of july 20 , 2023. the credit agreement includes an accordion feature pursuant to which total commitments under the facility may be increased by an additional $ 275.0 million , subject to satisfaction of certain conditions . as of december 31 , 2018 , we had $ 150.0 million in borrowings outstanding under the term loan facility and $ 2.8 million in letters of credit outstanding under our revolving credit facility . during 2018 , the company borrowed and repaid $ 50.0 million under the revolving credit facility . $ 497.2 million remains available for future borrowings under the revolving credit facility . see note 7 to the consolidated financial statements in item 8 of this report for more information regarding the terms of the credit agreement . the credit agreement contains certain financial covenants as to interest coverage and debt leverage , and certain customary affirmative and negative covenants , including restrictions on our ability to incur additional debt and liens , pay dividends , repurchase shares , sell assets and merge or consolidate with other persons . amounts due under the credit agreement could be accelerated upon specified events of default , including a failure to pay amounts due , breach of a covenant , material inaccuracy of a representation , or occurrence of bankruptcy or insolvency , subject , in some cases , to cure periods . as of december 31 , 2018 , we were in compliance with all of these covenants and restrictions . our operations , and the operations of businesses we acquire , are subject to certain foreign , federal , state and local regulatory requirements relating to environmental , waste management , health and safety matters . we believe we operate in substantial compliance with all applicable requirements and we seek to ensure that newly acquired businesses comply or will comply substantially with applicable requirements . to date , the costs of compliance and workplace and environmental remediation have not been material to us . however , material costs and liabilities may arise from these requirements or from new , modified or more stringent requirements in the future . in addition , our past , current and future operations , and the operations of businesses we have or may acquire , may give rise to claims of exposure by employees or the public , or to other claims or liabilities relating to environmental , waste management or health and safety concerns . as of december 31 , 2018 , we had cash and cash equivalents totaling $ 458.1 million and $ 497.2 million available for borrowings under the credit agreement .
| gross profit gross profit decreased 2 % to $ 220.6 million for 2018 from $ 225.9 million in 2017. during 2018 and 2017 , we incurred a $ 0.8 million and $ 1.0 million , respectively , in net charges for the write-down of inventory associated with the insolvency of two customers . gross margin decreased to 8.6 % in 2018 from 9.2 % in 2017 primarily due to a higher mix of traditional market sales in 2018 , which generally have lower margins . selling , general and administrative expenses sg & a increased to $ 143.2 million in 2018 from $ 130.4 million in 2017. during both 2018 and 2017 , we had $ 1.7 million in charges for a provision to accounts receivable associated with the insolvency of two customers . including this provision to accounts receivable , sg & a , as a percentage of sales , increased to 5.6 % in 2018 from 5.3 % in 2017. excluding this provision to accounts receivable , sg & a as a percentage of sales increased to 5.5 % in 2018 from 5.2 % in 2017 . the increase in sg & a is related primarily to increased variable and stock-based compensation and the investment in our sales and marketing organization . amortization of intangible assets amortization of intangible assets decreased to $ 9.5 million in 2018 from $ 10.1 million in 2017 due primarily to certain customer relationship intangible assets that became fully amortized . restructuring charges and other costs during 2018 , we recognized $ 5.2 million of restructuring charges in connection with reductions in workforce of certain facilities primarily in the americas . in addition , we incurred $ 2.8 million in costs related to the relocation and transition of our corporate headquarters to arizona and $ 1.4 million related to a litigation arbitration decision against the company . see note 18 to the consolidated financial statements in item 8 of this report for information about our legal proceedings . during 2017 , we recognized $ 4.9 million of restructuring
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we plan to seek and evaluate various investment opportunities including energy related , agricultural or other ventures we believe fit our investment criteria . we can make no assurances that we will be successful in our efforts to find such opportunities . through a wholly owned subsidiary rex i.p. , llc , we entered into a joint venture to file and defend patents for technology relating to heavy oil and oil sands production methods , and to attempt to commercially exploit the technology to generate license fees , royalty income and development opportunities . the patented technology is an enhanced method of heavy oil recovery involving zero emissions downhole steam generation . we own 60 % and hytken owns 40 % of the entity named future energy , llc , an ohio limited liability company . future energy is managed by a board of three managers , two appointed by us and one by hytken . during fiscal year 2013 , we agreed to fund direct patent expenses relating to patent applications and defense , annual annuity fees and maintenance on a country by country basis , with the right to terminate funding and transfer related patent rights to hytken . we may also fund , through loans , all costs relating to new intellectual property , consultants , and future research and development , pilot field tests and equipment purchases for commercialization stage of the patents . to date , we have paid approximately $ 1.8 million for our ownership interest , patent and other expenses . we have not tested or proven the commercial feasibility of the technology . ethanol investments in fiscal year 2006 , we entered the ethanol industry by investing in several entities organized to construct and , subsequently operate , ethanol producing plants . we are invested in three entities as of january 31 , 2018 , utilizing equity investments . the following table is a summary of our ethanol investments at january 31 , 2018 ( gallons in millions ) : replace_table_token_3_th 26 results of operations for a detailed analysis of period to period changes , see the segment discussion that follows this section as that discussion reflects how management views and monitors our business . comparison of fiscal years ended january 31 , 2018 and 2017 net sales and revenue – net sales and revenue in fiscal year 2017 were approximately $ 452.6 million , consistent with prior year sales . gross profit – gross profit was approximately $ 44.2 million in fiscal year 2017 , or 9.8 % of net sales and revenue , versus approximately $ 71.0 million in fiscal year 2016 or 15.7 % of net sales and revenue . gross profit for fiscal year 2017 decreased by approximately $ 19.5 million compared to fiscal year 2016 as a result of operations in the ethanol and by-products segment and by approximately $ 7.3 million as a result of operations in the refined coal segment . selling , general and administrative expenses – selling , general and administrative expenses for fiscal year 2017 were approximately $ 24.1 million ( 5.3 % of net sales and revenue ) , an increase of approximately $ 2.7 million or 12.5 % from approximately $ 21.4 million ( 4.7 % of net sales and revenue ) for fiscal year 2016. the increase is primarily related to professional fees and commission expense associated with the refined coal acquisition . we expect selling , general and administrative expenses to be consistent with fiscal year 2016 results in future periods , with the exception of variability of incentive compensation which is based upon company profitability and any impact of potential future acquisitions . equity in income of unconsolidated ethanol affiliates – during fiscal years 2017 and 2016 , we recognized income of approximately $ 3.2 million and $ 6.1 million , respectively , from our equity investment in big river , which is included in our ethanol and by-products segment results . income recognized in fiscal year 2017 was reduced by approximately $ 0.8 million as a result of an impairment charge big river incurred . our investment in big river , which has interests in four ethanol production plants , has an effective ownership of ethanol gallons shipped in the trailing twelve months ended january 31 , 2018 of approximately 363 million gallons . overall , we expect operating experience of big river to be generally consistent with the trends in crush spread margins described in the “ overview ” section as big river 's results are dependent on the same key drivers ( ethanol , corn , dried distillers grains and natural gas pricing ) . due to the inherent volatility of commodity prices within the ethanol industry , we can not predict the likelihood of future operating results from big river being similar to the fiscal year 2017 results . gain on sale of investment – until the second quarter of fiscal year 2015 , we owned a minority interest in patriot holdings , llc ( “ patriot ” ) . on june 1 , 2015 patriot and a subsidiary of chs inc. ( “ chs ” ) completed a merger that resulted in chs acquiring 100 % of the ownership interest in patriot . during fiscal year 2016 , we received proceeds of approximately $ 4.5 million as payment for certain escrow holdbacks and adjustments to the purchase price related to the merger between patriot and chs . as a result , we recognized approximately $ 0.2 million as gain on sale of investment ( included in our ethanol and by-products segment ) during fiscal year 2016. interest and other income – interest and other income for fiscal year 2017 was approximately $ 2.3 million compared to approximately $ 0.6 million for fiscal year 2016. interest income has increased as yields on our excess cash have improved compared to fiscal year 2016. in addition , we received federal grants of approximately $ 0.7 million during fiscal year 2017 . story_separator_special_tag 27 ( loss ) gain on disposal of real estate and property and equipment , net – we recognized losses of approximately $ 0.2 million in fiscal year 2017 , compared to gains of approximately $ 0.3 million in fiscal year 2016. we sold three real estate properties in fiscal year 2016 , which completed the sales of our former retail properties . the losses in fiscal year 2017 result from disposals of ethanol plant equipment . income before income taxes – as a result of the foregoing , income before income taxes was approximately $ 25.4 million for fiscal year 2017 versus approximately $ 56.9 million for fiscal year 2016. provision for income taxes – our effective tax rate was a benefit of 76.9 % and a provision of 30.6 % for fiscal years 2017 and 2016 , respectively . our effective rate is impacted by the noncontrolling interests of the companies we consolidate , as we recognize 100 % of their income or loss before income taxes and noncontrolling interests . however , we only provide an income tax provision or benefit for our portion of the subsidiaries ' income or loss with a noncontrolling interest . during fiscal year 2017 , our effective rate decreased by 45.4 % ( approximately $ 11.5 million ) as a result of section 45 production tax credits earned by our refined coal facility . the amount of credits earned in future periods will vary with refined coal production levels . the tax cuts and jobs act of 2017 ( “ tax act ” ) reduced the federal income tax rate on corporations from 35 % to 21 % , which resulted in a benefit of 56.6 % ( approximately $ 14.4 million ) to our effective tax rate as our deferred tax liabilities were remeasured at the lower federal income tax rate . our domestic production activities deduction increased from 2.9 % in fiscal year 2016 to 5.9 % ( total benefit of approximately $ 1.5 million ) in fiscal year 2017 , primarily as a result of agricultural cooperative patronage , which can vary significantly from year to year . net income – as a result of the foregoing , net income was approximately $ 44.9 million for fiscal year 2017 versus approximately $ 39.5 million for fiscal year 2016. noncontrolling interests – income attributable to noncontrolling interests was approximately $ 5.2 million and $ 7.2 million during fiscal years 2017 and 2016 , respectively , and represents the owners ' ( other than us ) share of the income or loss of nugen , one earth , the refined coal entity and future energy . income attributable to noncontrolling interests of one earth and nugen were approximately $ 5.6 million and $ 0.1 million , respectively , during fiscal year 2017 and were approximately $ 7.1 million and $ 0.2 million , respectively , during fiscal year 2016. the loss related to noncontrolling interests of the refined coal entity was approximately $ 0.5 million during fiscal year 2017. net income attributable to rex common shareholders – as a result of the foregoing , net income attributable to rex common shareholders was approximately $ 39.7 million for fiscal year 2017 compared to $ 32.3 million for fiscal year 2016. business segment results we have two reportable segments , i ) ethanol and by-products and ii ) refined coal . in fiscal year 2017 , we began reporting the results of our refined coal operation as a new segment as a result of the august 10 , 2017 acquisition of an entity that operates a refined coal facility . prior to the acquisition , we had one reportable segment , ethanol . the following sections discuss the results of operations for each of our business segments and corporate and other . as discussed in note 16 , our chief operating decision maker ( as defined by asc 280 , “ segment reporting ” ( “ asc 280 ” ) evaluates the operating performance of our business segments using net income attributable to rex common shareholders . 28 the following tables summarize segment and other results and assets ( amounts in thousands ) : replace_table_token_4_th 1 we record sales in the refined coal segment net of the cost of coal as we purchase the coal feedstock from the customer to which refined coal is sold . ethanol and by-products segment the ethanol and by-products segment includes the consolidated financial results of one earth and nugen , our equity investment in big river and certain administrative expenses . the following table summarizes 29 selected data from one earth and nugen : replace_table_token_5_th the following table summarizes sales from one earth and nugen , by product group ( amounts in thousands ) : replace_table_token_6_th ethanol sales increased from approximately $ 358.3 million in the prior year to approximately $ 359.2 million in the current year , primarily a result of an increase of 9.1 million gallons ( 3.7 % ) sold during fiscal year 2017. the increase in gallons sold is attributable to the capacity expansion projects we have invested in over the last several years . the volume increase was offset by a $ 0.05 decline in the price per gallon sold . dried distillers grains sales decreased from approximately $ 71.2 million in the prior year to approximately $ 63.1 million in the current year , primarily a result of a $ 18.08 decline in the price per ton sold . the decrease in selling price was partially offset by an increase of 21,709 tons ( 3.8 % ) sold during fiscal year 2017 , a result of the same factors discussed above regarding ethanol volume increases . management believes the decline in the selling price results primarily from the ongoing uncertainty regarding chinese imports of domestic dried distillers grains as the china ministry of commerce had announced an anti-dumping and countervailing duty investigation in january 2016 and , in september 2016 , imposed an anti-dumping tariff and a countervailing duty on u.s. dried distillers grains exports to china .
| management believes the decline in the selling price results primarily from the uncertainty regarding chinese imports of domestic dried distillers grains as the china ministry of commerce had announced an anti-dumping and countervailing duty investigation in january 2016 and , in september 2016 , imposed an anti-dumping tariff and a countervailing duty on u.s. dried distillers grains exports to china that total approximately 45 % . our non-food grade corn oil sales increased from approximately $ 15.5 million in fiscal year 2015 to approximately $ 18.5 million in fiscal year 2016 , primarily a result of an increase of 7.9 million pounds ( 13.4 % ) sold during fiscal year 2016. similar to the ethanol increase , the capacity expansion projects we have completed are the primary reason for the increase in pounds sold and is consistent with the increased ethanol production . 36 gross profit was approximately $ 71.0 million in fiscal year 2016 , or 15.7 % of net sales and revenue compared to approximately $ 50.8 million in fiscal year 2015 or 11.6 % of net sales and revenue . this represents an increase of approximately $ 20.2 million . the crush spread for fiscal year 2016 was approximately $ 0.25 per gallon of ethanol sold compared to approximately $ 0.17 per gallon of ethanol sold during fiscal year 2015. the decline of approximately $ 9.9 million in sales of dried distillers grains compared to fiscal year 2015 negatively affected gross profit . management believes this decline results primarily from lower chinese imports of u.s. produced dried distillers grains and the continued uncertainty regarding such imports . grain accounted for approximately 77 % ( $ 293.8 million ) of our cost of sales during fiscal year 2016 compared to approximately 76 % ( $ 293.0 million ) during fiscal year 2015. natural gas accounted for approximately 5 % ( $ 20.6 million ) of our cost of sales during fiscal year 2016 compared to approximately 6 % ( $ 22.7 million ) during fiscal year 2015. the decrease in natural gas costs are primarily related to relatively mild winter weather conditions and
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