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given the fixed price nature of much of our project work , if our initial estimate of project costs is wrong or we incur cost overruns that can not be recovered in change orders , we can experience reduced profits or even significant losses on fixed price project work . we also perform some project work on a cost‑plus or a time and materials basis , under which we are paid our costs incurred plus an agreed‑upon profit margin , and such projects are sometimes subject to a guaranteed maximum cost . these margins are frequently less than fixed‑price contract margins because there is less risk of unrecoverable cost overruns in cost‑plus or time and materials work . as of december 31 , 2018 , we had 5,208 projects in process . our average project takes six to nine months to complete , with an average contract price of approximately $ 597,000. our projects generally require working capital funding of equipment and labor costs . customer payments on periodic billings generally do not recover these costs until late in the job . our average project duration together with typical retention terms as discussed above generally allow us to complete the realization of revenue and earnings in cash within one year . we have what we believe is a well‑diversified distribution of revenue across end‑use sectors that we believe reduces our exposure to negative developments in any given sector . because of the integral nature of hvac and related controls systems to most buildings , we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems , except with respect to some government buildings . the service work that we do , which is discussed further below , usually does not give rise to lien rights . we also perform larger projects . taken together , projects with contract prices of $ 1 million or more totaled $ 2.51 billion of aggregate contract value as of december 31 , 2018 , or approximately 80 % , out of a total contract value for all projects in progress of $ 3.11 billion . generally , projects closer in size to $ 1 million will be completed in one year or less . it is unusual for us to work on a project that exceeds two years in length . a stratification of projects in progress as of december 31 , 2018 , by contract price , is as follows : replace_table_token_6_th 25 in addition to project work , approximately 16.0 % of our revenue represents maintenance and repair service on already installed hvac and controls systems . this kind of work usually takes from a few hours to a few days to perform . prices to the customer are based on the equipment and materials used in the service as well as technician labor time . we usually bill the customer for service work when it is complete , typically with payment terms of up to thirty days . we also provide maintenance and repair service under ongoing contracts . under these contracts , we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements . these agreements typically are for one or more years and frequently contain thirty‑ to sixty‑day cancellation notice periods . a relatively small portion of our revenue comes from national and regional account customers . these customers typically have multiple sites , and contract with us to perform maintenance and repair service . these contracts may also provide for us to perform new or replacement systems installation . we operate a national call center to dispatch technicians to sites requiring service . we perform the majority of this work with our own employees , with the balance being subcontracted to third parties that meet our performance qualifications . profile and management of our operations we manage our 36 operating units based on a variety of factors . financial measures we emphasize include profitability , and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost , billings and receivables . we also monitor selling , general , administrative and indirect project support expense , backlog , workforce size and mix , growth in revenue and profits , variation of actual project cost from original estimate , and overall financial performance in comparison to budget and updated forecasts . operational factors we emphasize include project selection , estimating , pricing , management and execution practices , labor utilization , safety , training , and the make‑up of both existing backlog as well as new business being pursued , in terms of project size , technical application and facility type , end‑use customers and industries , and location of the work . most of our operations compete on a local or regional basis . attracting and retaining effective operating unit managers is an important factor in our business , particularly in view of the relative uniqueness of each market and operation , the importance of relationships with customers and other market participants such as architects and consulting engineers , and the high degree of competition and low barriers to entry in most of our markets . accordingly , we devote considerable attention to operating unit management quality , stability , and contingency planning , including related considerations of compensation , and non‑competition protection where applicable . economic and industry factors as a mechanical and building controls services provider , we operate in the broader nonresidential construction services industry and are affected by trends in this sector . while we do not have operations in all major cities of the united states , we believe our national presence is sufficiently large that we experience trends in demand for and pricing of our services that are consistent with trends in the national nonresidential construction sector . story_separator_special_tag if we conclude otherwise , then we perform the first step of a two‑step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit . we estimate the fair value of the reporting unit based on a market approach and an income approach , which utilizes discounted future cash flows . assumptions critical to the fair value estimates under the discounted cash flow model include discount rates , cash flow projections , projected long‑term growth rates and the determination of terminal values . the market approach utilized market multiples of invested capital from comparable publicly traded companies ( “ public company approach ” ) . the market multiples from invested capital include revenue , book equity plus debt and earnings before interest , provision for income taxes , depreciation and amortization ( “ ebitda ” ) . there are significant inherent uncertainties and management judgment involved in estimating the fair value of each reporting unit . while we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units , it is possible that a material change could occur . if actual results are not consistent with our current estimates and assumptions , or the current economic outlook worsens , goodwill impairment charges may be recorded in future periods . we amortize identifiable intangible assets with finite lives over their useful lives . changes in strategy and or market condition , may result in adjustments to recorded intangible asset balances or their useful lives . results of operations ( in thousands ) : replace_table_token_7_th 2018 compared to 2017 we had 36 operating locations as of december 31 , 2017. in the third quarter of 2018 , we completed one acquisition of a company that reports as a separate operating location in indiana ( the “ indiana acquisition ” ) . furthermore , in the fourth quarter of 2018 , we combined two operating locations into one . as of december 31 , 2018 , we had 36 operating locations . acquisitions are included in our results of operations from the respective acquisition date . the same‑store comparison from 2018 to 2017 , as described below , excludes six months of results for the indiana acquisition , which was acquired in july 2018 , as well as the first three months of 2018 for bch , which was acquired in april 2017. an operating location is included in the same‑store comparison on the first day it has comparable prior year operating data , except for immaterial acquisitions that were absorbed and integrated , or “ tucked-in , ” with existing operations . 30 revenue —revenue increased $ 395.0 million , or 22.1 % to $ 2.18 billion in 2018 compared to 2017. the increase included a 5.1 % increase related to the indiana and bch acquisitions and a 17.0 % increase in revenue related to same‑store activity . the same‑store revenue increase was broad-based , including an increase in activity at our north carolina operation ( $ 123.6 million ) , one of our virginia operations ( $ 25.4 million ) and our wisconsin operation ( $ 23.0 million ) . backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work . project work generally lasts less than one year . service agreement revenue , service work and short duration projects , which are generally billed as performed , do not flow through backlog . accordingly , backlog represents only a portion of our revenue for any given future period , and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months . as a result , we believe the predictive value of backlog information is limited to indications of general revenue direction over the near term and should not be interpreted as indicative of ongoing revenue performance over several quarters . backlog as of december 31 , 2018 was $ 1.17 billion , a 7.1 % decrease from september 30 , 2018 backlog of $ 1.25 billion and a 23.0 % increase from december 31 , 2017 backlog of $ 948.4 million . sequential backlog decreased primarily due to completion of project work at our wisconsin operation ( $ 25.5 million ) , our north carolina operation ( $ 25.1 million ) and one of our virginia operations ( $ 17.0 million ) . the year‑over‑year backlog increase included the indiana acquisition ( $ 27.2 million or 2.9 % ) . same-store backlog increased 20.1 % primarily due to increased project bookings at bch ( $ 68.5 million ) , one of our virginia operations ( $ 61.1 million ) and our alabama operation ( $ 33.9 million ) . gross profit —gross profit increased $ 80.0 million , or 21.8 % , to $ 446.3 million in 2018 as compared to 2017. the increase included a $ 12.0 million , or 3.3 % , increase related to the indiana and bch acquisitions and a $ 68.0 million , or 18.5 % , increase on a same‑store basis . the same‑store increase in gross profit was primarily due to increased volumes and improvement in project execution at our north carolina operation ( $ 23.3 million ) , bch ( $ 9.1 million ) and our wisconsin operation ( $ 6.8 million ) . as a percentage of revenue , gross profit remained relatively consistent at 20.4 % in 2018 as compared to 20.5 % in 2017 due to the improvement in project execution at our north carolina operation , offset by job underperformance at our california operation ( $ 3.7 million ) . selling , general and administrative expenses ( “ sg & a ” ) —sg & a increased $ 30.4 million , or 11.4 % , to $ 297.0 million for 2018 as compared to 2017. on a same‑store basis , excluding

debt revolving credit facility we have a $ 400.0 million senior credit facility ( the “ facility ” ) provided by a syndicate of banks , with a $ 100 million accordion option . the facility , which is available for borrowings and letters of credit , expires in april 2023 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and assets held by certain unrestricted subsidiaries and a second lien on our assets related to projects subject to surety bonds . in 2018 , we incurred approximately $ 0.8 million in financing and professional costs in connection with an amendment to the facility , which combined with the previous unamortized costs of $ 1.1 million , are being amortized on a straight-line basis as a non-cash charge to interest expense over the remaining term of the facility . as of december 31 , 2018 , we had $ 50.0 million of outstanding borrowings , $ 33.6 million in letters of credit outstanding and $ 316.4 million of credit available . there are two interest rate options for borrowings under the facility , the base rate loan option and the eurodollar rate loan option . these rates are floating rates determined by the broad financial markets , meaning they can and do move up and down from time to time . additional margins are then added to these two rates . the weighted average interest rate applicable to the borrowings under the facility was approximately 3.7 % as of december 31 , 2018. certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf , such as to beneficiaries under our self‑funded insurance programs . we have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts . our lenders issue such letters of credit through the facility for a fee .

our vm solutions ( including vm , cm , tp , cloud agent for vm , allocated scanner revenue and qualys private cloud platform ) have provided a majority of our revenues to date , representing 73 % of total revenue in 2019 and 74 % of total revenues in each of 2018 and 2017 , respectively . 41 we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access each of our cloud solutions . we generally invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from our existing customers as they renew and purchase additional subscriptions . we market and sell our solutions to enterprises , government entities and small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2019 , we had over 15,700 active customers in more than 133 countries , including a majority of each of the forbes global 100 and fortune 100. in 2019 , 2018 and 2017 , approximately 64 % , 67 % and 70 % , respectively , of our revenues were derived from customers in the united states based on our customers billing address . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had continued revenue growth over the past three years . our revenues reached $ 321.6 million in 2019 from $ 278.9 million in 2018 and $ 230.8 million in 2017 , respectively , representing period-over-period increases of $ 42.7 million and $ 48.1 million in 2019 and 2018 , or 15 % and 21 % , respectively . we generated net income of $ 69.3 million in 2019 , $ 57.3 million in 2018 and $ 40.4 million in 2017. key components of results of operations revenues we derive revenues from the sale of subscriptions to our security and compliance solutions , which are delivered on our cloud platform . subscriptions to our solutions allow customers to access our cloud-based security and compliance solutions through a unified , web-based interface . customers generally enter into one-year renewable subscriptions . the subscription fee entitles the customer to an unlimited number of scans for a specified number of devices or web applications and , if requested by a customer as part of their subscription , a specified number of physical or virtual scanner appliances . our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan it infrastructures within their firewalls and do not function without , and are not sold separately from , subscriptions for our solutions . in some limited cases , we also provide certain computer equipment used to extend our qualys cloud platform into our customers private cloud environment . customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions . we typically invoice our customers for the entire subscription amount at the start of the subscription term . invoiced amounts are reflected on our consolidated balance sheets as accounts receivable or as cash when collected , and as deferred revenues until earned and recognized ratably over the subscription period . accordingly , deferred revenues represent the amount billed to customers that has not yet been earned or recognized as revenues , pursuant to subscriptions entered into in current and prior periods . cost of revenues cost of revenues consists primarily of personnel expenses , comprised of salaries , benefits , amortization of internal-use software , performance-based compensation and stock-based compensation , for employees who operate our data centers and provide support services to our customers . other expenses include depreciation of data center equipment and physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions , expenses related to the use of third-party data centers , amortization of third-party technology licensing fees , amortization of intangibles related to acquisitions , maintenance support , fees paid to contractors who supplement or support our operations center personnel and overhead allocations . we expect to continue to make capital investments to expand and support our data center operations , which will increase the cost of revenues in absolute dollars . operating expenses research and development research and development expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our research and development teams . other expenses 42 include third-party contractor fees , software and license fees , amortization of intangibles related to acquisitions and overhead allocations . we capitalize certain research and development costs related to new products ' internal-use software development efforts . capitalized costs include salaries , benefits , and stock-based compensation charges for employees that are directly involved in developing new products for our cloud security platform during the application development stage . capitalized costs related to internally developed software under development are treated as construction in progress until the program , feature or functionality is ready for its intended use , at which time amortization commences . we expect to continue to devote substantial resources to research and development in an effort to continuously improve our existing solutions as well as develop new solutions and capabilities and expect that research and development expenses will increase in absolute dollars . story_separator_special_tag we amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years . five years represents the estimated life of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as our own historical data . applying the practical expedient in asc 340-40-25-4 , we expense commissions related to renewals with a contract term of one year or less . the current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets , and other noncurrent assets , respectively , in our consolidated balance sheets . income taxes we are subject to income taxes in the united states as well as other tax jurisdictions in which we conduct business . earnings from our non-u.s. activities are subject to local income tax and may also be subject to u.s. income tax . income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year , and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity 's financial statements or tax returns . we must make significant assumptions , judgments and estimates to determine our current provision for ( benefit from ) income taxes , our deferred tax assets and liabilities , and any valuation allowance to be recorded against our deferred tax assets . our judgments , assumptions and estimates relating to the current provision for ( benefit from ) income taxes include the geographic mix and amount of income ( loss ) , our interpretation of current tax laws , and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . our judgments also include anticipating the tax positions we will record in the financial statements before actually preparing and filing the tax returns . our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments when they are identified or resolved . changes in our business , tax laws or our interpretation of tax laws , and developments in current and future tax audits , could significantly impact the amounts provided for income taxes in our results of operations , financial position , or cash flows . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry-forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis . we regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized . to make this assessment , we take into account predictions of the amount and category of taxable income from available positive and negative evidence about these possible sources of taxable income . the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified . based on the analysis of positive and negative factors noted above , we do not have a valuation allowance against u.s. federal and certain state deferred tax assets . we believe it is more likely than not that our california deferred tax assets will not be realized because the income attributed to california is not expected to be sufficient to recognize these deferred tax assets . accordingly , we continue to record a valuation allowance as of december 31 , 2019 for our california deferred tax assets . if , in the future , we determine that these deferred tax assets are more likely than not to be realized , a release of all or part , of the related valuation allowance could result in an income tax benefit in the period such determination is made . we recognize an income tax expense or benefit with respect to uncertain tax positions in our financial statements that we judge is more likely than not to be sustained solely on its technical merits in a tax audit , including resolution of any related appeals or litigation processes . to make this judgment , we must interpret complex and sometimes ambiguous tax laws , regulations and administrative practices . if an income tax position meets the more likely than not recognition threshold , then we must measure the amount of the tax benefit to be recognized by determining the largest amount of tax benefit that has a greater than a 50 % likelihood of being realized upon effective settlement with a taxing authority that has full knowledge of 50 all of the relevant facts . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible settlement outcomes . to determine if a tax position is effectively settled after a tax examination has been completed , we must also estimate the likelihood that another taxing authority could review the respective tax position . we must also determine when it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the 12 months after each fiscal year-end . these judgments are difficult because a taxing authority may change its behavior as a result of our disclosures in our financial statements . we must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances , effectively settled issues under audit , the potential for interest and penalties , and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . on december 22 , 2017 , the tax cuts and jobs act ( the “ 2017 tax act ” ) was enacted into law .

debt revolving credit facility we have a $ 400.0 million senior credit facility ( the “ facility ” ) provided by a syndicate of banks , with a $ 100 million accordion option . the facility , which is available for borrowings and letters of credit , expires in april 2023 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and assets held by certain unrestricted subsidiaries and a second lien on our assets related to projects subject to surety bonds . in 2018 , we incurred approximately $ 0.8 million in financing and professional costs in connection with an amendment to the facility , which combined with the previous unamortized costs of $ 1.1 million , are being amortized on a straight-line basis as a non-cash charge to interest expense over the remaining term of the facility . as of december 31 , 2018 , we had $ 50.0 million of outstanding borrowings , $ 33.6 million in letters of credit outstanding and $ 316.4 million of credit available . there are two interest rate options for borrowings under the facility , the base rate loan option and the eurodollar rate loan option . these rates are floating rates determined by the broad financial markets , meaning they can and do move up and down from time to time . additional margins are then added to these two rates . the weighted average interest rate applicable to the borrowings under the facility was approximately 3.7 % as of december 31 , 2018. certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf , such as to beneficiaries under our self‑funded insurance programs . we have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts . our lenders issue such letters of credit through the facility for a fee .

our vm solutions ( including vm , cm , tp , cloud agent for vm , allocated scanner revenue and qualys private cloud platform ) have provided a majority of our revenues to date , representing 73 % of total revenue in 2019 and 74 % of total revenues in each of 2018 and 2017 , respectively . 41 we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access each of our cloud solutions . we generally invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from our existing customers as they renew and purchase additional subscriptions . we market and sell our solutions to enterprises , government entities and small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2019 , we had over 15,700 active customers in more than 133 countries , including a majority of each of the forbes global 100 and fortune 100. in 2019 , 2018 and 2017 , approximately 64 % , 67 % and 70 % , respectively , of our revenues were derived from customers in the united states based on our customers billing address . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had continued revenue growth over the past three years . our revenues reached $ 321.6 million in 2019 from $ 278.9 million in 2018 and $ 230.8 million in 2017 , respectively , representing period-over-period increases of $ 42.7 million and $ 48.1 million in 2019 and 2018 , or 15 % and 21 % , respectively . we generated net income of $ 69.3 million in 2019 , $ 57.3 million in 2018 and $ 40.4 million in 2017. key components of results of operations revenues we derive revenues from the sale of subscriptions to our security and compliance solutions , which are delivered on our cloud platform . subscriptions to our solutions allow customers to access our cloud-based security and compliance solutions through a unified , web-based interface . customers generally enter into one-year renewable subscriptions . the subscription fee entitles the customer to an unlimited number of scans for a specified number of devices or web applications and , if requested by a customer as part of their subscription , a specified number of physical or virtual scanner appliances . our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan it infrastructures within their firewalls and do not function without , and are not sold separately from , subscriptions for our solutions . in some limited cases , we also provide certain computer equipment used to extend our qualys cloud platform into our customers private cloud environment . customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions . we typically invoice our customers for the entire subscription amount at the start of the subscription term . invoiced amounts are reflected on our consolidated balance sheets as accounts receivable or as cash when collected , and as deferred revenues until earned and recognized ratably over the subscription period . accordingly , deferred revenues represent the amount billed to customers that has not yet been earned or recognized as revenues , pursuant to subscriptions entered into in current and prior periods . cost of revenues cost of revenues consists primarily of personnel expenses , comprised of salaries , benefits , amortization of internal-use software , performance-based compensation and stock-based compensation , for employees who operate our data centers and provide support services to our customers . other expenses include depreciation of data center equipment and physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions , expenses related to the use of third-party data centers , amortization of third-party technology licensing fees , amortization of intangibles related to acquisitions , maintenance support , fees paid to contractors who supplement or support our operations center personnel and overhead allocations . we expect to continue to make capital investments to expand and support our data center operations , which will increase the cost of revenues in absolute dollars . operating expenses research and development research and development expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our research and development teams . other expenses 42 include third-party contractor fees , software and license fees , amortization of intangibles related to acquisitions and overhead allocations . we capitalize certain research and development costs related to new products ' internal-use software development efforts . capitalized costs include salaries , benefits , and stock-based compensation charges for employees that are directly involved in developing new products for our cloud security platform during the application development stage . capitalized costs related to internally developed software under development are treated as construction in progress until the program , feature or functionality is ready for its intended use , at which time amortization commences . we expect to continue to devote substantial resources to research and development in an effort to continuously improve our existing solutions as well as develop new solutions and capabilities and expect that research and development expenses will increase in absolute dollars . story_separator_special_tag we amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years . five years represents the estimated life of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as our own historical data . applying the practical expedient in asc 340-40-25-4 , we expense commissions related to renewals with a contract term of one year or less . the current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets , and other noncurrent assets , respectively , in our consolidated balance sheets . income taxes we are subject to income taxes in the united states as well as other tax jurisdictions in which we conduct business . earnings from our non-u.s. activities are subject to local income tax and may also be subject to u.s. income tax . income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year , and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity 's financial statements or tax returns . we must make significant assumptions , judgments and estimates to determine our current provision for ( benefit from ) income taxes , our deferred tax assets and liabilities , and any valuation allowance to be recorded against our deferred tax assets . our judgments , assumptions and estimates relating to the current provision for ( benefit from ) income taxes include the geographic mix and amount of income ( loss ) , our interpretation of current tax laws , and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . our judgments also include anticipating the tax positions we will record in the financial statements before actually preparing and filing the tax returns . our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments when they are identified or resolved . changes in our business , tax laws or our interpretation of tax laws , and developments in current and future tax audits , could significantly impact the amounts provided for income taxes in our results of operations , financial position , or cash flows . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry-forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis . we regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized . to make this assessment , we take into account predictions of the amount and category of taxable income from available positive and negative evidence about these possible sources of taxable income . the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified . based on the analysis of positive and negative factors noted above , we do not have a valuation allowance against u.s. federal and certain state deferred tax assets . we believe it is more likely than not that our california deferred tax assets will not be realized because the income attributed to california is not expected to be sufficient to recognize these deferred tax assets . accordingly , we continue to record a valuation allowance as of december 31 , 2019 for our california deferred tax assets . if , in the future , we determine that these deferred tax assets are more likely than not to be realized , a release of all or part , of the related valuation allowance could result in an income tax benefit in the period such determination is made . we recognize an income tax expense or benefit with respect to uncertain tax positions in our financial statements that we judge is more likely than not to be sustained solely on its technical merits in a tax audit , including resolution of any related appeals or litigation processes . to make this judgment , we must interpret complex and sometimes ambiguous tax laws , regulations and administrative practices . if an income tax position meets the more likely than not recognition threshold , then we must measure the amount of the tax benefit to be recognized by determining the largest amount of tax benefit that has a greater than a 50 % likelihood of being realized upon effective settlement with a taxing authority that has full knowledge of 50 all of the relevant facts . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible settlement outcomes . to determine if a tax position is effectively settled after a tax examination has been completed , we must also estimate the likelihood that another taxing authority could review the respective tax position . we must also determine when it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the 12 months after each fiscal year-end . these judgments are difficult because a taxing authority may change its behavior as a result of our disclosures in our financial statements . we must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances , effectively settled issues under audit , the potential for interest and penalties , and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . on december 22 , 2017 , the tax cuts and jobs act ( the “ 2017 tax act ” ) was enacted into law .

cash flows the following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this report : replace_table_token_11_th cash flows from operating activities in 2019 , cash provided by operating activities of $ 160.6 million was primarily due to $ 69.3 million of net income , as adjusted by increases in non-cash items including stock-based compensation expense of $ 34.9 million , depreciation and amortization expense of $ 31.2 million , an increase in deferred income taxes of $ 7.1 million ; and an increase in deferred revenues of $ 28.1 million due to our continued growth in sales . these increases were partially offset by $ 6.0 million of increased prepayments primarily for computer hardware maintenance fees ; a $ 2.5 million decrease in accounts receivable due to higher billings ; and a $ 1.1 million decrease in accounts payable mainly due to timing of payments . in 2018 , cash provided by operating activities of $ 125.5 million was primarily due to $ 57.3 million of net income , as adjusted by increases in non-cash items including stock-based compensation expense of $ 30.1 million and depreciation and amortization expense of $ 28.9 million .

t he casino began operating on a limited basis i n february 2015 , and we expect the casino will continue limited operations until its gaming license expires in may 201 7 . · w e have a 75 % ownership interest in cdr and we consolidate cdr as a majority-owned subsidiary for which we have a controlling financial interest . we account for and report the remaining 25 % ownership interest in cdr as a non-controlling financial interest . cdr operates century downs racetrack and casino , a rec in balzac , a north metropolitan area of calgary , alberta , canada . cdr 's casino opened on april 1 , 2015 and the horse racing season began on april 25 , 2015. the 2015 horse racing season wa s from april to november . century downs is the only horse racing track in the calgary area and is located less than one mile north of the city limits of calgary and 4.5 miles from the calgary international airport . · w e have a 75 % ownership interest in cbs and we consolidate cbs as a majority-owned subsidiary for which we have a controlling financial interest . rocky mountain turf club ( “ rmtc ” ) owns the remaining 25 % of cbs . we account for and report the 25 % ownership interest of rmtc in cbs as a non-controlling financial interest . cbs began operating the pari-mutuel network on may 4 , 2015. the pari-mutuel network consists of sourcing of common pool pari-mutuel wagering content and live video to off-track betting parlors throughout southern alberta . 33 the following agreements make up the operating segment cruise ships & other in the corporate and other reportable segment : · we operate 1 0 ship-based casinos onboard ships of tui cruises and windstar cruises . as of december 31 , 2015 , we had a total of 1 55 slot machines and 2 2 tables on board the 1 0 cruise ships where we operated casinos . the following table summarizes the cruise lines for which we have entered into agreements , the associated ships on which we operate ship-based casinos and the number of slots and tables on each ship . replace_table_token_12_th · we operate the ship-based casinos onboard three new ships that were launched in 2015 : windstar cruises star breeze and star legend and tui cruises mein schiff 4. in september 2015 , we amended our concession agreement with tui cruises to include our operation of the ship-based casinos onboard mein schiff 5 and mein schiff 6 , two new 2,500 passenger cruise ships that are scheduled to begin operations in 2016 and 2017 , respectively . our agreement with nova star cruises ltd. to operate a ship-based casino onboard the nova star , a round trip cruise ferry service connecting portland , maine to yarmouth , nova scotia , ended in october 2015 after the 2015 sailing season . in march 2015 , we mutually agreed with norwegian to terminate our concession agreements with oceania and regent , indirect subsidiaries of norwegian , effective june 1 , 2015. we transitioned operations of the eight ship-based casinos that we operated onboard oceania and regent vessels to norwegian in the second quarter of 2015. as consideration for the early termination of the concession agreements , we rec orded $ 3.4 million as operating income in june 2015 from the $ 4.0 million cash consideration we received , net of $ 0.6 million in assets that were sold to norwegian as part of the termination agreement . in march 2015 , we entered into a two-year consulting agreement with norwegian , which became effective june 1 , 2015. under the consulting agreement , we are providing limited consulting services for the ship-based casinos of oceania and regent in exchange for receiving a consulting fee of $ 2.0 million , which is payable $ 250,000 per quarter . · in december 2010 , we entered into a long-term management agreement to direct the operation of the casino at the radisson aruba resort , casino & spa . in 2015 , the radisson aruba resort , casino & spa was sold and rebranded as the hilton aruba caribbean resort and casino . our management agreement was assumed by the new owners and no changes were made to the original agreement from which we receive a monthly management fee . 34 · through our subsidiary cce , we have a 7.5 % ownership interest in mce and we report our ownership interest using the cost method of accounting . mce has an exclusive concession agreement with ipjc to lease slot machines and provide related services to casino de mendoza , a casino located in mendoza , argentina , and owned by the province of mendoza . mce may also pursue other gaming opportunities . cce has appointed one director to mce 's board of directors and has a three-year option through october 2017 to purchase up to 50 % of the shares of mce . the option can be exercised by cce in tranches of shares , with each tranche representing not less than ten percent of the total outstanding shares of mce . the exercise price of the shares is based upon the value of mce at the time the option is exercised , which value is determined by a multiple of mce 's ebitda less certain debt . there are no conditions that limit cce 's ability to exercise this option . in addition , cce and mce have entered into a c onsulting s ervice a greement pursuant to which cce provide s advice on casino matters and receives a service fee consisting of a fixed fee plus a percentage of mce 's ebitda . story_separator_special_tag 40 in cad , total operating costs and expenses increased by 2.0 million , or 7.6 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. century downs added cad 0.7 million in total operating costs and expenses mainly related to payroll , acquisition costs and legal fees incurred in preparing the casino for opening in april 2015. at edmonton , total operating costs and expenses increased by cad 0.9 million , or 4.8 % , primarily due to increased payroll expenses of cad 0.5 million as a result of the extended table game hours and minimum wage increase and increased food and beverage costs of cad 0.2 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. at calgary , total operating costs and expenses increased by cad 0.5 million , or 5.8 % , primarily due to increased payroll expenses of c ad 0.2 million as a result of the extended table game hours and minimum wage increase and increased general and administrative costs of cad 0.2 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. as a result of the foregoing , earnings from operations increased by $ 0.7 million , or 8.9 % , net earnings increased by $ 0.8 million , or 13.7 % , and adjusted ebitda increased by $ 0.7 million , or 7.4 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. a reconciliation of adjusted ebitda to net earnings can be found in the “ non-gaap measures – adjusted ebitda ” discussion in item 6 , “ selected financial data ” . in cad , earnings from operations increased by 1.4 million , or 17.9 % , net earnings increased by 1.1 million , or 21.0 % , and adjusted ebitda increased by 1.5 million , or 14.8 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the difference between net earnings of cad 1.1 million compared to earnings from operations of cad 1.4 million was due to an increase in interest expense of cad 2.1 million at century downs and ou r edmonton property , increased foreign currency losses of cad 0.2 million and an increase in income tax expense of cad 0.5 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . 41 replace_table_token_16_th years ended december 31 , 2015 and 2014 net operating revenue in the united states increased by $ 1.7 million , or 6.5 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 due to increases in all revenue categories except food and beverage . at central city gaming revenue increased by $ 1.1 million , or 6.4 % , and at cripple creek gaming revenue increased by $ 0.6 million , or 4.6 % , due to increased slot revenue at both properties for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. hotel revenue increased by $ 0.2 million , or 58.8 % , at cripple creek for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , due to the implementation of on-line bookings at the beginning of 2015. the increased revenue was offset by increased promotional expenses at our central city property due to increased player promotions for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the central city market increased by 5 . 2 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , and our property 's share of the central city market remained constant at 28.1 % for the same period . the cripple creek market increased by 4.1 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , and our property 's share of the cripple creek market increased from 9.8 % to 9.9 % , or by 0.8 % , for the same period . market share is calculated by dividing our property 's agp into the market 's agp for the same time period . total operating costs and expenses remained constant at both properties for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. because of the foregoing , earnings from operations increased by $ 1.8 million , or 85.7 % , net earnings increased by $ 1.1 million , or 85.6 % , and adjusted ebitda increased by $ 1.9 million , or 41.4 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the difference between the increase in net earnings of $ 1.1 million and the increase in earnings from operations of $ 1.8 million was increased income tax expense of $ 0.7 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. a reconciliation of adjusted ebitda to net earnings can be found in the “ non-gaap measures – adjusted ebitda ” discussion in item 6 , “ selected financial data ” . 42 years ended december 31 , 2014 and 2013 net operating revenue in the united states decreased by ( $ 2.5 ) million , or ( 8.5 % ) , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 due to decreased gaming revenue and increased promotional expenses . at central city gaming revenue decreased by ( $ 1.4 ) million , or ( 7.7 % ) , and at cripple creek gaming revenue decreased by ( $ 0.7 ) million

cash flows the following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this report : replace_table_token_11_th cash flows from operating activities in 2019 , cash provided by operating activities of $ 160.6 million was primarily due to $ 69.3 million of net income , as adjusted by increases in non-cash items including stock-based compensation expense of $ 34.9 million , depreciation and amortization expense of $ 31.2 million , an increase in deferred income taxes of $ 7.1 million ; and an increase in deferred revenues of $ 28.1 million due to our continued growth in sales . these increases were partially offset by $ 6.0 million of increased prepayments primarily for computer hardware maintenance fees ; a $ 2.5 million decrease in accounts receivable due to higher billings ; and a $ 1.1 million decrease in accounts payable mainly due to timing of payments . in 2018 , cash provided by operating activities of $ 125.5 million was primarily due to $ 57.3 million of net income , as adjusted by increases in non-cash items including stock-based compensation expense of $ 30.1 million and depreciation and amortization expense of $ 28.9 million .

t he casino began operating on a limited basis i n february 2015 , and we expect the casino will continue limited operations until its gaming license expires in may 201 7 . · w e have a 75 % ownership interest in cdr and we consolidate cdr as a majority-owned subsidiary for which we have a controlling financial interest . we account for and report the remaining 25 % ownership interest in cdr as a non-controlling financial interest . cdr operates century downs racetrack and casino , a rec in balzac , a north metropolitan area of calgary , alberta , canada . cdr 's casino opened on april 1 , 2015 and the horse racing season began on april 25 , 2015. the 2015 horse racing season wa s from april to november . century downs is the only horse racing track in the calgary area and is located less than one mile north of the city limits of calgary and 4.5 miles from the calgary international airport . · w e have a 75 % ownership interest in cbs and we consolidate cbs as a majority-owned subsidiary for which we have a controlling financial interest . rocky mountain turf club ( “ rmtc ” ) owns the remaining 25 % of cbs . we account for and report the 25 % ownership interest of rmtc in cbs as a non-controlling financial interest . cbs began operating the pari-mutuel network on may 4 , 2015. the pari-mutuel network consists of sourcing of common pool pari-mutuel wagering content and live video to off-track betting parlors throughout southern alberta . 33 the following agreements make up the operating segment cruise ships & other in the corporate and other reportable segment : · we operate 1 0 ship-based casinos onboard ships of tui cruises and windstar cruises . as of december 31 , 2015 , we had a total of 1 55 slot machines and 2 2 tables on board the 1 0 cruise ships where we operated casinos . the following table summarizes the cruise lines for which we have entered into agreements , the associated ships on which we operate ship-based casinos and the number of slots and tables on each ship . replace_table_token_12_th · we operate the ship-based casinos onboard three new ships that were launched in 2015 : windstar cruises star breeze and star legend and tui cruises mein schiff 4. in september 2015 , we amended our concession agreement with tui cruises to include our operation of the ship-based casinos onboard mein schiff 5 and mein schiff 6 , two new 2,500 passenger cruise ships that are scheduled to begin operations in 2016 and 2017 , respectively . our agreement with nova star cruises ltd. to operate a ship-based casino onboard the nova star , a round trip cruise ferry service connecting portland , maine to yarmouth , nova scotia , ended in october 2015 after the 2015 sailing season . in march 2015 , we mutually agreed with norwegian to terminate our concession agreements with oceania and regent , indirect subsidiaries of norwegian , effective june 1 , 2015. we transitioned operations of the eight ship-based casinos that we operated onboard oceania and regent vessels to norwegian in the second quarter of 2015. as consideration for the early termination of the concession agreements , we rec orded $ 3.4 million as operating income in june 2015 from the $ 4.0 million cash consideration we received , net of $ 0.6 million in assets that were sold to norwegian as part of the termination agreement . in march 2015 , we entered into a two-year consulting agreement with norwegian , which became effective june 1 , 2015. under the consulting agreement , we are providing limited consulting services for the ship-based casinos of oceania and regent in exchange for receiving a consulting fee of $ 2.0 million , which is payable $ 250,000 per quarter . · in december 2010 , we entered into a long-term management agreement to direct the operation of the casino at the radisson aruba resort , casino & spa . in 2015 , the radisson aruba resort , casino & spa was sold and rebranded as the hilton aruba caribbean resort and casino . our management agreement was assumed by the new owners and no changes were made to the original agreement from which we receive a monthly management fee . 34 · through our subsidiary cce , we have a 7.5 % ownership interest in mce and we report our ownership interest using the cost method of accounting . mce has an exclusive concession agreement with ipjc to lease slot machines and provide related services to casino de mendoza , a casino located in mendoza , argentina , and owned by the province of mendoza . mce may also pursue other gaming opportunities . cce has appointed one director to mce 's board of directors and has a three-year option through october 2017 to purchase up to 50 % of the shares of mce . the option can be exercised by cce in tranches of shares , with each tranche representing not less than ten percent of the total outstanding shares of mce . the exercise price of the shares is based upon the value of mce at the time the option is exercised , which value is determined by a multiple of mce 's ebitda less certain debt . there are no conditions that limit cce 's ability to exercise this option . in addition , cce and mce have entered into a c onsulting s ervice a greement pursuant to which cce provide s advice on casino matters and receives a service fee consisting of a fixed fee plus a percentage of mce 's ebitda . story_separator_special_tag 40 in cad , total operating costs and expenses increased by 2.0 million , or 7.6 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. century downs added cad 0.7 million in total operating costs and expenses mainly related to payroll , acquisition costs and legal fees incurred in preparing the casino for opening in april 2015. at edmonton , total operating costs and expenses increased by cad 0.9 million , or 4.8 % , primarily due to increased payroll expenses of cad 0.5 million as a result of the extended table game hours and minimum wage increase and increased food and beverage costs of cad 0.2 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. at calgary , total operating costs and expenses increased by cad 0.5 million , or 5.8 % , primarily due to increased payroll expenses of c ad 0.2 million as a result of the extended table game hours and minimum wage increase and increased general and administrative costs of cad 0.2 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. as a result of the foregoing , earnings from operations increased by $ 0.7 million , or 8.9 % , net earnings increased by $ 0.8 million , or 13.7 % , and adjusted ebitda increased by $ 0.7 million , or 7.4 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. a reconciliation of adjusted ebitda to net earnings can be found in the “ non-gaap measures – adjusted ebitda ” discussion in item 6 , “ selected financial data ” . in cad , earnings from operations increased by 1.4 million , or 17.9 % , net earnings increased by 1.1 million , or 21.0 % , and adjusted ebitda increased by 1.5 million , or 14.8 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the difference between net earnings of cad 1.1 million compared to earnings from operations of cad 1.4 million was due to an increase in interest expense of cad 2.1 million at century downs and ou r edmonton property , increased foreign currency losses of cad 0.2 million and an increase in income tax expense of cad 0.5 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . 41 replace_table_token_16_th years ended december 31 , 2015 and 2014 net operating revenue in the united states increased by $ 1.7 million , or 6.5 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 due to increases in all revenue categories except food and beverage . at central city gaming revenue increased by $ 1.1 million , or 6.4 % , and at cripple creek gaming revenue increased by $ 0.6 million , or 4.6 % , due to increased slot revenue at both properties for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. hotel revenue increased by $ 0.2 million , or 58.8 % , at cripple creek for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , due to the implementation of on-line bookings at the beginning of 2015. the increased revenue was offset by increased promotional expenses at our central city property due to increased player promotions for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the central city market increased by 5 . 2 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , and our property 's share of the central city market remained constant at 28.1 % for the same period . the cripple creek market increased by 4.1 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , and our property 's share of the cripple creek market increased from 9.8 % to 9.9 % , or by 0.8 % , for the same period . market share is calculated by dividing our property 's agp into the market 's agp for the same time period . total operating costs and expenses remained constant at both properties for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. because of the foregoing , earnings from operations increased by $ 1.8 million , or 85.7 % , net earnings increased by $ 1.1 million , or 85.6 % , and adjusted ebitda increased by $ 1.9 million , or 41.4 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the difference between the increase in net earnings of $ 1.1 million and the increase in earnings from operations of $ 1.8 million was increased income tax expense of $ 0.7 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. a reconciliation of adjusted ebitda to net earnings can be found in the “ non-gaap measures – adjusted ebitda ” discussion in item 6 , “ selected financial data ” . 42 years ended december 31 , 2014 and 2013 net operating revenue in the united states decreased by ( $ 2.5 ) million , or ( 8.5 % ) , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 due to decreased gaming revenue and increased promotional expenses . at central city gaming revenue decreased by ( $ 1.4 ) million , or ( 7.7 % ) , and at cripple creek gaming revenue decreased by ( $ 0.7 ) million

restrict incurrence of additional debt , and require cpl to maintain debt ratios and a current liquidity ratio of 0.6 or higher . on march 26 , 2015 , cpl and mbank amended the credit agreement to lower the current liquidity ratio to 0.5. cpl was in compliance with all covenants of this credit agreement as of december 31 , 2015 . 49 the second credit agreement is also with mbank . under this credit agreement , cpl entered into a three year term loan on september 15 , 2014 at an interest rate of wibor plus 1.70 % . proceeds from the loan were used to repay balances outstanding under the prior credit agreement with mbank that matured in september 2014 and to finance current operations . as of december 31 , 2015 , the amount outstanding was pln 2.1 million ( $ 0 . 5 million based on the exchange rate in effect on december 31 , 2015 ) . cpl ha s no further borrowing availability under the loan and the loan matures in september 201 7 . the m bank credit agreement contains a number of financial covenants applicable to cpl , including covenants that restrict incurrence of additional debt , and require cpl to maintain debt ratios and a current liquidity ratio of 0.6 or higher . on march 26 , 2015 , cpl and mbank amended the credit agreement to lower the current liquidity ratio to 0.5. cpl was in compliance with all covenants of this credit agreement as of december 31 , 2015 . the credit facility is a short-term line of credit with bph bank used to finance current operations . in february 2016 , the term of the short-term line of credit was extended from february 13 , 2016 to february 11 , 2018. the extended line of credit bears the same interest rate of wibor plus 1 . 8 5 % with a borrowing capacity of pln 13.0 million , of which pln 2.0 million can only be used to secure bank guarantees . the bph bank line of credit is secured by a building owned by cpl in warsaw , poland .

our custom data center , or c1 , customers typically are large enterprises with significant it expertise and specific it requirements , including financial institutions , “big four” accounting firms and the world 's largest global internet companies . our colocation , or c2 , customers consist of a wide range of organizations , including 67 major healthcare , telecommunications and software and web-based companies . our c3 cloud customers include both large organizations and smbs seeking to reduce their capital expenditures and outsource their it infrastructure on a flexible basis . examples of current c3 cloud customers include a global financial processing company , a u.s. government agency and an educational software provider . as a result of our diverse customer base , customer concentration in our portfolio is limited . as of december 31 , 2013 , only two of our more than 880 customers individually accounted for more than 3 % of our mrr , with no single customer accounting for more than 8 % of our mrr . in addition , approximately 40 % of our mrr was attributable to customers who use more than one of our 3cs products . our portfolio we operate 10 data centers located in seven states , containing an aggregate of approximately 3.8 million gross square feet of space ( approximately 92 % of which is wholly owned by us ) , including approximately 1.8 million “basis-of-design” raised floor square feet , which represents the total data center raised floor potential of our existing data center facilities . this represents the maximum amount of space in our existing buildings that could be leased following full build-out , depending on the configuration that we deploy . as of december 31 , 2013 , this space included approximately 690,000 raised floor operating net rentable square feet , or nrsf , plus approximately 1.1 million square feet of additional raised floor in our development pipeline , of which approximately 188.000 nrsf is expected to become operational by december 31 , 2014. our facilities collectively have access to over 500 mw of gross utility power with 390 mw of available utility power . we believe such access to power gives us a competitive advantage in redeveloping data center space , since access to power is usually the most limiting and expensive component in data center redevelopment . key operating metrics the following sets forth definitions for our key operating metrics . these metrics may differ from similar definitions used by other companies . monthly recurring revenue ( “mrr” ) . we calculate mrr as monthly contractual revenue under signed leases as of a particular date , which includes revenue from our c1 , c2 and c3 rental and cloud and managed services activities , but excludes customer recoveries , deferred set-up fees , variable related revenues , non-cash revenues and other one-time revenues . mrr does not include the impact from booked-not-billed leases as of a particular date , unless otherwise specifically noted . annualized rent . we define annualized rent as mrr multiplied by 12. rental churn . we define rental churn as the mrr impact from a customer completely departing our platform in a given period compared to the total mrr at the beginning of the period . leasable raised floor . we define leasable raised floor as the amount of raised floor square footage that we have leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration . the amount of our leasable raised floor may change even without completion of new redevelopment projects due to changes in our configuration of c1 , c2 and c3 product space . percentage ( % ) leased raised floor . we define percentage leased raised floor as the square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to leasable raised floor as of that date , expressed as a percentage . booked-not-billed . we define booked-not -billed as our customer leases that have been signed , but for which lease payments have not yet commenced . 68 factors that may influence future results of operations and cash flows revenue . our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor , lease currently available space , lease new capacity that becomes available as a result of our development and redevelopment activities , attract new customers and continue to meet the ongoing technological requirements of our customers . as of december 31 , 2013 , we had in place customer leases generating revenue for approximately 92 % of our leasable raised floor . our ability to grow revenue also will be affected by our ability to maintain or increase rental , cloud and managed services rates at our properties . future economic downturns , regional downturns or downturns in the technology industry could impair our ability to attract new customers or renew existing customers ' leases on favorable terms , or at all , and could adversely affect our customers ' ability to meet their obligations to us . negative trends in one or more of these factors could adversely affect our revenue in future periods , which would impact our results of operations and cash flows . we also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and or re-lease that space at higher rates , which may cause a decrease in revenue until the space is re-leased . leasing arrangements . as of december 31 , 2013 , 20 % of our mrr came from customers which individually occupied more than 6,600 square feet of space and which had metered power . story_separator_special_tag for the years ended december 31 , 2013 and 2012 we incurred $ 0.1 million and $ 0.9 million , respectively , in costs related to the examination of proposed acquisitions . acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received . interest expense . interest expense for the year ended december 31 , 2013 was $ 18.7 million compared to $ 25.1 million for the year ended december 31 , 2012. the decrease of $ 6.4 million , or 26 % , was due to a reduction in the weighted average interest rate , and higher capitalized interest during the period , partially offset by a $ 37.2 million increase in our average debt balance . during the second quarter of 2013 , we replaced our $ 440 million secured credit facility with a $ 575 million unsecured credit facility . in addition the interest rate spread over libor on the unsecured credit facility was 165 basis points lower than the secured credit facility . the average debt balance for the year ended december 31 , 2013 was $ 510.6 million , with a weighted average interest rate , including the effect of interest rate swaps and amortization of deferred financing costs , of 4.48 % . this compared to an average debt balance of $ 473.4 million , with a weighted average interest rate , including the effect of interest rate swaps and amortization of deferred financing costs , of 5.84 % . interest expense was reduced by $ 0.3 million and $ 0.3 million , respectively , during the years ended december 31 , 2013 and december 31 , 2012 , as a result of non-cash mark-to-market adjustments associated with the derivative liability reported on our balance sheet . interest capitalized in connection with our redevelopment activities during the years ended december 31 , 2013 and december 31 , 2012 was $ 4.0 million and $ 2.2 million , respectively . on october 15 , 2013 , we closed our ipo which generated net proceeds of approximately $ 279 million after underwriting discounts and commissions . the proceeds were used to repay amounts borrowed on our $ 350 million unsecured revolving credit facility . other expense/income . other expense for the year ended december 31 , 2013 was $ 3.4 million compared to other expense of $ 1.2 million for the year ended december 31 , 2012. the increase in other expense of $ 2.3 million , was due to higher write-offs of unamortized deferred financing costs in connection with the replacement of our secured credit facility with an unsecured credit facility and an asset securitization which we did not pursue . gain on sale of real estate . in 2012 , we recognized a gain on sale of a vacant data center facility of $ 0.9 million . net income ( loss ) . a summary of the components of the increase in net income of $ 13.6 million for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 is as follows : $ change ( in millions ) increase in revenues , net of property operating costs , real estate taxes and insurance $ 21.9 increase in general and administrative expense ( 3.2 ) increase in depreciation and amortization ( 12.4 ) decrease in transaction costs 0.8 decrease in restructuring charges 3.3 decrease in interest expense net of interest income 6.4 increase in other expense ( 2.3 ) decrease in gain on sale of real estate ( 0.9 ) increase in net income $ 13.6 75 year ended december 31 , 2012 compared to year ended december 31 , 2011 changes in revenues and expenses for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 are summarized below : replace_table_token_31_th * not applicable for comparison revenues . total revenues for the year ended december 31 , 2012 were $ 145.8 million compared to $ 130.4 million for the year ended december 31 , 2011. the increase of $ 15.4 million , or 12 % , was primarily due to organic growth in our customer base . the increase of $ 19.0 million , or 16 % , in combined rental and cloud and managed services revenues was primarily related to newly leased space as well as increases in rents from previously leased space , net of downgrades at renewal and rental churn , and included the $ 2.7 million negative impact from our reclaiming space in july 2012 from a customer in our atlanta-suwanee data center , as described above . as of december 31 , 2012 , our data centers were 86 % leased based on leasable raised floor of approximately 484,000 square feet , with an average annualized rent of $ 340 per leased raised floor square foot including cloud and managed services revenue , or $ 303 per leased raised floor square foot excluding cloud and managed services revenue . as of december 31 , 2011 , our data centers were 74 % leased based on leasable raised floor of approximately 549,000 square feet , with an average annualized rent of $ 294 per leased raised floor square foot including cloud and managed services revenue , or $ 262 per leased raised floor square foot excluding cloud and managed services revenue . the decrease in leasable raised floor was due to the reclaiming of space from a customer in our atlanta-suwanee data center , as described above , and the consolidation of our former new york 76 facility into our jersey city facility , partially offset by the acquisition of our sacramento data center in december 2012 and the addition of raised floor square footage from our redevelopment activities . the increase in average annualized rent per leased raised floor square foot as of december 31 , 2012 compared to december 31 , 2011 was primarily due to

restrict incurrence of additional debt , and require cpl to maintain debt ratios and a current liquidity ratio of 0.6 or higher . on march 26 , 2015 , cpl and mbank amended the credit agreement to lower the current liquidity ratio to 0.5. cpl was in compliance with all covenants of this credit agreement as of december 31 , 2015 . 49 the second credit agreement is also with mbank . under this credit agreement , cpl entered into a three year term loan on september 15 , 2014 at an interest rate of wibor plus 1.70 % . proceeds from the loan were used to repay balances outstanding under the prior credit agreement with mbank that matured in september 2014 and to finance current operations . as of december 31 , 2015 , the amount outstanding was pln 2.1 million ( $ 0 . 5 million based on the exchange rate in effect on december 31 , 2015 ) . cpl ha s no further borrowing availability under the loan and the loan matures in september 201 7 . the m bank credit agreement contains a number of financial covenants applicable to cpl , including covenants that restrict incurrence of additional debt , and require cpl to maintain debt ratios and a current liquidity ratio of 0.6 or higher . on march 26 , 2015 , cpl and mbank amended the credit agreement to lower the current liquidity ratio to 0.5. cpl was in compliance with all covenants of this credit agreement as of december 31 , 2015 . the credit facility is a short-term line of credit with bph bank used to finance current operations . in february 2016 , the term of the short-term line of credit was extended from february 13 , 2016 to february 11 , 2018. the extended line of credit bears the same interest rate of wibor plus 1 . 8 5 % with a borrowing capacity of pln 13.0 million , of which pln 2.0 million can only be used to secure bank guarantees . the bph bank line of credit is secured by a building owned by cpl in warsaw , poland .

our custom data center , or c1 , customers typically are large enterprises with significant it expertise and specific it requirements , including financial institutions , “big four” accounting firms and the world 's largest global internet companies . our colocation , or c2 , customers consist of a wide range of organizations , including 67 major healthcare , telecommunications and software and web-based companies . our c3 cloud customers include both large organizations and smbs seeking to reduce their capital expenditures and outsource their it infrastructure on a flexible basis . examples of current c3 cloud customers include a global financial processing company , a u.s. government agency and an educational software provider . as a result of our diverse customer base , customer concentration in our portfolio is limited . as of december 31 , 2013 , only two of our more than 880 customers individually accounted for more than 3 % of our mrr , with no single customer accounting for more than 8 % of our mrr . in addition , approximately 40 % of our mrr was attributable to customers who use more than one of our 3cs products . our portfolio we operate 10 data centers located in seven states , containing an aggregate of approximately 3.8 million gross square feet of space ( approximately 92 % of which is wholly owned by us ) , including approximately 1.8 million “basis-of-design” raised floor square feet , which represents the total data center raised floor potential of our existing data center facilities . this represents the maximum amount of space in our existing buildings that could be leased following full build-out , depending on the configuration that we deploy . as of december 31 , 2013 , this space included approximately 690,000 raised floor operating net rentable square feet , or nrsf , plus approximately 1.1 million square feet of additional raised floor in our development pipeline , of which approximately 188.000 nrsf is expected to become operational by december 31 , 2014. our facilities collectively have access to over 500 mw of gross utility power with 390 mw of available utility power . we believe such access to power gives us a competitive advantage in redeveloping data center space , since access to power is usually the most limiting and expensive component in data center redevelopment . key operating metrics the following sets forth definitions for our key operating metrics . these metrics may differ from similar definitions used by other companies . monthly recurring revenue ( “mrr” ) . we calculate mrr as monthly contractual revenue under signed leases as of a particular date , which includes revenue from our c1 , c2 and c3 rental and cloud and managed services activities , but excludes customer recoveries , deferred set-up fees , variable related revenues , non-cash revenues and other one-time revenues . mrr does not include the impact from booked-not-billed leases as of a particular date , unless otherwise specifically noted . annualized rent . we define annualized rent as mrr multiplied by 12. rental churn . we define rental churn as the mrr impact from a customer completely departing our platform in a given period compared to the total mrr at the beginning of the period . leasable raised floor . we define leasable raised floor as the amount of raised floor square footage that we have leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration . the amount of our leasable raised floor may change even without completion of new redevelopment projects due to changes in our configuration of c1 , c2 and c3 product space . percentage ( % ) leased raised floor . we define percentage leased raised floor as the square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to leasable raised floor as of that date , expressed as a percentage . booked-not-billed . we define booked-not -billed as our customer leases that have been signed , but for which lease payments have not yet commenced . 68 factors that may influence future results of operations and cash flows revenue . our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor , lease currently available space , lease new capacity that becomes available as a result of our development and redevelopment activities , attract new customers and continue to meet the ongoing technological requirements of our customers . as of december 31 , 2013 , we had in place customer leases generating revenue for approximately 92 % of our leasable raised floor . our ability to grow revenue also will be affected by our ability to maintain or increase rental , cloud and managed services rates at our properties . future economic downturns , regional downturns or downturns in the technology industry could impair our ability to attract new customers or renew existing customers ' leases on favorable terms , or at all , and could adversely affect our customers ' ability to meet their obligations to us . negative trends in one or more of these factors could adversely affect our revenue in future periods , which would impact our results of operations and cash flows . we also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and or re-lease that space at higher rates , which may cause a decrease in revenue until the space is re-leased . leasing arrangements . as of december 31 , 2013 , 20 % of our mrr came from customers which individually occupied more than 6,600 square feet of space and which had metered power . story_separator_special_tag for the years ended december 31 , 2013 and 2012 we incurred $ 0.1 million and $ 0.9 million , respectively , in costs related to the examination of proposed acquisitions . acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received . interest expense . interest expense for the year ended december 31 , 2013 was $ 18.7 million compared to $ 25.1 million for the year ended december 31 , 2012. the decrease of $ 6.4 million , or 26 % , was due to a reduction in the weighted average interest rate , and higher capitalized interest during the period , partially offset by a $ 37.2 million increase in our average debt balance . during the second quarter of 2013 , we replaced our $ 440 million secured credit facility with a $ 575 million unsecured credit facility . in addition the interest rate spread over libor on the unsecured credit facility was 165 basis points lower than the secured credit facility . the average debt balance for the year ended december 31 , 2013 was $ 510.6 million , with a weighted average interest rate , including the effect of interest rate swaps and amortization of deferred financing costs , of 4.48 % . this compared to an average debt balance of $ 473.4 million , with a weighted average interest rate , including the effect of interest rate swaps and amortization of deferred financing costs , of 5.84 % . interest expense was reduced by $ 0.3 million and $ 0.3 million , respectively , during the years ended december 31 , 2013 and december 31 , 2012 , as a result of non-cash mark-to-market adjustments associated with the derivative liability reported on our balance sheet . interest capitalized in connection with our redevelopment activities during the years ended december 31 , 2013 and december 31 , 2012 was $ 4.0 million and $ 2.2 million , respectively . on october 15 , 2013 , we closed our ipo which generated net proceeds of approximately $ 279 million after underwriting discounts and commissions . the proceeds were used to repay amounts borrowed on our $ 350 million unsecured revolving credit facility . other expense/income . other expense for the year ended december 31 , 2013 was $ 3.4 million compared to other expense of $ 1.2 million for the year ended december 31 , 2012. the increase in other expense of $ 2.3 million , was due to higher write-offs of unamortized deferred financing costs in connection with the replacement of our secured credit facility with an unsecured credit facility and an asset securitization which we did not pursue . gain on sale of real estate . in 2012 , we recognized a gain on sale of a vacant data center facility of $ 0.9 million . net income ( loss ) . a summary of the components of the increase in net income of $ 13.6 million for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 is as follows : $ change ( in millions ) increase in revenues , net of property operating costs , real estate taxes and insurance $ 21.9 increase in general and administrative expense ( 3.2 ) increase in depreciation and amortization ( 12.4 ) decrease in transaction costs 0.8 decrease in restructuring charges 3.3 decrease in interest expense net of interest income 6.4 increase in other expense ( 2.3 ) decrease in gain on sale of real estate ( 0.9 ) increase in net income $ 13.6 75 year ended december 31 , 2012 compared to year ended december 31 , 2011 changes in revenues and expenses for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 are summarized below : replace_table_token_31_th * not applicable for comparison revenues . total revenues for the year ended december 31 , 2012 were $ 145.8 million compared to $ 130.4 million for the year ended december 31 , 2011. the increase of $ 15.4 million , or 12 % , was primarily due to organic growth in our customer base . the increase of $ 19.0 million , or 16 % , in combined rental and cloud and managed services revenues was primarily related to newly leased space as well as increases in rents from previously leased space , net of downgrades at renewal and rental churn , and included the $ 2.7 million negative impact from our reclaiming space in july 2012 from a customer in our atlanta-suwanee data center , as described above . as of december 31 , 2012 , our data centers were 86 % leased based on leasable raised floor of approximately 484,000 square feet , with an average annualized rent of $ 340 per leased raised floor square foot including cloud and managed services revenue , or $ 303 per leased raised floor square foot excluding cloud and managed services revenue . as of december 31 , 2011 , our data centers were 74 % leased based on leasable raised floor of approximately 549,000 square feet , with an average annualized rent of $ 294 per leased raised floor square foot including cloud and managed services revenue , or $ 262 per leased raised floor square foot excluding cloud and managed services revenue . the decrease in leasable raised floor was due to the reclaiming of space from a customer in our atlanta-suwanee data center , as described above , and the consolidation of our former new york 76 facility into our jersey city facility , partially offset by the acquisition of our sacramento data center in december 2012 and the addition of raised floor square footage from our redevelopment activities . the increase in average annualized rent per leased raised floor square foot as of december 31 , 2012 compared to december 31 , 2011 was primarily due to

cash flows replace_table_token_42_th year ended december 31 , 2013 compared to year ended december 31 , 2012 cash flow provided by operating activities was $ 60.1 million for the year ended december 31 , 2013 , compared to $ 35.1 million for the year ended december 31 , 2012. the increased cash flow provided by operating activities of $ 25.0 million was primarily due to an increase in cash operating income of $ 28.9 million , partially offset by a decrease in cash flow associated with net changes in working capital of $ 3.9 million primarily relating to changes in accounts payable , accrued liabilities , accrued interest on member advances , restricted cash and rent and other receivables . 89 cash flow used for investing activities decreased by $ 26.1 million to $ 168.8 million for the year ended december 31 , 2013 , compared to $ 194.9 million for the year ended december 31 , 2012. the decrease was primarily due to lower net cash outflow for the acquisitions of $ 42.1 million , partially offset by an increase in cash paid for capital expenditures primarily related to redevelopment of our atlanta-metro and richmond data centers of $ 14.4 million . these expenditures include capitalized soft costs such as interest , payroll and other costs to redevelop properties , which were , in the aggregate , $ 12.6 million and $ 8.9 million for the year ended december 31 , 2013 and 2012 , respectively . in 2012 , we received $ 1.5 million of proceeds from the sale of our topeka , kansas facility . cash flow provided by financing activities was $ 105.7 million for the year ended december 31 , 2013 , compared to $ 160.7 million for the year ended december 31 , 2012. the decrease was primarily due to a $ 91.9 million of equity financing provided by general atlantic llc in 2012 , partially offset by an increase of $ 37.6 in net borrowings under our former and new credit facilities in 2013 in order to acquire and redevelop our data centers .

the program includes , among other things , the elimination of full-time positions and facilities consolidation . we currently expect to record in the aggregate approximately $ 60.0 million to $ 100.0 million in pre-tax restructuring charges associated with this program . included in these pre-tax charges are approximately $ 55.0 million to $ 70.0 million related to employee severance arrangements and approximately $ 5.0 million to $ 30.0 million related to the consolidation of leased facilities and other charges associated with the program . on november 13 , 2017 , we announced that our board approved an increase of an additional $ 1.7 billion to our existing share repurchase program . additionally , on november 15 , 2017 , we issued $ 750.0 million of unsecured senior notes due 31 december 1 , 2027 ( the `` 2027 notes `` ) . the net proceeds from this offering were approximately $ 741.0 million , after deducting the underwriting discount and estimated offering expenses payable by us . net proceeds from this offering were used to repurchase $ 750.0 million of shares of our common stock through an asr program . on february 2 , 2018 , we entered into an asr transaction with goldman sachs & co. llc ( “ dealer ” ) to pay an aggregate of $ 750.0 million in exchange for the delivery of approximately 6.5 million shares of our common stock based on current market prices . the purchase price per share under the asr is subject to adjustment and is expected to equal the volume-weighted average price of our common stock during the term of the asr , less a discount . the exact number of shares repurchased pursuant to the asr will be determined based on such purchase price . the asr transaction is expected to be completed by the end of april 2018. the asr was entered into pursuant to our existing share repurchase program . after taking into account the additional $ 750.0 million shares repurchased pursuant to this asr , we will have approximately $ 500.0 million of remaining share repurchase authorization available . on february 6 , 2018 , we acquired all of the issued and outstanding securities of cedexis , inc. ( “ cedexis ” ) whose solution is a real-time data driven service for dynamically optimizing the flow of traffic across public clouds , data centers that provides a dynamic and reliable way to route and manage internet performance for customers moving towards hybrid and multi-cloud deployments . the total preliminary cash consideration for this transaction was approximately $ 66.5 million , net of $ 6.2 million cash acquired . during the year ended december 31 , 2017 , we accelerated our innovation in the cloud , with the introduction of new services , features and capabilities in our cloud solution to build out a comprehensive secure digital workspace . we are seeing an increasing shift in the way customers are purchasing our solutions , evolving towards a more subscription-based business model . we expect our transition to a subscription-based business model to provide financial and operational benefits to citrix , including by increasing customer life-time-value , expanding our customer use-cases and innovation opportunities , and extending the use of citrix services to securely deliver a broader array of applications , including web , saas apps and services . during the year ended december 31 , 2017 , we continued to report our revenues in four groupings : ( 1 ) product and license ; ( 2 ) license updates and maintenance ; ( 3 ) professional services ; and ( 4 ) software as a service . beginning in the first quarter of fiscal year 2018 , we plan to adjust our groupings for reporting revenue to align with our subscription-based business model transition as follows : ( 1 ) product and license revenue from perpetual product offerings ; ( 2 ) support and services revenue for perpetual product and license offerings ; and ( 3 ) subscription revenue , which will include revenue from our ratable cloud services offerings and on-premise subscriptions as well as revenue from our csp offerings . summary of results for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , we delivered the following financial performance : product and license revenue decreased 2.9 % to $ 857.3 million ; software as a service revenue increased 30.5 % to $ 175.8 million ; license updates and maintenance revenue increased 4.6 % to $ 1.7 billion ; professional services revenue increased 0.4 % to $ 131.7 million ; gross margin as a percentage of revenue decreased 0.8 % to 84.4 % ; operating income increased 1.9 % to $ 571.0 million ; and diluted earnings per share from continuing operations decreased 95.3 % to $ 0.14 . the decrease in our product and licenses revenue was primarily driven by lower overall sales of our networking products . our software as a service revenues increased due to increased sales of our content collaboration offerings and our workspace services offerings delivered via the cloud . the increase in license updates and maintenance revenue was primarily due to increased sales of software maintenance revenues across our workspace services and networking products , partially offset by a decrease in our subscription advantage product , which has reached end of sale , and our technical support as customers continue to migrate to our new software maintenance solutions . professional services revenue remained consistent when comparing 2017 to 2016 . we currently expect total revenue to increase when comparing the first quarter of 2018 to the first quarter of 2017. in addition , when comparing the 2018 fiscal year to the 2017 fiscal year , we currently expect total revenue to increase . gross margin remained consistent when comparing 2017 to 2016 . story_separator_special_tag critical estimates in valuing certain other intangible assets include but are not limited to future expected cash flows from customer contracts , customer retention rates , customer lists , distribution agreements , patents , brand awareness and market position , as well as discount rates . management 's estimates of fair value are based upon assumptions believed to be reasonable . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates or actual results . we monitor acquired intangible assets for impairment on a periodic basis by reviewing for indicators of impairment . if an indicator exists we compare the estimated net realizable value to the unamortized cost of the intangible asset . the recoverability of the intangible assets is primarily dependent upon our ability to commercialize solutions utilizing the acquired technologies , retain existing customers and customer contracts , and maintain brand awareness . the estimated net realizable value of the acquired intangible assets is based on the estimated undiscounted future cash flows derived from such intangible assets . our assumptions about future revenues and expenses require significant judgment associated with the forecast of the performance of our solutions , customer retention rates and ability to secure and maintain our market position . actual revenues and costs could vary significantly from these forecasted amounts . if these solutions are not ultimately accepted by our customers and distributors , and there is no alternative future use for the technology ; or if we fail to retain acquired customers or successfully market acquired brands , we could determine that some or all of the remaining $ 142.0 million carrying value of our acquired intangible assets is impaired . in the event of impairment , we would record an impairment charge to earnings that could have a material adverse effect on our results of operations . goodwill the excess of the fair value of purchase price over the fair values of the identifiable assets and liabilities from our acquisitions is recorded as goodwill . at december 31 , 2017 , we had $ 1.61 billion in goodwill related to our acquisition s. our revenues are derived from sales of our workspace services solutions , networking products , and related license updates and maintenance , and our content collaboration offerings . as part of our continued transformation , effective january 1 , 2016 , we reorganized a part of our business by creating a new content collaboration product grouping . in connection with this change , we performed an assessment of our goodwill reporting units and determined that the reorganization resulted in the identification of two goodwill reporting units ( excluding the goto business ) . additionally , on january 31 , 2017 , we completed the spin-off of the goto business and $ 380.9 million of the goodwill attributable to the goto business as of december 31 , 2016 was distributed to getgo . as a result of the spin-off , we performed an assessment of the two remaining goodwill reporting units and determined that they remain unchanged . see note 12 to our consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2017 for additional information regarding our reportable segment . we account for goodwill in accordance with fasb 's authoritative guidance , which requires that goodwill and certain intangible assets are not amortized , but are subject to an annual impairment test . we complete our goodwill and certain intangible assets impairment tests on an annual basis , during the fourth quarter of our fiscal year , or more frequently , if changes in facts and circumstances indicate that an impairment in the value of goodwill and certain intangible assets recorded on our balance sheet may exist . in the fourth quarter of 2017 , we performed a qualitative assessment to determine whether further quantitative impairment testing for goodwill and certain intangible assets is necessary , and we refer to this assessment as the qualitative screen . in performing the qualitative screen , we are required to make assumptions and judgments including but not limited to the following : the evaluation of macroeconomic conditions as related to our business , industry and market trends , and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate . if after performing the qualitative screen impairment indicators are present , we would perform a quantitative impairment test to estimate the fair value of goodwill and certain intangible assets . in doing so , we would estimate future revenue , consider market factors and estimate our future cash flows . based on these key assumptions , judgments and estimates , we determine whether we need to record an impairment charge to reduce the value of the goodwill and certain intangible assets carried on our balance sheet to its estimated fair value . assumptions , judgments and estimates about future values are complex and often subjective and can be affected by a variety of factors , including external factors such as industry and economic trends , and internal factors such as changes in our business strategy or our internal forecasts . although we believe the assumptions , judgments and estimates we have made have been reasonable and appropriate , different assumptions , judgments and estimates could materially affect our results of operations . as a result of the qualitative screen , no further quantitative impairment test was deemed necessary . there was no impairment of goodwill as a result of the annual impairment tests completed during the 36 fourth quarters of 2017 and 2016 . income taxes we are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements . at december 31 , 2017 , we had $ 152.3 million in net deferred tax assets . the authoritative guidance requires a

cash flows replace_table_token_42_th year ended december 31 , 2013 compared to year ended december 31 , 2012 cash flow provided by operating activities was $ 60.1 million for the year ended december 31 , 2013 , compared to $ 35.1 million for the year ended december 31 , 2012. the increased cash flow provided by operating activities of $ 25.0 million was primarily due to an increase in cash operating income of $ 28.9 million , partially offset by a decrease in cash flow associated with net changes in working capital of $ 3.9 million primarily relating to changes in accounts payable , accrued liabilities , accrued interest on member advances , restricted cash and rent and other receivables . 89 cash flow used for investing activities decreased by $ 26.1 million to $ 168.8 million for the year ended december 31 , 2013 , compared to $ 194.9 million for the year ended december 31 , 2012. the decrease was primarily due to lower net cash outflow for the acquisitions of $ 42.1 million , partially offset by an increase in cash paid for capital expenditures primarily related to redevelopment of our atlanta-metro and richmond data centers of $ 14.4 million . these expenditures include capitalized soft costs such as interest , payroll and other costs to redevelop properties , which were , in the aggregate , $ 12.6 million and $ 8.9 million for the year ended december 31 , 2013 and 2012 , respectively . in 2012 , we received $ 1.5 million of proceeds from the sale of our topeka , kansas facility . cash flow provided by financing activities was $ 105.7 million for the year ended december 31 , 2013 , compared to $ 160.7 million for the year ended december 31 , 2012. the decrease was primarily due to a $ 91.9 million of equity financing provided by general atlantic llc in 2012 , partially offset by an increase of $ 37.6 in net borrowings under our former and new credit facilities in 2013 in order to acquire and redevelop our data centers .

the program includes , among other things , the elimination of full-time positions and facilities consolidation . we currently expect to record in the aggregate approximately $ 60.0 million to $ 100.0 million in pre-tax restructuring charges associated with this program . included in these pre-tax charges are approximately $ 55.0 million to $ 70.0 million related to employee severance arrangements and approximately $ 5.0 million to $ 30.0 million related to the consolidation of leased facilities and other charges associated with the program . on november 13 , 2017 , we announced that our board approved an increase of an additional $ 1.7 billion to our existing share repurchase program . additionally , on november 15 , 2017 , we issued $ 750.0 million of unsecured senior notes due 31 december 1 , 2027 ( the `` 2027 notes `` ) . the net proceeds from this offering were approximately $ 741.0 million , after deducting the underwriting discount and estimated offering expenses payable by us . net proceeds from this offering were used to repurchase $ 750.0 million of shares of our common stock through an asr program . on february 2 , 2018 , we entered into an asr transaction with goldman sachs & co. llc ( “ dealer ” ) to pay an aggregate of $ 750.0 million in exchange for the delivery of approximately 6.5 million shares of our common stock based on current market prices . the purchase price per share under the asr is subject to adjustment and is expected to equal the volume-weighted average price of our common stock during the term of the asr , less a discount . the exact number of shares repurchased pursuant to the asr will be determined based on such purchase price . the asr transaction is expected to be completed by the end of april 2018. the asr was entered into pursuant to our existing share repurchase program . after taking into account the additional $ 750.0 million shares repurchased pursuant to this asr , we will have approximately $ 500.0 million of remaining share repurchase authorization available . on february 6 , 2018 , we acquired all of the issued and outstanding securities of cedexis , inc. ( “ cedexis ” ) whose solution is a real-time data driven service for dynamically optimizing the flow of traffic across public clouds , data centers that provides a dynamic and reliable way to route and manage internet performance for customers moving towards hybrid and multi-cloud deployments . the total preliminary cash consideration for this transaction was approximately $ 66.5 million , net of $ 6.2 million cash acquired . during the year ended december 31 , 2017 , we accelerated our innovation in the cloud , with the introduction of new services , features and capabilities in our cloud solution to build out a comprehensive secure digital workspace . we are seeing an increasing shift in the way customers are purchasing our solutions , evolving towards a more subscription-based business model . we expect our transition to a subscription-based business model to provide financial and operational benefits to citrix , including by increasing customer life-time-value , expanding our customer use-cases and innovation opportunities , and extending the use of citrix services to securely deliver a broader array of applications , including web , saas apps and services . during the year ended december 31 , 2017 , we continued to report our revenues in four groupings : ( 1 ) product and license ; ( 2 ) license updates and maintenance ; ( 3 ) professional services ; and ( 4 ) software as a service . beginning in the first quarter of fiscal year 2018 , we plan to adjust our groupings for reporting revenue to align with our subscription-based business model transition as follows : ( 1 ) product and license revenue from perpetual product offerings ; ( 2 ) support and services revenue for perpetual product and license offerings ; and ( 3 ) subscription revenue , which will include revenue from our ratable cloud services offerings and on-premise subscriptions as well as revenue from our csp offerings . summary of results for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , we delivered the following financial performance : product and license revenue decreased 2.9 % to $ 857.3 million ; software as a service revenue increased 30.5 % to $ 175.8 million ; license updates and maintenance revenue increased 4.6 % to $ 1.7 billion ; professional services revenue increased 0.4 % to $ 131.7 million ; gross margin as a percentage of revenue decreased 0.8 % to 84.4 % ; operating income increased 1.9 % to $ 571.0 million ; and diluted earnings per share from continuing operations decreased 95.3 % to $ 0.14 . the decrease in our product and licenses revenue was primarily driven by lower overall sales of our networking products . our software as a service revenues increased due to increased sales of our content collaboration offerings and our workspace services offerings delivered via the cloud . the increase in license updates and maintenance revenue was primarily due to increased sales of software maintenance revenues across our workspace services and networking products , partially offset by a decrease in our subscription advantage product , which has reached end of sale , and our technical support as customers continue to migrate to our new software maintenance solutions . professional services revenue remained consistent when comparing 2017 to 2016 . we currently expect total revenue to increase when comparing the first quarter of 2018 to the first quarter of 2017. in addition , when comparing the 2018 fiscal year to the 2017 fiscal year , we currently expect total revenue to increase . gross margin remained consistent when comparing 2017 to 2016 . story_separator_special_tag critical estimates in valuing certain other intangible assets include but are not limited to future expected cash flows from customer contracts , customer retention rates , customer lists , distribution agreements , patents , brand awareness and market position , as well as discount rates . management 's estimates of fair value are based upon assumptions believed to be reasonable . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates or actual results . we monitor acquired intangible assets for impairment on a periodic basis by reviewing for indicators of impairment . if an indicator exists we compare the estimated net realizable value to the unamortized cost of the intangible asset . the recoverability of the intangible assets is primarily dependent upon our ability to commercialize solutions utilizing the acquired technologies , retain existing customers and customer contracts , and maintain brand awareness . the estimated net realizable value of the acquired intangible assets is based on the estimated undiscounted future cash flows derived from such intangible assets . our assumptions about future revenues and expenses require significant judgment associated with the forecast of the performance of our solutions , customer retention rates and ability to secure and maintain our market position . actual revenues and costs could vary significantly from these forecasted amounts . if these solutions are not ultimately accepted by our customers and distributors , and there is no alternative future use for the technology ; or if we fail to retain acquired customers or successfully market acquired brands , we could determine that some or all of the remaining $ 142.0 million carrying value of our acquired intangible assets is impaired . in the event of impairment , we would record an impairment charge to earnings that could have a material adverse effect on our results of operations . goodwill the excess of the fair value of purchase price over the fair values of the identifiable assets and liabilities from our acquisitions is recorded as goodwill . at december 31 , 2017 , we had $ 1.61 billion in goodwill related to our acquisition s. our revenues are derived from sales of our workspace services solutions , networking products , and related license updates and maintenance , and our content collaboration offerings . as part of our continued transformation , effective january 1 , 2016 , we reorganized a part of our business by creating a new content collaboration product grouping . in connection with this change , we performed an assessment of our goodwill reporting units and determined that the reorganization resulted in the identification of two goodwill reporting units ( excluding the goto business ) . additionally , on january 31 , 2017 , we completed the spin-off of the goto business and $ 380.9 million of the goodwill attributable to the goto business as of december 31 , 2016 was distributed to getgo . as a result of the spin-off , we performed an assessment of the two remaining goodwill reporting units and determined that they remain unchanged . see note 12 to our consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2017 for additional information regarding our reportable segment . we account for goodwill in accordance with fasb 's authoritative guidance , which requires that goodwill and certain intangible assets are not amortized , but are subject to an annual impairment test . we complete our goodwill and certain intangible assets impairment tests on an annual basis , during the fourth quarter of our fiscal year , or more frequently , if changes in facts and circumstances indicate that an impairment in the value of goodwill and certain intangible assets recorded on our balance sheet may exist . in the fourth quarter of 2017 , we performed a qualitative assessment to determine whether further quantitative impairment testing for goodwill and certain intangible assets is necessary , and we refer to this assessment as the qualitative screen . in performing the qualitative screen , we are required to make assumptions and judgments including but not limited to the following : the evaluation of macroeconomic conditions as related to our business , industry and market trends , and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate . if after performing the qualitative screen impairment indicators are present , we would perform a quantitative impairment test to estimate the fair value of goodwill and certain intangible assets . in doing so , we would estimate future revenue , consider market factors and estimate our future cash flows . based on these key assumptions , judgments and estimates , we determine whether we need to record an impairment charge to reduce the value of the goodwill and certain intangible assets carried on our balance sheet to its estimated fair value . assumptions , judgments and estimates about future values are complex and often subjective and can be affected by a variety of factors , including external factors such as industry and economic trends , and internal factors such as changes in our business strategy or our internal forecasts . although we believe the assumptions , judgments and estimates we have made have been reasonable and appropriate , different assumptions , judgments and estimates could materially affect our results of operations . as a result of the qualitative screen , no further quantitative impairment test was deemed necessary . there was no impairment of goodwill as a result of the annual impairment tests completed during the 36 fourth quarters of 2017 and 2016 . income taxes we are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements . at december 31 , 2017 , we had $ 152.3 million in net deferred tax assets . the authoritative guidance requires a

liquidity and capital resources during 2017 , we generated continuing operating cash flows of $ 964.3 million . these operating cash flows related primarily to net income from continuing operations of $ 22.0 million , adjusted for , among other things , non-cash charges , depreciation and amortization expenses of $ 170.0 million , stock-based compensation expense of $ 165.1 million , deferred income tax expense of $ 94.2 million , and amortization of debt discount and transaction costs of $ 38.3 million . also contributing to these cash inflows was a change in operating assets and liabilities of $ 470.5 million , net of effects of acquisitions . the change in our net operating assets and liabilities was primarily a result of changes in net income taxes of $ 318.8 million due to tax reform , and changes in deferred revenue of $ 174.4 million . our continuing operations investing activities used $ 60.0 million of cash consisting primarily of cash paid for net purchases of investments of $ 86.4 million , cash paid for the purchase of property and equipment of $ 80.9 million , cash paid for acquisitions of $ 60.4 million , and cash paid for licensing agreements and technology of $ 7.4 million .

abnormal variances from excess capacity or under-utilization of fixed production overheads are expensed in the period incurred . our inventories are not generally subject to obsolescence due to spoilage or expiring product life cycles . we assess inventory obsolescence routinely and record a reserve when inventory items are deemed non recoverable in future periods . we operate generally as a make-to-order business ; however , we also stock products for certain customers in order to meet delivery schedules . while management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements , we could experience additional inventory write-downs in the future . goodwill and acquired intangibles . for new acquisitions , we use estimates , assumptions and appraisals to allocate the purchase price to the assets acquired and to determine the amount of goodwill . these estimates are based on market analyses and comparisons to similar assets . annual procedures are required to be performed to assess whether recorded goodwill is impaired . the annual tests require management to make estimates and assumptions with regard to the future operations of its reporting units , and the expected cash flows that they will generate . these estimates and assumptions could impact the recorded value of assets acquired in a business combination , including goodwill , and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment . goodwill is tested for impairment on an annual basis as of october 1 and between annual tests if a triggering event occurs . the impairment procedures are performed at the reporting unit level for the one unit that still has goodwill . in september 2011 , the fasb issued a revised accounting standard , which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” 19 assessment to determine whether further impairment testing is necessary . specifically , an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test . if an entity believes , as a result of its qualitative assessment , that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount , the quantitative impairment test is required . otherwise , no further testing is required . this standard was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 with early adoption permitted . the decision to perform a qualitative assessment or perform a complete step 1 analysis is an annual decision made by management based on several factors including budget to actual performance , economic , market and industry considerations such as automotive production rates in the geographic markets we serve and cash flow from operations . if the qualitative assessment indicates it is more likely than not that the fair value is less than the carrying value , u.s. gaap prescribes a two-step process for testing for goodwill impairments . the first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit . we determine the fair value of the reporting unit through use of discounted cash flow methods and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies . we believe this methodology of valuation is consistent with how market participants would value reporting units . the discount rate and market based multiples used are specifically developed for the units tested regarding the level of risk and end markets served . even though we do use other observable inputs ( level 2 inputs under the us gaap hierarchy ) the calculation of fair value for goodwill would be most consistent with level 3 under the us gaap hierarchy . if the carrying value of the reporting unit is less than fair value of the reporting unit , the goodwill is not considered impaired . if the carrying value is greater than fair value then the potential for impairment of goodwill exists . the potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination . the fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value . our indefinite lived intangible asset is accounted for similarly to goodwill . this asset is tested for impairment at least annually by comparing the fair value to the carrying value , using the relief from royalty rate method , and if the fair value is less than the carrying value , an impairment charge is recognized for the difference . we elected to use step 1 testing even though a qualitative approach was available to us . income taxes . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . story_separator_special_tag the segment net loss was lower in 2011 due to benefits from increased sales volumes and price increases during 2011. additionally , $ 4.5 million in tempe plant closure related costs that were incurred in 2010 did not repeat during 2011. partially offsetting these favorable effects was $ 5.0 million in additional operational inefficiencies and incurred costs during 2011 , over those levels experienced in 2010 , related to ramping up production for new large multi-year sales programs . during the third and fourth quarters of 2011 , we achieved reductions in start-up costs on the major sales programs from the levels experienced during the fourth quarter of 2010 and first half of 2011. plastic and rubber components segment replace_table_token_13_th the volume increase for this segment was related to increased u.s. automotive end market demand as the economy and consumer demand has returned to more normalized levels . the majority of the increases in price are from passing through material inflation to customers which provided minimal impact to net income . the decrease in segment net income was from operational inefficiencies due to starting-up a new sales program which more than offset the favorable benefit that resulted from the increase in sales volume . 27 changes in financial condition from december 31 , 2011 to december 31 , 2012. from december 31 , 2011 to december 31 , 2012 , our total assets increased $ 5.9 million and our current assets increased $ 3.3 million . the appreciation in the value of euro denominated account balances and chinese yuan denominated account balances , relative to the u.s. dollar , caused total assets and current assets to increase approximately $ 2.5 million and $ 1.3 million , respectively , from december 31 , 2011. excluding the foreign exchange effects , accounts receivable decreased by $ 15.4 million due primarily to the 20 % decrease in sales volume in december and november of 2012 from sales levels in december and november of 2011. additionally , the days sales outstanding have decreased 2.2 days as of december 31 , 2012 due to timing of certain customer receipts and improved collection efforts in our precision metal components segment . excluding the foreign exchange effects , inventories decreased by $ 0.2 million from december 31 , 2011 , primarily due to reducing raw materials in line with production partially offset by increasing finished goods for customer service . the increased levels of finished goods were planned to better facilitate customer service when seasonal demand increases in the first and second quarter of 2013. excluding the foreign exchange effects , property , plant and equipment decreased $ 2.3 million as year to date capital spending was $ 0.6 million lower than depreciation , the net book value of our former kilkenny plant was impaired by $ 1.0 million , and we sold assets with a net book value of $ 0.3 million . from december 31 , 2011 to december 31 , 2012 , our total liabilities decreased $ 23.0 million . the appreciation in the value of euro and chinese yuan denominated account balances , relative to the u.s. dollar , caused total liabilities to increase approximately $ 0.7 million from december 31 , 2011. accounts payable decreased $ 11.6 million due the reduction in sales and production volumes experienced during the fourth quarter of 2012 versus the fourth quarter of 2011. additionally , total liabilities decreased as we were able to pay down $ 8.6 million in debt from current year cash flows . working capital , which consists principally of cash , accounts receivable and inventories offset by accounts payable and current maturities of long-term debt , was $ 68.5 million at december 31 , 2012 as compared to $ 51.0 million at december 31 , 2011. the ratio of current assets to current liabilities increased from 1.70:1 at december 31 , 2011 to 2.17:1 at december 31 , 2012. the increase in working capital was due primarily to movements in accounts payable discussed above and increases in the cash balance from current year cash flows . these increases were partially offset by a reduction in accounts receivable , as discussed above . cash flow provided by operations was $ 37.4 million for 2012 compared with $ 15.0 million for 2011. the favorable variance in cash flow provided by operations was principally due to increasing net working capital at a much lower rate in 2012 versus in 2011 from the lower sales and production volumes experienced in q4 2012 versus q4 2011. cash used by investing activities was $ 14.8 million in 2012 compared with cash used by investing activities of $ 21.1 million in 2011. the decrease was primarily due to $ 3.2 million in lower spending on acquisitions of property plant and equipment in 2012 as planned and receipt of $ 1.9 million for the pay-off of a note receivable in 2012. cash used by financing activities was $ 9.6 million for 2012 compared with cash provided by financing activities of $ 6.6 million in 2011. the decrease was primarily due to the net repayment of short-term and long-term debt in 2012 versus net borrowings of short-term and long-term debt in 2011. the net repayment of debt in 2012 was driven by the additional $ 22.4 million of cash provided by operations in 2012 over 2011 , as discussed above . story_separator_special_tag our capital expenditures and working capital needs through december 2013. we base this assertion on our current availability for borrowing of up to $ 61.2 million and our forecasted positive cash flow from operations for the year ending december 31 , 2013. the table below sets forth our contractual obligations and commercial commitments as of december 31 , 2012 ( in thousands ) : replace_table_token_14_th there are $ 6.9 million of long-term post-employment benefits , the payment of which depends on various factors including at which point employees leave the company . based on the best available information ,

liquidity and capital resources during 2017 , we generated continuing operating cash flows of $ 964.3 million . these operating cash flows related primarily to net income from continuing operations of $ 22.0 million , adjusted for , among other things , non-cash charges , depreciation and amortization expenses of $ 170.0 million , stock-based compensation expense of $ 165.1 million , deferred income tax expense of $ 94.2 million , and amortization of debt discount and transaction costs of $ 38.3 million . also contributing to these cash inflows was a change in operating assets and liabilities of $ 470.5 million , net of effects of acquisitions . the change in our net operating assets and liabilities was primarily a result of changes in net income taxes of $ 318.8 million due to tax reform , and changes in deferred revenue of $ 174.4 million . our continuing operations investing activities used $ 60.0 million of cash consisting primarily of cash paid for net purchases of investments of $ 86.4 million , cash paid for the purchase of property and equipment of $ 80.9 million , cash paid for acquisitions of $ 60.4 million , and cash paid for licensing agreements and technology of $ 7.4 million .

abnormal variances from excess capacity or under-utilization of fixed production overheads are expensed in the period incurred . our inventories are not generally subject to obsolescence due to spoilage or expiring product life cycles . we assess inventory obsolescence routinely and record a reserve when inventory items are deemed non recoverable in future periods . we operate generally as a make-to-order business ; however , we also stock products for certain customers in order to meet delivery schedules . while management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements , we could experience additional inventory write-downs in the future . goodwill and acquired intangibles . for new acquisitions , we use estimates , assumptions and appraisals to allocate the purchase price to the assets acquired and to determine the amount of goodwill . these estimates are based on market analyses and comparisons to similar assets . annual procedures are required to be performed to assess whether recorded goodwill is impaired . the annual tests require management to make estimates and assumptions with regard to the future operations of its reporting units , and the expected cash flows that they will generate . these estimates and assumptions could impact the recorded value of assets acquired in a business combination , including goodwill , and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment . goodwill is tested for impairment on an annual basis as of october 1 and between annual tests if a triggering event occurs . the impairment procedures are performed at the reporting unit level for the one unit that still has goodwill . in september 2011 , the fasb issued a revised accounting standard , which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” 19 assessment to determine whether further impairment testing is necessary . specifically , an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test . if an entity believes , as a result of its qualitative assessment , that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount , the quantitative impairment test is required . otherwise , no further testing is required . this standard was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 with early adoption permitted . the decision to perform a qualitative assessment or perform a complete step 1 analysis is an annual decision made by management based on several factors including budget to actual performance , economic , market and industry considerations such as automotive production rates in the geographic markets we serve and cash flow from operations . if the qualitative assessment indicates it is more likely than not that the fair value is less than the carrying value , u.s. gaap prescribes a two-step process for testing for goodwill impairments . the first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit . we determine the fair value of the reporting unit through use of discounted cash flow methods and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies . we believe this methodology of valuation is consistent with how market participants would value reporting units . the discount rate and market based multiples used are specifically developed for the units tested regarding the level of risk and end markets served . even though we do use other observable inputs ( level 2 inputs under the us gaap hierarchy ) the calculation of fair value for goodwill would be most consistent with level 3 under the us gaap hierarchy . if the carrying value of the reporting unit is less than fair value of the reporting unit , the goodwill is not considered impaired . if the carrying value is greater than fair value then the potential for impairment of goodwill exists . the potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination . the fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value . our indefinite lived intangible asset is accounted for similarly to goodwill . this asset is tested for impairment at least annually by comparing the fair value to the carrying value , using the relief from royalty rate method , and if the fair value is less than the carrying value , an impairment charge is recognized for the difference . we elected to use step 1 testing even though a qualitative approach was available to us . income taxes . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . story_separator_special_tag the segment net loss was lower in 2011 due to benefits from increased sales volumes and price increases during 2011. additionally , $ 4.5 million in tempe plant closure related costs that were incurred in 2010 did not repeat during 2011. partially offsetting these favorable effects was $ 5.0 million in additional operational inefficiencies and incurred costs during 2011 , over those levels experienced in 2010 , related to ramping up production for new large multi-year sales programs . during the third and fourth quarters of 2011 , we achieved reductions in start-up costs on the major sales programs from the levels experienced during the fourth quarter of 2010 and first half of 2011. plastic and rubber components segment replace_table_token_13_th the volume increase for this segment was related to increased u.s. automotive end market demand as the economy and consumer demand has returned to more normalized levels . the majority of the increases in price are from passing through material inflation to customers which provided minimal impact to net income . the decrease in segment net income was from operational inefficiencies due to starting-up a new sales program which more than offset the favorable benefit that resulted from the increase in sales volume . 27 changes in financial condition from december 31 , 2011 to december 31 , 2012. from december 31 , 2011 to december 31 , 2012 , our total assets increased $ 5.9 million and our current assets increased $ 3.3 million . the appreciation in the value of euro denominated account balances and chinese yuan denominated account balances , relative to the u.s. dollar , caused total assets and current assets to increase approximately $ 2.5 million and $ 1.3 million , respectively , from december 31 , 2011. excluding the foreign exchange effects , accounts receivable decreased by $ 15.4 million due primarily to the 20 % decrease in sales volume in december and november of 2012 from sales levels in december and november of 2011. additionally , the days sales outstanding have decreased 2.2 days as of december 31 , 2012 due to timing of certain customer receipts and improved collection efforts in our precision metal components segment . excluding the foreign exchange effects , inventories decreased by $ 0.2 million from december 31 , 2011 , primarily due to reducing raw materials in line with production partially offset by increasing finished goods for customer service . the increased levels of finished goods were planned to better facilitate customer service when seasonal demand increases in the first and second quarter of 2013. excluding the foreign exchange effects , property , plant and equipment decreased $ 2.3 million as year to date capital spending was $ 0.6 million lower than depreciation , the net book value of our former kilkenny plant was impaired by $ 1.0 million , and we sold assets with a net book value of $ 0.3 million . from december 31 , 2011 to december 31 , 2012 , our total liabilities decreased $ 23.0 million . the appreciation in the value of euro and chinese yuan denominated account balances , relative to the u.s. dollar , caused total liabilities to increase approximately $ 0.7 million from december 31 , 2011. accounts payable decreased $ 11.6 million due the reduction in sales and production volumes experienced during the fourth quarter of 2012 versus the fourth quarter of 2011. additionally , total liabilities decreased as we were able to pay down $ 8.6 million in debt from current year cash flows . working capital , which consists principally of cash , accounts receivable and inventories offset by accounts payable and current maturities of long-term debt , was $ 68.5 million at december 31 , 2012 as compared to $ 51.0 million at december 31 , 2011. the ratio of current assets to current liabilities increased from 1.70:1 at december 31 , 2011 to 2.17:1 at december 31 , 2012. the increase in working capital was due primarily to movements in accounts payable discussed above and increases in the cash balance from current year cash flows . these increases were partially offset by a reduction in accounts receivable , as discussed above . cash flow provided by operations was $ 37.4 million for 2012 compared with $ 15.0 million for 2011. the favorable variance in cash flow provided by operations was principally due to increasing net working capital at a much lower rate in 2012 versus in 2011 from the lower sales and production volumes experienced in q4 2012 versus q4 2011. cash used by investing activities was $ 14.8 million in 2012 compared with cash used by investing activities of $ 21.1 million in 2011. the decrease was primarily due to $ 3.2 million in lower spending on acquisitions of property plant and equipment in 2012 as planned and receipt of $ 1.9 million for the pay-off of a note receivable in 2012. cash used by financing activities was $ 9.6 million for 2012 compared with cash provided by financing activities of $ 6.6 million in 2011. the decrease was primarily due to the net repayment of short-term and long-term debt in 2012 versus net borrowings of short-term and long-term debt in 2011. the net repayment of debt in 2012 was driven by the additional $ 22.4 million of cash provided by operations in 2012 over 2011 , as discussed above . story_separator_special_tag our capital expenditures and working capital needs through december 2013. we base this assertion on our current availability for borrowing of up to $ 61.2 million and our forecasted positive cash flow from operations for the year ending december 31 , 2013. the table below sets forth our contractual obligations and commercial commitments as of december 31 , 2012 ( in thousands ) : replace_table_token_14_th there are $ 6.9 million of long-term post-employment benefits , the payment of which depends on various factors including at which point employees leave the company . based on the best available information ,

liquidity and capital resources amounts outstanding under our $ 100 million credit facility and our fixed rate notes as of december 31 , 2012 were $ 38.1 million ( including $ 0.1 million under our swing line of credit ) and $ 31.4 million , respectively . as of december 31 , 2012 , we can borrow up to an additional $ 61.2 million under the $ 100 million credit facility , including $ 9.9 million under our swing line of credit , subject to limitations based on existing financial covenants . the $ 61.2 million of availability is net of $ 0.7 million of outstanding letters of credit at december 31 , 2012 which are considered as usage of the facility . we were in compliance with all covenants related to the $ 100 million credit facility and the fixed rate notes agreements as of december 31 , 2012 . 28 the table below summarizes the financial covenants of the two credit agreements as of december 31 , 2012 : financial covenants required covenant level actual level achieved interest coverage ratio not to be less than 3.00 to 1.00 as of the last day of any fiscal quarter 8.21 to 1.00 fixed charge coverage not to be less than 1.00 to 1.00 as of the last day of any fiscal quarter 1.32 to 1.00 leverage ratio not to exceed 2.75 to 1.00 for the most recently completed four fiscal quarters 1.72 to 1.00 capital expenditures not to invest more than $ 25,524 during the fiscal year 2012 $ 17,089 on october 26 , 2012 , we amended our $ 100 million revolving credit facility agented by keybank and our fixed rate notes with prudential capital in order to take advantage of lower interest rates , to extend the maturity of the revolving credit facility to october 26 , 2017 , and to remove certain restrictions on acquisitions , payments of dividends and stock repurchases . the amended interest rates on our revolving credit facility are libor plus an applicable margin of 1.25 % to 2.25

our 2016 dividend payments are expected to be approximately $ 123 million assuming no change in the quarterly dividend rate of $ 0.25 per share or material changes in the number of shares outstanding . we made no discretionary pension contributions in 2015 or 2014 . we have no mandatory pension contributions in 2016 but may make discretionary contributions in the future . on an ongoing basis , cash income tax payments are expected to be minimal . during 2016 , we may repatriate approximately $ 23 million of proceeds received from the sale of our forestry assets to the new zealand jv when it was formed in 2005. if this occurs , we anticipate that cash payments for income taxes in 2016 will be approximately $ 1.7 million . performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( “ adjusted ebitda ” ) , and cash available for distribution ( “ cad ” ) . these measures are not defined by generally accepted accounting principles ( “ gaap ” ) and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values of the company as a whole and of its core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of land and real estate sold , costs related to shareholder litigation , costs related to the spin-off of the performance fibers business , discontinued operations , large dispositions , internal review and restatement costs and the gain related to consolidation of the new zealand joint venture . below is a reconciliation of net income to adjusted ebitda for the five years ended december 31 ( in millions of dollars ) : replace_table_token_30_th ( a ) previously reported adjusted ebitda for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value . ( b ) costs related to shareholder litigation include expenses incurred as a result of the securities litigation , the shareholder derivative demands and the securities and exchange commission investigation . see note 10 — contingencies . see item 6 — selected financial data for a reconciliation of adjusted ebitda to operating income by segment as well as item 7 — results of operations for an analysis of changes in adjusted ebitda from the prior year . 46 cad is a non-gaap measure of cash generated during a period which is available for dividend distribution , repurchase of the company 's common shares , debt reduction and strategic acquisitions . we define cad as cash provided by operating activities adjusted for capital spending ( excluding timberland acquisitions ) , large dispositions , cash provided by discontinued operations and working capital and other balance sheet changes . in compliance with sec requirements for non-gaap measures , we reduce cad by mandatory debt repayments which results in the measure entitled “ adjusted cad . ” adjusted cad generated in any period is not necessarily indicative of the amounts that may be generated in future periods . below is a reconciliation of cash provided by operating activities to adjusted cad for the five years ended december 31 ( in millions ) : replace_table_token_31_th replace_table_token_32_th ( a ) capital expenditures exclude timberland acquisitions of $ 98.4 million and $ 130.9 million during the years ended december 31 , 2015 and december 31 , 2014 , respectively . capital expenditures also exclude $ 139.9 million for the purchase of an additional interest in the new zealand jv and $ 20.4 million for timberland acquisitions for the year ended december 31 , 2013 . in 2012 , timberland acquisitions totaled $ 106.5 million . ( b ) previously reported cad for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value off-balance sheet arrangements we utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations , and collateral for certain self-insurance programs that we maintain . these arrangements consist of standby letters of credit and surety bonds . as part of our ongoing operations , we also periodically issue guarantees to third parties . off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts . see note 11 — guarantees for further discussion . 47 contractual financial obligations in addition to using cash flow from operations , we finance our operations through the issuance of debt and by entering into leases . these financial obligations are recorded in accordance with accounting rules applicable to the underlying transaction , with the result that some are recorded as liabilities on the consolidated balance sheets , while others are required to be disclosed in the notes to consolidated financial statements and management story_separator_special_tag our 2016 dividend payments are expected to be approximately $ 123 million assuming no change in the quarterly dividend rate of $ 0.25 per share or material changes in the number of shares outstanding . we made no discretionary pension contributions in 2015 or 2014 . we have no mandatory pension contributions in 2016 but may make discretionary contributions in the future . on an ongoing basis , cash income tax payments are expected to be minimal . during 2016 , we may repatriate approximately $ 23 million of proceeds received from the sale of our forestry assets to the new zealand jv when it was formed in 2005. if this occurs , we anticipate that cash payments for income taxes in 2016 will be approximately $ 1.7 million . performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( “ adjusted ebitda ” ) , and cash available for distribution ( “ cad ” ) . these measures are not defined by generally accepted accounting principles ( “ gaap ” ) and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values of the company as a whole and of its core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of land and real estate sold , costs related to shareholder litigation , costs related to the spin-off of the performance fibers business , discontinued operations , large dispositions , internal review and restatement costs and the gain related to consolidation of the new zealand joint venture . below is a reconciliation of net income to adjusted ebitda for the five years ended december 31 ( in millions of dollars ) : replace_table_token_30_th ( a ) previously reported adjusted ebitda for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value . ( b ) costs related to shareholder litigation include expenses incurred as a result of the securities litigation , the shareholder derivative demands and the securities and exchange commission investigation . see note 10 — contingencies . see item 6 — selected financial data for a reconciliation of adjusted ebitda to operating income by segment as well as item 7 — results of operations for an analysis of changes in adjusted ebitda from the prior year . 46 cad is a non-gaap measure of cash generated during a period which is available for dividend distribution , repurchase of the company 's common shares , debt reduction and strategic acquisitions . we define cad as cash provided by operating activities adjusted for capital spending ( excluding timberland acquisitions ) , large dispositions , cash provided by discontinued operations and working capital and other balance sheet changes . in compliance with sec requirements for non-gaap measures , we reduce cad by mandatory debt repayments which results in the measure entitled “ adjusted cad . ” adjusted cad generated in any period is not necessarily indicative of the amounts that may be generated in future periods . below is a reconciliation of cash provided by operating activities to adjusted cad for the five years ended december 31 ( in millions ) : replace_table_token_31_th replace_table_token_32_th ( a ) capital expenditures exclude timberland acquisitions of $ 98.4 million and $ 130.9 million during the years ended december 31 , 2015 and december 31 , 2014 , respectively . capital expenditures also exclude $ 139.9 million for the purchase of an additional interest in the new zealand jv and $ 20.4 million for timberland acquisitions for the year ended december 31 , 2013 . in 2012 , timberland acquisitions totaled $ 106.5 million . ( b ) previously reported cad for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value off-balance sheet arrangements we utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations , and collateral for certain self-insurance programs that we maintain . these arrangements consist of standby letters of credit and surety bonds . as part of our ongoing operations , we also periodically issue guarantees to third parties . off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts . see note 11 — guarantees for further discussion . 47 contractual financial obligations in addition to using cash flow from operations , we finance our operations through the issuance of debt and by entering into leases . these financial obligations are recorded in accordance with accounting rules applicable to the underlying transaction , with the result that some are recorded as liabilities on the consolidated balance sheets , while others are required to be disclosed in the notes to consolidated financial statements and management

liquidity and capital resources amounts outstanding under our $ 100 million credit facility and our fixed rate notes as of december 31 , 2012 were $ 38.1 million ( including $ 0.1 million under our swing line of credit ) and $ 31.4 million , respectively . as of december 31 , 2012 , we can borrow up to an additional $ 61.2 million under the $ 100 million credit facility , including $ 9.9 million under our swing line of credit , subject to limitations based on existing financial covenants . the $ 61.2 million of availability is net of $ 0.7 million of outstanding letters of credit at december 31 , 2012 which are considered as usage of the facility . we were in compliance with all covenants related to the $ 100 million credit facility and the fixed rate notes agreements as of december 31 , 2012 . 28 the table below summarizes the financial covenants of the two credit agreements as of december 31 , 2012 : financial covenants required covenant level actual level achieved interest coverage ratio not to be less than 3.00 to 1.00 as of the last day of any fiscal quarter 8.21 to 1.00 fixed charge coverage not to be less than 1.00 to 1.00 as of the last day of any fiscal quarter 1.32 to 1.00 leverage ratio not to exceed 2.75 to 1.00 for the most recently completed four fiscal quarters 1.72 to 1.00 capital expenditures not to invest more than $ 25,524 during the fiscal year 2012 $ 17,089 on october 26 , 2012 , we amended our $ 100 million revolving credit facility agented by keybank and our fixed rate notes with prudential capital in order to take advantage of lower interest rates , to extend the maturity of the revolving credit facility to october 26 , 2017 , and to remove certain restrictions on acquisitions , payments of dividends and stock repurchases . the amended interest rates on our revolving credit facility are libor plus an applicable margin of 1.25 % to 2.25

our 2016 dividend payments are expected to be approximately $ 123 million assuming no change in the quarterly dividend rate of $ 0.25 per share or material changes in the number of shares outstanding . we made no discretionary pension contributions in 2015 or 2014 . we have no mandatory pension contributions in 2016 but may make discretionary contributions in the future . on an ongoing basis , cash income tax payments are expected to be minimal . during 2016 , we may repatriate approximately $ 23 million of proceeds received from the sale of our forestry assets to the new zealand jv when it was formed in 2005. if this occurs , we anticipate that cash payments for income taxes in 2016 will be approximately $ 1.7 million . performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( “ adjusted ebitda ” ) , and cash available for distribution ( “ cad ” ) . these measures are not defined by generally accepted accounting principles ( “ gaap ” ) and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values of the company as a whole and of its core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of land and real estate sold , costs related to shareholder litigation , costs related to the spin-off of the performance fibers business , discontinued operations , large dispositions , internal review and restatement costs and the gain related to consolidation of the new zealand joint venture . below is a reconciliation of net income to adjusted ebitda for the five years ended december 31 ( in millions of dollars ) : replace_table_token_30_th ( a ) previously reported adjusted ebitda for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value . ( b ) costs related to shareholder litigation include expenses incurred as a result of the securities litigation , the shareholder derivative demands and the securities and exchange commission investigation . see note 10 — contingencies . see item 6 — selected financial data for a reconciliation of adjusted ebitda to operating income by segment as well as item 7 — results of operations for an analysis of changes in adjusted ebitda from the prior year . 46 cad is a non-gaap measure of cash generated during a period which is available for dividend distribution , repurchase of the company 's common shares , debt reduction and strategic acquisitions . we define cad as cash provided by operating activities adjusted for capital spending ( excluding timberland acquisitions ) , large dispositions , cash provided by discontinued operations and working capital and other balance sheet changes . in compliance with sec requirements for non-gaap measures , we reduce cad by mandatory debt repayments which results in the measure entitled “ adjusted cad . ” adjusted cad generated in any period is not necessarily indicative of the amounts that may be generated in future periods . below is a reconciliation of cash provided by operating activities to adjusted cad for the five years ended december 31 ( in millions ) : replace_table_token_31_th replace_table_token_32_th ( a ) capital expenditures exclude timberland acquisitions of $ 98.4 million and $ 130.9 million during the years ended december 31 , 2015 and december 31 , 2014 , respectively . capital expenditures also exclude $ 139.9 million for the purchase of an additional interest in the new zealand jv and $ 20.4 million for timberland acquisitions for the year ended december 31 , 2013 . in 2012 , timberland acquisitions totaled $ 106.5 million . ( b ) previously reported cad for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value off-balance sheet arrangements we utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations , and collateral for certain self-insurance programs that we maintain . these arrangements consist of standby letters of credit and surety bonds . as part of our ongoing operations , we also periodically issue guarantees to third parties . off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts . see note 11 — guarantees for further discussion . 47 contractual financial obligations in addition to using cash flow from operations , we finance our operations through the issuance of debt and by entering into leases . these financial obligations are recorded in accordance with accounting rules applicable to the underlying transaction , with the result that some are recorded as liabilities on the consolidated balance sheets , while others are required to be disclosed in the notes to consolidated financial statements and management story_separator_special_tag our 2016 dividend payments are expected to be approximately $ 123 million assuming no change in the quarterly dividend rate of $ 0.25 per share or material changes in the number of shares outstanding . we made no discretionary pension contributions in 2015 or 2014 . we have no mandatory pension contributions in 2016 but may make discretionary contributions in the future . on an ongoing basis , cash income tax payments are expected to be minimal . during 2016 , we may repatriate approximately $ 23 million of proceeds received from the sale of our forestry assets to the new zealand jv when it was formed in 2005. if this occurs , we anticipate that cash payments for income taxes in 2016 will be approximately $ 1.7 million . performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( “ adjusted ebitda ” ) , and cash available for distribution ( “ cad ” ) . these measures are not defined by generally accepted accounting principles ( “ gaap ” ) and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values of the company as a whole and of its core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of land and real estate sold , costs related to shareholder litigation , costs related to the spin-off of the performance fibers business , discontinued operations , large dispositions , internal review and restatement costs and the gain related to consolidation of the new zealand joint venture . below is a reconciliation of net income to adjusted ebitda for the five years ended december 31 ( in millions of dollars ) : replace_table_token_30_th ( a ) previously reported adjusted ebitda for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value . ( b ) costs related to shareholder litigation include expenses incurred as a result of the securities litigation , the shareholder derivative demands and the securities and exchange commission investigation . see note 10 — contingencies . see item 6 — selected financial data for a reconciliation of adjusted ebitda to operating income by segment as well as item 7 — results of operations for an analysis of changes in adjusted ebitda from the prior year . 46 cad is a non-gaap measure of cash generated during a period which is available for dividend distribution , repurchase of the company 's common shares , debt reduction and strategic acquisitions . we define cad as cash provided by operating activities adjusted for capital spending ( excluding timberland acquisitions ) , large dispositions , cash provided by discontinued operations and working capital and other balance sheet changes . in compliance with sec requirements for non-gaap measures , we reduce cad by mandatory debt repayments which results in the measure entitled “ adjusted cad . ” adjusted cad generated in any period is not necessarily indicative of the amounts that may be generated in future periods . below is a reconciliation of cash provided by operating activities to adjusted cad for the five years ended december 31 ( in millions ) : replace_table_token_31_th replace_table_token_32_th ( a ) capital expenditures exclude timberland acquisitions of $ 98.4 million and $ 130.9 million during the years ended december 31 , 2015 and december 31 , 2014 , respectively . capital expenditures also exclude $ 139.9 million for the purchase of an additional interest in the new zealand jv and $ 20.4 million for timberland acquisitions for the year ended december 31 , 2013 . in 2012 , timberland acquisitions totaled $ 106.5 million . ( b ) previously reported cad for 2014 , 2013 and 2011 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have any identified hbu premium relative to timberland value off-balance sheet arrangements we utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations , and collateral for certain self-insurance programs that we maintain . these arrangements consist of standby letters of credit and surety bonds . as part of our ongoing operations , we also periodically issue guarantees to third parties . off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts . see note 11 — guarantees for further discussion . 47 contractual financial obligations in addition to using cash flow from operations , we finance our operations through the issuance of debt and by entering into leases . these financial obligations are recorded in accordance with accounting rules applicable to the underlying transaction , with the result that some are recorded as liabilities on the consolidated balance sheets , while others are required to be disclosed in the notes to consolidated financial statements and management

liquidity facilities term credit agreement on august 5 , 2015 , the company entered into a credit agreement with cobank , acb , as administrative agent , and a syndicate of farm credit institutions and other commercial banks to provide $ 550 million of new credit facilities , including a nine-year $ 350 million term loan facility . the periodic interest rate on the term loan facility is subject to a pricing grid based on the company 's leverage ratio , as defined in the credit agreement . as of december 31 , 2015 , the periodic interest rate on the term loan facility was libor plus 1.625 % . concurrent with the closing of the facilities , the company entered into an interest rate swap transaction to fix the cost of the term loan facility over its nine-year term . the company also expects to receive annual patronage refunds , which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user . the company estimates the effective interest rate on the term loan facility to be approximately 3.3 % after consideration of the interest rate swap and estimated patronage refunds . as of december 31 , 2015 , the company had additional draws available of $ 180 million under the term loan facility . revolving credit facility in august 2015 , the company entered into a five-year $ 200 million unsecured revolving credit facility , replacing the previous $ 200 million revolving credit facility and $ 100 million farm credit facility which were scheduled to expire in april 2016 and december 2019 , respectively . the periodic interest rate on the revolving credit facility is subject to a pricing grid based on the company 's leverage ratio , as defined in the credit agreement .

the average menu price increase was 4.0 % in 2020 over 2019. there were thirty restaurants included in the same store sales base at the end of the fiscal year . additionally , net revenues for fiscal 2020 were reduced by $ 148,000 in lower franchise royalties and license fees compared to the prior fiscal year , primarily related to the charlotte airport licensee . fiscal 2020 and fiscal 2019 include franchise advertising contributions of $ 13,000 and $ 14,000 , respectively . additional sales data related to bad daddy 's company-owned and joint-venture restaurants : replace_table_token_4_th good times restaurant sales increased $ 2,716,000 to $ 32,763,000 in fiscal 2020 from $ 30,047,000 in fiscal 2019. same store restaurant sales increased 7.9 % during fiscal 2020 compared to fiscal 2019 and benefitted from an extra operating week in the first fiscal quarter of 2020 which we estimate contributed approximately $ 460,000. restaurant sales increased $ 2,373,000 from the prior year due to the same store sales increase . one restaurant was not included in same store sales while closed for a major remodel in fiscal 2019. sales increased $ 359,000 in fiscal 2020 from the prior year due to the closure . one restaurant closed during fiscal 2020 and was excluded from same store sales . sales decreased $ 642,000 due to this closure . the average menu price increase in fiscal 2020 over fiscal 2019 was approximately 4.0 % . additionally , net revenues for fiscal 2020 were reduced by $ 26,000 in lower franchise revenues compared to fiscal 2019. fiscal 2020 and fiscal 2019 include franchise advertising contributions of $ 231,000 and $ 295,000 , respectively . average good times restaurant sales for company-operated restaurants open the entire fiscal year for fiscal 2020 and 2019 were as follows : fiscal year 2020 2019 company-operated $ 1,299,000 $ 1,166,000 during fiscal 2020 , company-operated good times restaurants ' sales for restaurants that had been open a full eighteen months ranged from a low of $ 846,000 to a high of $ 2,315,000. food and packaging costs : for fiscal 2020 , food and packaging costs decreased $ 1,076,000 from $ 32,471,000 ( 29.6 % of restaurant sales ) in fiscal 2019 to $ 31,395,000 ( 28.8 % of restaurant sales ) . 25 bad daddy 's food and packaging costs were $ 21,323,000 ( 27.9 % of restaurant sales ) in fiscal 2020 , down from $ 23,006,000 ( 28.8 % of restaurant sales ) in fiscal 2019. this decrease is primarily attributable to lower restaurant sales during the current fiscal year versus prior fiscal year . the decrease as a percent of sales is attributable to menu mix shift from a limited menu during the ongoing covid-19 pandemic , improved cost on soft beverage because refills are not available on off-premise sales , reduced discounting due to the reduction in on-premises sales , and increased pricing charged on sales through third-party delivery services , typically at a 10 % to 20 % premium to purchases made in-store or through our online ordering system . purchase prices generally increased on beef and bacon but generally decreased on chicken , on a year-over-year basis . good times food and packaging costs were $ 10,072,000 ( 30.7 % of restaurant sales ) in fiscal 2020 , up from $ 9,465,000 ( 31.5 % of restaurant sales ) in fiscal 2019 , the result of increased sales . this decrease as a percent of sales is due primarily to the impact of higher menu pricing and menu engineering , which offset purchase price increases on our primary ingredients . payroll and other employee benefit costs : for fiscal 2020 , payroll and other employee benefit costs decreased $ 2,779,000 from $ 41,221,000 ( 37.5 % of restaurant sales ) in fiscal 2019 to $ 38,442,000 ( 35.2 % of restaurant sales ) . bad daddy 's payroll and other employee benefit costs were $ 27,465,000 ( 36.0 % of restaurant sales ) for fiscal 2020 , down from $ 30,224,000 ( 37.9 % of restaurant sales ) in fiscal 2019. the $ 2,759,000 decrease was primarily attributable to lower restaurant sales during the current fiscal year versus the prior fiscal year . as a percent of sales , payroll and employee benefits costs decreased by 1.9 % primarily attributable to staffing reductions associated with the full and partial closures of our dining rooms for much of the third and fourth fiscal quarters as well as reductions in management staffing . good times payroll and other employee benefit costs were $ 10,977,000 ( 33.5 % of restaurant sales ) in fiscal 2020 , consistent with $ 10,997,000 ( 36.6 % of restaurant sales ) in fiscal 2019. payroll and other employee benefits decreased approximately $ 279,000 in fiscal 2020 due to one company-owned restaurant that was closed in december 2019. this was offset by a $ 259,000 increase in payroll and other employee benefit expenses primarily due to an increase in restaurant sales compared to the same prior year period . as a percent of sales , payroll and employee benefits costs decreased by 1.1 % in fiscal 2020 compared to fiscal 2019. this decrease is primarily attributable to the leveraging impact of the significant sales increases in the third and fourth fiscal quarters of 2020. the average wage paid to our employees increased approximately 4.2 % in fiscal 2020 compared to fiscal 2019. the 4.2 % increase is attributable to a very competitive labor market in colorado and state mandated increases in the minimum wage rate . occupancy costs : occupancy costs include rent , real and personal property taxes , common area maintenance expenses , licenses and insurance expense . for fiscal 2020 , occupancy costs increased $ 524,000 from $ 8,353,000 ( 7.6 % of restaurant sales ) in fiscal 2019 to $ 8,877,000 ( 8.1 % of restaurant sales ) . story_separator_special_tag the principal limitation of ebitda and adjusted ebitda is that they exclude significant expenses and income that are required by gaap to be recorded in the company 's financial statements . some of these limitations are : · adjusted ebitda does not reflect our cash expenditures , or future requirements , for capital expenditures or contractual commitments ; · adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; · adjusted ebitda does not reflect the interest expense , or the cash requirements necessary to service interest or principal payments , on our debts ; · although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements ; · stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package , although we exclude it as an expense when evaluating our ongoing performance for a particular period ; · adjusted ebitda does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations ; and · other companies in our industry may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . 29 because of these limitations , adjusted ebitda should not be considered in isolation or as a substitute for performance measures calculated in accordance with gaap . we compensate for these limitations by relying primarily on our gaap results and using adjusted ebitda only as a supplementary measure . you should review the reconciliation of net loss to ebitda and adjusted ebitda below and not rely on any single financial measure to evaluate our business . the following table reconciles net loss to ebitda and adjusted ebitda ( in thousands ) : replace_table_token_5_th ( a ) depreciation , amortization and preopening expenses are presented net of the share attributable to the non-controlling interest . ( 1 ) represents expenses directly associated with the opening of new restaurants , including preopening rent . ( 2 ) represents non-cash stock-based compensation as described in note 8 to the financial statements . ( 3 ) represents accrued one-time cash compensation cost associated with the separation of the company 's former ceo . ( 4 ) represents the excess of cash rent incurred over the amount of gaap rent recorded in the financial statements . ( 5 ) primarily related to deferred gains on previous sale-leaseback transactions on two good times restaurants . ( 6 ) represents costs recognized in connection the asset impairment charges as described in note 1 to the financial statements . depreciation and amortization , preopening expense , and asset impairment charge have been reduced by any amounts attributable to non-controlling interests . story_separator_special_tag application process , including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the ppp . the company continues to track the guidance as it is released and assess and re-assess various aspects of its application as necessary based on the guidance . the company believes it qualifies for the ppp and is compliant in all aspects with its use of ppp funds , and expects to apply for forgiveness during 2021. however , in the absence of definitive guidance or regulations the company can not give any assurance that the loans will be forgivable in whole or in part . see “ item 1a risk factors ” . in the event that any portion of the loans are not forgiven in accordance with the ppp , the company will be required to pay the lender monthly payments of principal and interest in an aggregate amount of $ 489,000 to repay the ppp loans in full on or before april 29 , 2022. the sba has deferred loan payments to either ( 1 ) the date the sba remits our forgiveness to the lender , or ( 2 ) 10 months after the end of the covered period , which would be in august 2021. however , as of the date of this report we have not yet received a decision from the sba regarding forgiveness of our ppp loans or communication regarding the official end date of our deferral period . the loans may be prepaid by the company at any time prior to maturity with no prepayment penalties . the notes contain certifications and agreements related to the ppp , as well as customary default and other provisions . we reflect the full principal amount of the ppp loans as debt , accounting for such loans under asc 470 , with current maturities of approximately $ 5.2 million pursuant to the current payment amortization schedule . we intend to account for the forgiveness of such loans at the time such forgiveness is granted . 31 cash flows : net cash provided by operating activities was $ 8,369,000 for fiscal 2020 compared to net cash provided by operating activities of $ 6,771,000 in fiscal 2019. the net cash provided by operating activities for fiscal 2020 was the result of a net loss of $ 12,794,000 and non-cash reconciling items totaling $ 21,163,000 ( these reconciling items are comprised of 1 ) depreciation and amortization of general assets of $ 4,313,000 , 2 ) amortization of operating lease assets of $ 4,025,000 , 3 ) stock-based compensation expense of $ 283,000 , 4 ) impairment costs of 15,606,000 5 ) an increase in receivables and other assets of $ 364,000 , 6 ) an increase in deferred liabilities and accrued expenses of $ 782,000 , 7 ) a decrease in accounts payable of $ 496,000 and 8 ) a net increase in amounts related to our operating leases of $ 3,714,000 ) . net cash used in investing activities in fiscal 2020 was $ 2,604,000 compared to net cash used in investing activities of

liquidity facilities term credit agreement on august 5 , 2015 , the company entered into a credit agreement with cobank , acb , as administrative agent , and a syndicate of farm credit institutions and other commercial banks to provide $ 550 million of new credit facilities , including a nine-year $ 350 million term loan facility . the periodic interest rate on the term loan facility is subject to a pricing grid based on the company 's leverage ratio , as defined in the credit agreement . as of december 31 , 2015 , the periodic interest rate on the term loan facility was libor plus 1.625 % . concurrent with the closing of the facilities , the company entered into an interest rate swap transaction to fix the cost of the term loan facility over its nine-year term . the company also expects to receive annual patronage refunds , which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user . the company estimates the effective interest rate on the term loan facility to be approximately 3.3 % after consideration of the interest rate swap and estimated patronage refunds . as of december 31 , 2015 , the company had additional draws available of $ 180 million under the term loan facility . revolving credit facility in august 2015 , the company entered into a five-year $ 200 million unsecured revolving credit facility , replacing the previous $ 200 million revolving credit facility and $ 100 million farm credit facility which were scheduled to expire in april 2016 and december 2019 , respectively . the periodic interest rate on the revolving credit facility is subject to a pricing grid based on the company 's leverage ratio , as defined in the credit agreement .

the average menu price increase was 4.0 % in 2020 over 2019. there were thirty restaurants included in the same store sales base at the end of the fiscal year . additionally , net revenues for fiscal 2020 were reduced by $ 148,000 in lower franchise royalties and license fees compared to the prior fiscal year , primarily related to the charlotte airport licensee . fiscal 2020 and fiscal 2019 include franchise advertising contributions of $ 13,000 and $ 14,000 , respectively . additional sales data related to bad daddy 's company-owned and joint-venture restaurants : replace_table_token_4_th good times restaurant sales increased $ 2,716,000 to $ 32,763,000 in fiscal 2020 from $ 30,047,000 in fiscal 2019. same store restaurant sales increased 7.9 % during fiscal 2020 compared to fiscal 2019 and benefitted from an extra operating week in the first fiscal quarter of 2020 which we estimate contributed approximately $ 460,000. restaurant sales increased $ 2,373,000 from the prior year due to the same store sales increase . one restaurant was not included in same store sales while closed for a major remodel in fiscal 2019. sales increased $ 359,000 in fiscal 2020 from the prior year due to the closure . one restaurant closed during fiscal 2020 and was excluded from same store sales . sales decreased $ 642,000 due to this closure . the average menu price increase in fiscal 2020 over fiscal 2019 was approximately 4.0 % . additionally , net revenues for fiscal 2020 were reduced by $ 26,000 in lower franchise revenues compared to fiscal 2019. fiscal 2020 and fiscal 2019 include franchise advertising contributions of $ 231,000 and $ 295,000 , respectively . average good times restaurant sales for company-operated restaurants open the entire fiscal year for fiscal 2020 and 2019 were as follows : fiscal year 2020 2019 company-operated $ 1,299,000 $ 1,166,000 during fiscal 2020 , company-operated good times restaurants ' sales for restaurants that had been open a full eighteen months ranged from a low of $ 846,000 to a high of $ 2,315,000. food and packaging costs : for fiscal 2020 , food and packaging costs decreased $ 1,076,000 from $ 32,471,000 ( 29.6 % of restaurant sales ) in fiscal 2019 to $ 31,395,000 ( 28.8 % of restaurant sales ) . 25 bad daddy 's food and packaging costs were $ 21,323,000 ( 27.9 % of restaurant sales ) in fiscal 2020 , down from $ 23,006,000 ( 28.8 % of restaurant sales ) in fiscal 2019. this decrease is primarily attributable to lower restaurant sales during the current fiscal year versus prior fiscal year . the decrease as a percent of sales is attributable to menu mix shift from a limited menu during the ongoing covid-19 pandemic , improved cost on soft beverage because refills are not available on off-premise sales , reduced discounting due to the reduction in on-premises sales , and increased pricing charged on sales through third-party delivery services , typically at a 10 % to 20 % premium to purchases made in-store or through our online ordering system . purchase prices generally increased on beef and bacon but generally decreased on chicken , on a year-over-year basis . good times food and packaging costs were $ 10,072,000 ( 30.7 % of restaurant sales ) in fiscal 2020 , up from $ 9,465,000 ( 31.5 % of restaurant sales ) in fiscal 2019 , the result of increased sales . this decrease as a percent of sales is due primarily to the impact of higher menu pricing and menu engineering , which offset purchase price increases on our primary ingredients . payroll and other employee benefit costs : for fiscal 2020 , payroll and other employee benefit costs decreased $ 2,779,000 from $ 41,221,000 ( 37.5 % of restaurant sales ) in fiscal 2019 to $ 38,442,000 ( 35.2 % of restaurant sales ) . bad daddy 's payroll and other employee benefit costs were $ 27,465,000 ( 36.0 % of restaurant sales ) for fiscal 2020 , down from $ 30,224,000 ( 37.9 % of restaurant sales ) in fiscal 2019. the $ 2,759,000 decrease was primarily attributable to lower restaurant sales during the current fiscal year versus the prior fiscal year . as a percent of sales , payroll and employee benefits costs decreased by 1.9 % primarily attributable to staffing reductions associated with the full and partial closures of our dining rooms for much of the third and fourth fiscal quarters as well as reductions in management staffing . good times payroll and other employee benefit costs were $ 10,977,000 ( 33.5 % of restaurant sales ) in fiscal 2020 , consistent with $ 10,997,000 ( 36.6 % of restaurant sales ) in fiscal 2019. payroll and other employee benefits decreased approximately $ 279,000 in fiscal 2020 due to one company-owned restaurant that was closed in december 2019. this was offset by a $ 259,000 increase in payroll and other employee benefit expenses primarily due to an increase in restaurant sales compared to the same prior year period . as a percent of sales , payroll and employee benefits costs decreased by 1.1 % in fiscal 2020 compared to fiscal 2019. this decrease is primarily attributable to the leveraging impact of the significant sales increases in the third and fourth fiscal quarters of 2020. the average wage paid to our employees increased approximately 4.2 % in fiscal 2020 compared to fiscal 2019. the 4.2 % increase is attributable to a very competitive labor market in colorado and state mandated increases in the minimum wage rate . occupancy costs : occupancy costs include rent , real and personal property taxes , common area maintenance expenses , licenses and insurance expense . for fiscal 2020 , occupancy costs increased $ 524,000 from $ 8,353,000 ( 7.6 % of restaurant sales ) in fiscal 2019 to $ 8,877,000 ( 8.1 % of restaurant sales ) . story_separator_special_tag the principal limitation of ebitda and adjusted ebitda is that they exclude significant expenses and income that are required by gaap to be recorded in the company 's financial statements . some of these limitations are : · adjusted ebitda does not reflect our cash expenditures , or future requirements , for capital expenditures or contractual commitments ; · adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; · adjusted ebitda does not reflect the interest expense , or the cash requirements necessary to service interest or principal payments , on our debts ; · although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements ; · stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package , although we exclude it as an expense when evaluating our ongoing performance for a particular period ; · adjusted ebitda does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations ; and · other companies in our industry may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . 29 because of these limitations , adjusted ebitda should not be considered in isolation or as a substitute for performance measures calculated in accordance with gaap . we compensate for these limitations by relying primarily on our gaap results and using adjusted ebitda only as a supplementary measure . you should review the reconciliation of net loss to ebitda and adjusted ebitda below and not rely on any single financial measure to evaluate our business . the following table reconciles net loss to ebitda and adjusted ebitda ( in thousands ) : replace_table_token_5_th ( a ) depreciation , amortization and preopening expenses are presented net of the share attributable to the non-controlling interest . ( 1 ) represents expenses directly associated with the opening of new restaurants , including preopening rent . ( 2 ) represents non-cash stock-based compensation as described in note 8 to the financial statements . ( 3 ) represents accrued one-time cash compensation cost associated with the separation of the company 's former ceo . ( 4 ) represents the excess of cash rent incurred over the amount of gaap rent recorded in the financial statements . ( 5 ) primarily related to deferred gains on previous sale-leaseback transactions on two good times restaurants . ( 6 ) represents costs recognized in connection the asset impairment charges as described in note 1 to the financial statements . depreciation and amortization , preopening expense , and asset impairment charge have been reduced by any amounts attributable to non-controlling interests . story_separator_special_tag application process , including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the ppp . the company continues to track the guidance as it is released and assess and re-assess various aspects of its application as necessary based on the guidance . the company believes it qualifies for the ppp and is compliant in all aspects with its use of ppp funds , and expects to apply for forgiveness during 2021. however , in the absence of definitive guidance or regulations the company can not give any assurance that the loans will be forgivable in whole or in part . see “ item 1a risk factors ” . in the event that any portion of the loans are not forgiven in accordance with the ppp , the company will be required to pay the lender monthly payments of principal and interest in an aggregate amount of $ 489,000 to repay the ppp loans in full on or before april 29 , 2022. the sba has deferred loan payments to either ( 1 ) the date the sba remits our forgiveness to the lender , or ( 2 ) 10 months after the end of the covered period , which would be in august 2021. however , as of the date of this report we have not yet received a decision from the sba regarding forgiveness of our ppp loans or communication regarding the official end date of our deferral period . the loans may be prepaid by the company at any time prior to maturity with no prepayment penalties . the notes contain certifications and agreements related to the ppp , as well as customary default and other provisions . we reflect the full principal amount of the ppp loans as debt , accounting for such loans under asc 470 , with current maturities of approximately $ 5.2 million pursuant to the current payment amortization schedule . we intend to account for the forgiveness of such loans at the time such forgiveness is granted . 31 cash flows : net cash provided by operating activities was $ 8,369,000 for fiscal 2020 compared to net cash provided by operating activities of $ 6,771,000 in fiscal 2019. the net cash provided by operating activities for fiscal 2020 was the result of a net loss of $ 12,794,000 and non-cash reconciling items totaling $ 21,163,000 ( these reconciling items are comprised of 1 ) depreciation and amortization of general assets of $ 4,313,000 , 2 ) amortization of operating lease assets of $ 4,025,000 , 3 ) stock-based compensation expense of $ 283,000 , 4 ) impairment costs of 15,606,000 5 ) an increase in receivables and other assets of $ 364,000 , 6 ) an increase in deferred liabilities and accrued expenses of $ 782,000 , 7 ) a decrease in accounts payable of $ 496,000 and 8 ) a net increase in amounts related to our operating leases of $ 3,714,000 ) . net cash used in investing activities in fiscal 2020 was $ 2,604,000 compared to net cash used in investing activities of

liquidity and capital resources please see “ item 1 business-recent developments ” for a discussion of the covid-19 pandemic 's impact on our liquidity . cash and working capital : as of september 29 , 2020 , we had a working capital deficit of $ 5,145,000. our working capital 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 a few days of the related sale , and we typically have two to four weeks to pay our vendors . this benefit may increase when new bad daddy 's and good times restaurants are opened . we believe that we will have sufficient capital to meet our working capital , long term debt obligations and recurring capital expenditure needs in fiscal 2021. as of september 29 , 2020 , we had total commitments outstanding of $ 353,000 related to construction contracts for bad daddy 's restaurants currently under development . we anticipate these commitments will be funded out of existing cash or future borrowings against the cadence credit facility . financing cadence credit facility : the company maintains a credit agreement with cadence bank ( “ cadence ” ) pursuant to which , as amended , cadence agreed to loan the company up to $ 17,000,000 with a maturity date of december 31 , 2021 ( the “ cadence credit facility ” ) . on february 21 , 2019 the cadence credit facility was amended , in connection with the repurchase of minority interests related to three bad daddy 's restaurants , to retroactively attribute ebitda previously attributed to non-controlling interests to the company for purposes of certain financial covenants . on december 9 , 2019 the cadence credit facility was amended in connection with the separation of the company 's former ceo , to amend the definition of “ consolidated ebitda ” for the purposes of financial covenants , to require certain installment payments , and to permit the company to make certain “ restricted payments ” ( as defined in the cadence credit facility ) . as amended by the various amendments , the cadence credit facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25 % .

our revenue is generated from a combination of third-party payors , institutions and self-payors , including private and government employers . payments for our products by third party payors have been made primarily through case-by-case determinations . third-party payors include , without limitation , private insurance plans and managed care programs , government programs including the us department of veterans affairs , worker 's compensation and medicare and medicaid . we expect that third-party payors will be an increasingly important source of revenue in the future . in december 2015 , the va issued a national policy for the evaluation , training and procurement of rewalk personal exoskeleton systems for all qualifying veterans across the united states . the va policy is the first national coverage policy in the united states for qualifying individuals who have suffered spinal cord injury . all of our rewalk systems sold until the end of the current year are covered by a two-year warranty from the date of purchase , which is included in the purchase price . we offer customers the ability to purchase , any time during the initial warranty period , an extended warranty for up to three additional years . both warranties cover all elements of the rewalk system , including the batteries , other than normal wear and tear . in the beginning of 2018 we updated our service policy for new devices sold to include a five-year warranty . 64 revenues are presented net of the amounts of any provision we record for expected future product returns . cost of revenues and gross profit ( loss ) cost of revenue consists primarily of systems purchased from our outsourced manufacturer , sanmina , salaries , personnel costs including non-cash share based compensation , associated with manufacturing and inventory management , training and inspection , warranty and service costs , shipping and handling and manufacturing startup and transition costs . prior to the first quarter of 2014 , when we completed the manufacturing transition to sanmina , cost of revenues also included costs of components , compensation related costs associated with manufacturing and costs to transition manufacturing to sanmina . cost of revenues also includes royalties and expenses related to royalty-bearing research and development grants and sales and marketing grants . our gross profit ( loss ) and gross margin as a percentage of sales is influenced by a number of factors , including primarily the volume and price of our products sold and fluctuations in our cost of revenues . certain one-time expenses also impact gross margins including a 2014 expense relating to the early settlement , at a discount , of a royalty-bearing grant to the bird foundation and 2015 and 2016 costs to transition manufacturing to the rewalk personal 6.0 model . we expect gross profit ( loss ) as a percentage of sales will improve in the future as we increase our sales volumes and decrease the product manufacturing costs . operating expenses research and development expenses , net research and development expenses , net consist primarily of salaries , related personnel costs including share-based compensation , supplies , materials and expenses related to product design and development , clinical studies , regulatory submissions , patent costs , sponsored research costs and other expenses related to our product development and research programs . we expense all research and development expenses as they are incurred . we believe that continued investment in research and development is crucial to attaining our strategic product objectives . research and development expenses are presented net of the amount of any grants we receive for research and development in the period in which we receive the grant . we previously received grants and other funding from the bird foundation and the israel innovation authority , or “ iia ” ( formerly known as the office of the chief scientist ) . certain of those grants require us to pay royalties on sales of rewalk systems , which are recorded as cost of revenues . we may receive additional funding from these entities or others in the future . see “ grants and other funding ” below . sales and marketing expenses our sales and marketing expenses consist primarily of salaries , related personnel costs including share-based compensation for sales , marketing and reimbursement personnel , travel , marketing and public relations activities and consulting costs . also included in the sales and marketing expenses are the costs associated with our reimbursement activities in the united states and germany . general and administrative expenses our general and administrative expenses consist primarily of salaries , related personnel costs including share-based compensation for our administrative , finance , and general management personnel , professional services and insurance . financial income ( expenses ) , net financial income and expenses consist of bank commissions , foreign exchange gains and losses , interest earned on investments in short term deposits , and revaluation of the fair value of warrants to purchase our preferred shares and expenses related to our convertible loans , which were issued in 2013 and are no longer outstanding . warrants to purchase our convertible preferred shares were classified as a liability on our consolidated balance sheet at fair value . the warrants were subject to revaluation at each balance sheet date and any change in fair value is recognized as a component of financial income ( expense ) , net , on our consolidated statements of operations . all such warrants were exercised , expired or converted into warrants to purchase ordinary shares in connection with our initial public offering , and therefore as of december 31 , 2014 and for periods beginning with the fourth quarter of 2014 , we no longer record any liability in respect of them on our balance sheet or financial expenses in respect of them on our statement of operations . interest income consists of interest earned on our cash and cash equivalent balances . story_separator_special_tag we have established a full valuation allowance with respect to our deferred tax assets . 72 asu 2015-17 , “ balance sheet classification of deferred taxes `` provides presentation requirements to classify deferred tax assets and liabilities , along with any related valuation allowance , are classified as non-current on the balance sheet . we account for uncertain tax positions in accordance with asc 740 and recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . accordingly , we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return . we recognize interest and penalties , if any , related to unrecognized tax benefits in tax expense . new and revised financial accounting standards the jobs act permits emerging growth companies such as us to delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this and , therefore , we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . recently issued and adopted accounting pronouncements a discussion of recent accounting pronouncements is included in note 2u , new accounting pronouncements to our consolidated financial statements in this annual report . liquidity and capital resources sources of liquidity and outlook since inception , we have funded our operations primarily through the sale of certain of our equity securities and convertible notes to investors in private placements , the sale of our ordinary shares in public offerings and the incurrence of bank debt . as of december 31 , 2017 , the company had cash and cash equivalents of $ 14.6 million . the company has an accumulated deficit in the total amount of $ 131.2 million as of december 31 , 2017 and further losses are anticipated in the development of its business . those factors raise substantial doubt about the company 's ability to continue as a going concern . the ability to continue as a going concern is dependent upon the company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due . the company intends to finance operating costs over the next twelve months with existing cash on hand , reducing operating spend , issuances under the company 's atm offering program , or other future issuances of equity and debt securities , including the recently signed private placement of ordinary shares to timwell , or through a combination of the foregoing . however , the company will need to seek additional sources of financing if the company require more funds than anticipated during the next 12 months or in later periods . the accompanying consolidated financial statements have been prepared assuming the company will continue as a going concern , which contemplates the realization of assets and liabilities and commitments in the normal course of business . the consolidated financial statements for the year ended december 31 , 2017 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the company 's ability to continue as a going concern . our anticipated primary uses of cash are ( i ) sales , marketing and reimbursement expenses related to market development activities and broadening third-party payor coverage , and ( ii ) research and development costs related to , in the shorter term , our restore device that will assist patients who had stroke , and , in the longer term , developing our next generation of rewalk with design improvements and building upon our technological platform to address new medical indications that affect the ability to walk including cerebral palsy , parkinson 's disease and elderly assistance . our future cash requirements will depend on many factors , including our rate of revenue growth , the expansion of our sales and marketing activities , the timing and extent of our spending on research and development efforts and international expansion . if our current estimates of revenue , expenses or capital or liquidity requirements change or are inaccurate , we may seek to sell additional equity or debt securities , arrange for additional bank debt financing or refinance our indebtedness . there can be no assurance that we will be able to raise such funds on acceptable terms . for more information , see “ part i , item 1a . risk factors-we have concluded that there are substantial doubts as to our ability to continue as a going concern . ” 73 loan agreement with kreos and related warrant to purchase ordinary shares on december 30 , 2015 , we entered into the loan agreement with kreos pursuant to which kreos extended a line of credit to us in the amount of $ 20 million . on january 4 , 2016 , we drew down $ 12.0 million under the loan agreement . under the terms of the loan agreement we were entitled to draw down up to an additional $ 8.0 million until december 31 , 2016 , if we raised $ 10.0 million or more in the issuance of shares of our capital stock ( including debt convertible into shares of our capital stock ) by december 31 , 2016. on december 28 , 2016 , we drew down the remaining $ 8.0 million available under the loan agreement . interest is payable monthly in

liquidity and capital resources please see “ item 1 business-recent developments ” for a discussion of the covid-19 pandemic 's impact on our liquidity . cash and working capital : as of september 29 , 2020 , we had a working capital deficit of $ 5,145,000. our working capital 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 a few days of the related sale , and we typically have two to four weeks to pay our vendors . this benefit may increase when new bad daddy 's and good times restaurants are opened . we believe that we will have sufficient capital to meet our working capital , long term debt obligations and recurring capital expenditure needs in fiscal 2021. as of september 29 , 2020 , we had total commitments outstanding of $ 353,000 related to construction contracts for bad daddy 's restaurants currently under development . we anticipate these commitments will be funded out of existing cash or future borrowings against the cadence credit facility . financing cadence credit facility : the company maintains a credit agreement with cadence bank ( “ cadence ” ) pursuant to which , as amended , cadence agreed to loan the company up to $ 17,000,000 with a maturity date of december 31 , 2021 ( the “ cadence credit facility ” ) . on february 21 , 2019 the cadence credit facility was amended , in connection with the repurchase of minority interests related to three bad daddy 's restaurants , to retroactively attribute ebitda previously attributed to non-controlling interests to the company for purposes of certain financial covenants . on december 9 , 2019 the cadence credit facility was amended in connection with the separation of the company 's former ceo , to amend the definition of “ consolidated ebitda ” for the purposes of financial covenants , to require certain installment payments , and to permit the company to make certain “ restricted payments ” ( as defined in the cadence credit facility ) . as amended by the various amendments , the cadence credit facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25 % .

our revenue is generated from a combination of third-party payors , institutions and self-payors , including private and government employers . payments for our products by third party payors have been made primarily through case-by-case determinations . third-party payors include , without limitation , private insurance plans and managed care programs , government programs including the us department of veterans affairs , worker 's compensation and medicare and medicaid . we expect that third-party payors will be an increasingly important source of revenue in the future . in december 2015 , the va issued a national policy for the evaluation , training and procurement of rewalk personal exoskeleton systems for all qualifying veterans across the united states . the va policy is the first national coverage policy in the united states for qualifying individuals who have suffered spinal cord injury . all of our rewalk systems sold until the end of the current year are covered by a two-year warranty from the date of purchase , which is included in the purchase price . we offer customers the ability to purchase , any time during the initial warranty period , an extended warranty for up to three additional years . both warranties cover all elements of the rewalk system , including the batteries , other than normal wear and tear . in the beginning of 2018 we updated our service policy for new devices sold to include a five-year warranty . 64 revenues are presented net of the amounts of any provision we record for expected future product returns . cost of revenues and gross profit ( loss ) cost of revenue consists primarily of systems purchased from our outsourced manufacturer , sanmina , salaries , personnel costs including non-cash share based compensation , associated with manufacturing and inventory management , training and inspection , warranty and service costs , shipping and handling and manufacturing startup and transition costs . prior to the first quarter of 2014 , when we completed the manufacturing transition to sanmina , cost of revenues also included costs of components , compensation related costs associated with manufacturing and costs to transition manufacturing to sanmina . cost of revenues also includes royalties and expenses related to royalty-bearing research and development grants and sales and marketing grants . our gross profit ( loss ) and gross margin as a percentage of sales is influenced by a number of factors , including primarily the volume and price of our products sold and fluctuations in our cost of revenues . certain one-time expenses also impact gross margins including a 2014 expense relating to the early settlement , at a discount , of a royalty-bearing grant to the bird foundation and 2015 and 2016 costs to transition manufacturing to the rewalk personal 6.0 model . we expect gross profit ( loss ) as a percentage of sales will improve in the future as we increase our sales volumes and decrease the product manufacturing costs . operating expenses research and development expenses , net research and development expenses , net consist primarily of salaries , related personnel costs including share-based compensation , supplies , materials and expenses related to product design and development , clinical studies , regulatory submissions , patent costs , sponsored research costs and other expenses related to our product development and research programs . we expense all research and development expenses as they are incurred . we believe that continued investment in research and development is crucial to attaining our strategic product objectives . research and development expenses are presented net of the amount of any grants we receive for research and development in the period in which we receive the grant . we previously received grants and other funding from the bird foundation and the israel innovation authority , or “ iia ” ( formerly known as the office of the chief scientist ) . certain of those grants require us to pay royalties on sales of rewalk systems , which are recorded as cost of revenues . we may receive additional funding from these entities or others in the future . see “ grants and other funding ” below . sales and marketing expenses our sales and marketing expenses consist primarily of salaries , related personnel costs including share-based compensation for sales , marketing and reimbursement personnel , travel , marketing and public relations activities and consulting costs . also included in the sales and marketing expenses are the costs associated with our reimbursement activities in the united states and germany . general and administrative expenses our general and administrative expenses consist primarily of salaries , related personnel costs including share-based compensation for our administrative , finance , and general management personnel , professional services and insurance . financial income ( expenses ) , net financial income and expenses consist of bank commissions , foreign exchange gains and losses , interest earned on investments in short term deposits , and revaluation of the fair value of warrants to purchase our preferred shares and expenses related to our convertible loans , which were issued in 2013 and are no longer outstanding . warrants to purchase our convertible preferred shares were classified as a liability on our consolidated balance sheet at fair value . the warrants were subject to revaluation at each balance sheet date and any change in fair value is recognized as a component of financial income ( expense ) , net , on our consolidated statements of operations . all such warrants were exercised , expired or converted into warrants to purchase ordinary shares in connection with our initial public offering , and therefore as of december 31 , 2014 and for periods beginning with the fourth quarter of 2014 , we no longer record any liability in respect of them on our balance sheet or financial expenses in respect of them on our statement of operations . interest income consists of interest earned on our cash and cash equivalent balances . story_separator_special_tag we have established a full valuation allowance with respect to our deferred tax assets . 72 asu 2015-17 , “ balance sheet classification of deferred taxes `` provides presentation requirements to classify deferred tax assets and liabilities , along with any related valuation allowance , are classified as non-current on the balance sheet . we account for uncertain tax positions in accordance with asc 740 and recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . accordingly , we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return . we recognize interest and penalties , if any , related to unrecognized tax benefits in tax expense . new and revised financial accounting standards the jobs act permits emerging growth companies such as us to delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this and , therefore , we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . recently issued and adopted accounting pronouncements a discussion of recent accounting pronouncements is included in note 2u , new accounting pronouncements to our consolidated financial statements in this annual report . liquidity and capital resources sources of liquidity and outlook since inception , we have funded our operations primarily through the sale of certain of our equity securities and convertible notes to investors in private placements , the sale of our ordinary shares in public offerings and the incurrence of bank debt . as of december 31 , 2017 , the company had cash and cash equivalents of $ 14.6 million . the company has an accumulated deficit in the total amount of $ 131.2 million as of december 31 , 2017 and further losses are anticipated in the development of its business . those factors raise substantial doubt about the company 's ability to continue as a going concern . the ability to continue as a going concern is dependent upon the company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due . the company intends to finance operating costs over the next twelve months with existing cash on hand , reducing operating spend , issuances under the company 's atm offering program , or other future issuances of equity and debt securities , including the recently signed private placement of ordinary shares to timwell , or through a combination of the foregoing . however , the company will need to seek additional sources of financing if the company require more funds than anticipated during the next 12 months or in later periods . the accompanying consolidated financial statements have been prepared assuming the company will continue as a going concern , which contemplates the realization of assets and liabilities and commitments in the normal course of business . the consolidated financial statements for the year ended december 31 , 2017 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the company 's ability to continue as a going concern . our anticipated primary uses of cash are ( i ) sales , marketing and reimbursement expenses related to market development activities and broadening third-party payor coverage , and ( ii ) research and development costs related to , in the shorter term , our restore device that will assist patients who had stroke , and , in the longer term , developing our next generation of rewalk with design improvements and building upon our technological platform to address new medical indications that affect the ability to walk including cerebral palsy , parkinson 's disease and elderly assistance . our future cash requirements will depend on many factors , including our rate of revenue growth , the expansion of our sales and marketing activities , the timing and extent of our spending on research and development efforts and international expansion . if our current estimates of revenue , expenses or capital or liquidity requirements change or are inaccurate , we may seek to sell additional equity or debt securities , arrange for additional bank debt financing or refinance our indebtedness . there can be no assurance that we will be able to raise such funds on acceptable terms . for more information , see “ part i , item 1a . risk factors-we have concluded that there are substantial doubts as to our ability to continue as a going concern . ” 73 loan agreement with kreos and related warrant to purchase ordinary shares on december 30 , 2015 , we entered into the loan agreement with kreos pursuant to which kreos extended a line of credit to us in the amount of $ 20 million . on january 4 , 2016 , we drew down $ 12.0 million under the loan agreement . under the terms of the loan agreement we were entitled to draw down up to an additional $ 8.0 million until december 31 , 2016 , if we raised $ 10.0 million or more in the issuance of shares of our capital stock ( including debt convertible into shares of our capital stock ) by december 31 , 2016. on december 28 , 2016 , we drew down the remaining $ 8.0 million available under the loan agreement . interest is payable monthly in

loss on extinguishment of debt loss on extinguishment of debt of $ 313 thousand during 2017 is due to amending of our debt under the loan agreement with kreos , such that $ 3.0 million in principal is now subject to the kreos convertible note . the entry into the kreos convertible note , which decreased the outstanding principal amount under the loan agreement from $ 17.2 million to $ 14.2 million , resulted in extinguishment of debt accounting treatment . 68 financial expenses , net our financial expenses , net for 2017 and 2016 were as follows ( in thousands ) : replace_table_token_9_th financial expenses , net , increased by $ 0.2 million , or 11 % during 2017 compared to 2016 . this increase is mainly attributable to interest expense related to the loan agreement with kreos . income tax our income tax for 2017 and 2016 was as follows ( in thousands ) : replace_table_token_10_th income taxes increased by $ 116 thousand or 3,867 % during 2017 compared to 2016 . this increase is mainly related to a deferred tax expense as a result of the tax rate change in the u.s due to the tcja .

on july 1 , 2013 , we completed the initial public offering , or ipo , of our common stock pursuant to a registration statement on form s-1 whereby we sold 5,000,000 shares of common stock at a price of $ 14.00 per share . on july 11 , 2013 , the underwriters exercised their over-allotment option in full and purchased an additional 750,000 shares of common stock at a price of $ 14.00 per share . net proceeds from the ipo were approximately $ 72.2 million , including proceeds from the exercise of the underwriters ' over-allotment option , net of underwriting discounts and commissions and offering expenses . upon the closing of the ipo , all outstanding shares of our preferred stock were converted into 9,210,999 shares of common stock . on october 21 , 2014 , we completed an underwritten public offering of 4,887,500 shares of common stock , including 637,500 shares sold pursuant to the full exercise of an over-allotment option granted to the underwriters . all of the shares were offered by us at a price to the public of $ 20.00 per share . the aggregate net proceeds received by us from the offering were $ 91.6 million , net of underwriting discounts and commissions and expenses payable by us . we have not commenced principal operations and do not have any products approved for sale . to date , we have not generated any revenue . we have never been profitable and our net losses were $ 36.4 million , $ 26.1 million and $ 11.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . substantially all of our net losses resulted from costs incurred in connection with research and development programs , general and administrative costs associated with our operations . we expect 63 to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , including , among others : conducting additional clinical studies of etc-1002 to complete its development ; seeking regulatory approval for etc-1002 ; commercializing etc-1002 ; and operating as a public company . accordingly , we will need additional funding to support our continuing operations . we will seek to fund our operations through public or private equity or debt financings or through other sources , which may include collaborations with third parties . adequate additional funding may not be available to us on acceptable terms , or at all . our failure to obtain additional funding as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy or continue operations . we will need to generate significant revenues to achieve profitability , and we may never do so . product overview etc-1002 , our lead product candidate , is a first-in-class , orally available , once-daily ldl-cholesterol lowering small molecule therapy designed to lower levels of ldl-cholesterol and to avoid many of the side effects associated with existing ldl-cholesterol lowering therapies . we acquired the rights to etc-1002 from pfizer in 2008. we own the exclusive worldwide rights to etc-1002 and we are not obligated to make any royalty or milestone payments to pfizer . during the year ended december 31 , 2012 , we incurred $ 5.8 million in expenses related to our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and type 2 diabetes ( etc-1002-005 ) and our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and a history of statin intolerance ( etc-1002-006 ) which reported top-line results in june 2013 , and our phase 2a clinical study in patients with hypercholesterolemia taking 10 mg of atorvastatin ( etc-1002-007 ) , which reported top-line results in september 2013. during the year ended december 31 , 2013 , we incurred $ 13.7 million in expenses related to our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and type 2 diabetes ( etc-1002-005 ) , our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and a history of statin intolerance ( etc-1002-006 ) , our phase 2a clinical study in patients with hypercholesterolemia taking 10 mg of atorvastatin ( etc-1002-007 ) and our phase 2b clinical study in patients with hypercholesterolemia and either with or without statin intolerance ( etc-1002-008 ) . during the year ended december 31 , 2014 , we incurred $ 14.5 million in expenses related to our phase 2b clinical study in patients with hypercholesterolemia with or without statin intolerance ( etc-1002-008 ) , our phase 2b clinical study in patients with hypercholesterolemia already receiving statin therapy ( etc-1002-009 ) , our phase 2 clinical study in patients with hypercholesterolemia and hypertension ( etc-1002-014 ) and other clinical pharmacology studies ( etc-1002-012 and etc-1002-013 ) . we also have two other early-stage programs . we licensed one of these candidates from the cleveland clinic foundation , or ccf , and are obligated to make certain royalty and milestone payments ( consisting of cash and common stock ) to ccf , including a minimum annual cash payment of $ 50,000 during years when a milestone payment is not met . no milestone or royalty payments are due to any third-party in connection with the development and or commercialization of our other preclinical product candidate , esp41091 . 64 financial operations overview revenue to date , we have not generated any revenue , other than grant income . in the future , we may never generate revenue from the sale of etc-1002 or our other product candidates . if we fail to complete the development of etc-1002 or our other product candidates and secure approval from regulatory authorities , our ability to generate future revenue , and our results of operations and financial position will be adversely affected . story_separator_special_tag comparison of the years ended december 31 , 2013 and 2012 the following table summarizes our results of operations for the years ended december 31 , 2013 and 2012 : replace_table_token_12_th research and development expenses research and development expenses for the year ended december 31 , 2013 were $ 16.0 million , compared to $ 8.0 million for the year ended december 31 , 2012 , an increase of $ 8.0 million . the increase in research and development expenses is primarily related to the further development of etc-1002 in our phase 2 clinical program , which includes the completion of two phase 2a clinical studies and the initiation of our phase 2b clinical study in patients with or without statin intolerance . general and administrative expenses general and administrative expenses for the year ended december 31 , 2013 were $ 6.7 million , compared to $ 2.2 million for the year ended december 31 , 2012 , an increase of $ 4.5 million . the increase in general and administrative expenses was primarily attributable to costs to support public company operations , increases in our headcount , which includes increased stock-based compensation expense , and other costs to support our growing organization . 70 interest expense non-cash interest expense for the year ended december 31 , 2013 was $ 0.9 million , compared to $ 1.5 million for the year ended december 31 , 2012 , a decrease of $ 0.6 million . the decrease in interest expense was primarily related to the conversion of our convertible promissory notes issued in january , september and november 2012 , into an aggregate of 16,623,092 shares of series a preferred stock in february 2013 as well as the a decrease in accrued interest on the 8.931 % convertible promissory note issued to pfizer , which was subsequently converted into 6,750,000 shares of series a-1 preferred stock on may 29 , 2013. change in fair value of warrant liability the outstanding warrants to purchase 277,690 shares of our common stock required liability classification and mark-to-market accounting at each reporting period in accordance with asc 480-10 prior to the completion of our ipo . the fair values of the warrants were determined using the monte carlo or the black scholes valuation models and resulted in the recognition of a loss of approximately $ 2.6 million related to the change in fair values for the year ended december 31 , 2013. subsequent to our ipo , the warrants were reclassified to equity as they no longer met the criteria for classification as liabilities . other income ( expense ) , net other income ( expense ) , net for the year ended december 31 , 2013 was income of approximately $ 0.2 million compared to expense of approximately $ 0.1 million for the year ended december 31 , 2012 , a $ 0.3 million increase in other income ( expense ) , net . this increase was primarily related to gains on the sale of assets and an increase in interest income earned on our cash and cash equivalents . story_separator_special_tag if at all ; our ability to establish a sales , marketing and distribution infrastructure to commercialize etc-1002 in the united states and abroad or our ability to establish any future collaboration or commercialization arrangements on favorable terms , if at all ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; and the implementation of operational and financial information technology . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances and licensing arrangements . we do not have any committed external source of funds . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through collaborations , strategic alliances or licensing arrangements with pharmaceutical partners , we may have to relinquish valuable rights to our technologies , future revenue streams or etc-1002 or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings or through collaborations , strategic alliances or licensing arrangements when needed , we may be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to develop and market etc-1002 that we would otherwise prefer to develop and market ourselves . contractual obligations and commitments we were originally party to a single lease that covered both office and laboratory space in plymouth , michigan . the plymouth lease , as amended over time , was scheduled to expire in april 2014 . 73 in february 2014 , we signed a new lease to move our principal executive offices to ann arbor , michigan , while still maintaining our laboratory space in plymouth . the ann arbor lease has a term of 63 months and provides for fixed monthly rent of approximately $ 7,900 , with monthly rent increasing every 12 months , and also provides for certain rent adjustments to be paid as determined by the landlord . in may 2014 , we amended the plymouth lease to ( i ) extend the expiration date from april 2014 to april 2017 , ( ii ) adjust the rentable space to 3,045 square feet , ( iii ) adjust our proportionate share of

loss on extinguishment of debt loss on extinguishment of debt of $ 313 thousand during 2017 is due to amending of our debt under the loan agreement with kreos , such that $ 3.0 million in principal is now subject to the kreos convertible note . the entry into the kreos convertible note , which decreased the outstanding principal amount under the loan agreement from $ 17.2 million to $ 14.2 million , resulted in extinguishment of debt accounting treatment . 68 financial expenses , net our financial expenses , net for 2017 and 2016 were as follows ( in thousands ) : replace_table_token_9_th financial expenses , net , increased by $ 0.2 million , or 11 % during 2017 compared to 2016 . this increase is mainly attributable to interest expense related to the loan agreement with kreos . income tax our income tax for 2017 and 2016 was as follows ( in thousands ) : replace_table_token_10_th income taxes increased by $ 116 thousand or 3,867 % during 2017 compared to 2016 . this increase is mainly related to a deferred tax expense as a result of the tax rate change in the u.s due to the tcja .

on july 1 , 2013 , we completed the initial public offering , or ipo , of our common stock pursuant to a registration statement on form s-1 whereby we sold 5,000,000 shares of common stock at a price of $ 14.00 per share . on july 11 , 2013 , the underwriters exercised their over-allotment option in full and purchased an additional 750,000 shares of common stock at a price of $ 14.00 per share . net proceeds from the ipo were approximately $ 72.2 million , including proceeds from the exercise of the underwriters ' over-allotment option , net of underwriting discounts and commissions and offering expenses . upon the closing of the ipo , all outstanding shares of our preferred stock were converted into 9,210,999 shares of common stock . on october 21 , 2014 , we completed an underwritten public offering of 4,887,500 shares of common stock , including 637,500 shares sold pursuant to the full exercise of an over-allotment option granted to the underwriters . all of the shares were offered by us at a price to the public of $ 20.00 per share . the aggregate net proceeds received by us from the offering were $ 91.6 million , net of underwriting discounts and commissions and expenses payable by us . we have not commenced principal operations and do not have any products approved for sale . to date , we have not generated any revenue . we have never been profitable and our net losses were $ 36.4 million , $ 26.1 million and $ 11.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . substantially all of our net losses resulted from costs incurred in connection with research and development programs , general and administrative costs associated with our operations . we expect 63 to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , including , among others : conducting additional clinical studies of etc-1002 to complete its development ; seeking regulatory approval for etc-1002 ; commercializing etc-1002 ; and operating as a public company . accordingly , we will need additional funding to support our continuing operations . we will seek to fund our operations through public or private equity or debt financings or through other sources , which may include collaborations with third parties . adequate additional funding may not be available to us on acceptable terms , or at all . our failure to obtain additional funding as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy or continue operations . we will need to generate significant revenues to achieve profitability , and we may never do so . product overview etc-1002 , our lead product candidate , is a first-in-class , orally available , once-daily ldl-cholesterol lowering small molecule therapy designed to lower levels of ldl-cholesterol and to avoid many of the side effects associated with existing ldl-cholesterol lowering therapies . we acquired the rights to etc-1002 from pfizer in 2008. we own the exclusive worldwide rights to etc-1002 and we are not obligated to make any royalty or milestone payments to pfizer . during the year ended december 31 , 2012 , we incurred $ 5.8 million in expenses related to our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and type 2 diabetes ( etc-1002-005 ) and our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and a history of statin intolerance ( etc-1002-006 ) which reported top-line results in june 2013 , and our phase 2a clinical study in patients with hypercholesterolemia taking 10 mg of atorvastatin ( etc-1002-007 ) , which reported top-line results in september 2013. during the year ended december 31 , 2013 , we incurred $ 13.7 million in expenses related to our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and type 2 diabetes ( etc-1002-005 ) , our phase 2a proof-of-concept clinical study in patients with hypercholesterolemia and a history of statin intolerance ( etc-1002-006 ) , our phase 2a clinical study in patients with hypercholesterolemia taking 10 mg of atorvastatin ( etc-1002-007 ) and our phase 2b clinical study in patients with hypercholesterolemia and either with or without statin intolerance ( etc-1002-008 ) . during the year ended december 31 , 2014 , we incurred $ 14.5 million in expenses related to our phase 2b clinical study in patients with hypercholesterolemia with or without statin intolerance ( etc-1002-008 ) , our phase 2b clinical study in patients with hypercholesterolemia already receiving statin therapy ( etc-1002-009 ) , our phase 2 clinical study in patients with hypercholesterolemia and hypertension ( etc-1002-014 ) and other clinical pharmacology studies ( etc-1002-012 and etc-1002-013 ) . we also have two other early-stage programs . we licensed one of these candidates from the cleveland clinic foundation , or ccf , and are obligated to make certain royalty and milestone payments ( consisting of cash and common stock ) to ccf , including a minimum annual cash payment of $ 50,000 during years when a milestone payment is not met . no milestone or royalty payments are due to any third-party in connection with the development and or commercialization of our other preclinical product candidate , esp41091 . 64 financial operations overview revenue to date , we have not generated any revenue , other than grant income . in the future , we may never generate revenue from the sale of etc-1002 or our other product candidates . if we fail to complete the development of etc-1002 or our other product candidates and secure approval from regulatory authorities , our ability to generate future revenue , and our results of operations and financial position will be adversely affected . story_separator_special_tag comparison of the years ended december 31 , 2013 and 2012 the following table summarizes our results of operations for the years ended december 31 , 2013 and 2012 : replace_table_token_12_th research and development expenses research and development expenses for the year ended december 31 , 2013 were $ 16.0 million , compared to $ 8.0 million for the year ended december 31 , 2012 , an increase of $ 8.0 million . the increase in research and development expenses is primarily related to the further development of etc-1002 in our phase 2 clinical program , which includes the completion of two phase 2a clinical studies and the initiation of our phase 2b clinical study in patients with or without statin intolerance . general and administrative expenses general and administrative expenses for the year ended december 31 , 2013 were $ 6.7 million , compared to $ 2.2 million for the year ended december 31 , 2012 , an increase of $ 4.5 million . the increase in general and administrative expenses was primarily attributable to costs to support public company operations , increases in our headcount , which includes increased stock-based compensation expense , and other costs to support our growing organization . 70 interest expense non-cash interest expense for the year ended december 31 , 2013 was $ 0.9 million , compared to $ 1.5 million for the year ended december 31 , 2012 , a decrease of $ 0.6 million . the decrease in interest expense was primarily related to the conversion of our convertible promissory notes issued in january , september and november 2012 , into an aggregate of 16,623,092 shares of series a preferred stock in february 2013 as well as the a decrease in accrued interest on the 8.931 % convertible promissory note issued to pfizer , which was subsequently converted into 6,750,000 shares of series a-1 preferred stock on may 29 , 2013. change in fair value of warrant liability the outstanding warrants to purchase 277,690 shares of our common stock required liability classification and mark-to-market accounting at each reporting period in accordance with asc 480-10 prior to the completion of our ipo . the fair values of the warrants were determined using the monte carlo or the black scholes valuation models and resulted in the recognition of a loss of approximately $ 2.6 million related to the change in fair values for the year ended december 31 , 2013. subsequent to our ipo , the warrants were reclassified to equity as they no longer met the criteria for classification as liabilities . other income ( expense ) , net other income ( expense ) , net for the year ended december 31 , 2013 was income of approximately $ 0.2 million compared to expense of approximately $ 0.1 million for the year ended december 31 , 2012 , a $ 0.3 million increase in other income ( expense ) , net . this increase was primarily related to gains on the sale of assets and an increase in interest income earned on our cash and cash equivalents . story_separator_special_tag if at all ; our ability to establish a sales , marketing and distribution infrastructure to commercialize etc-1002 in the united states and abroad or our ability to establish any future collaboration or commercialization arrangements on favorable terms , if at all ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; and the implementation of operational and financial information technology . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances and licensing arrangements . we do not have any committed external source of funds . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through collaborations , strategic alliances or licensing arrangements with pharmaceutical partners , we may have to relinquish valuable rights to our technologies , future revenue streams or etc-1002 or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings or through collaborations , strategic alliances or licensing arrangements when needed , we may be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to develop and market etc-1002 that we would otherwise prefer to develop and market ourselves . contractual obligations and commitments we were originally party to a single lease that covered both office and laboratory space in plymouth , michigan . the plymouth lease , as amended over time , was scheduled to expire in april 2014 . 73 in february 2014 , we signed a new lease to move our principal executive offices to ann arbor , michigan , while still maintaining our laboratory space in plymouth . the ann arbor lease has a term of 63 months and provides for fixed monthly rent of approximately $ 7,900 , with monthly rent increasing every 12 months , and also provides for certain rent adjustments to be paid as determined by the landlord . in may 2014 , we amended the plymouth lease to ( i ) extend the expiration date from april 2014 to april 2017 , ( ii ) adjust the rentable space to 3,045 square feet , ( iii ) adjust our proportionate share of

liquidity and capital resources we have funded our operations to date primarily through proceeds from sales of preferred stock , convertible promissory notes and warrants , public offerings of common stock and the incurrence of indebtedness . to date , we have not generated any revenue , and we anticipate that we will continue to incur losses for the foreseeable future . in july 2013 , we completed our ipo pursuant to a registration statement on form s-1 . in the ipo , we issued and sold an aggregate of 5,750,000 shares of common stock , including the underwriters ' exercise in full of their over-allotment option , under the registration statement at a public offering price of $ 14.00 per share . net proceeds were approximately $ 72.2 million , after deducting underwriting discounts and commissions and offering expenses . in june 2014 , we entered into a credit facility , which provides for initial borrowings of $ 5.0 million and additional borrowings of $ 15.0 million . we received proceeds of $ 4.9 million , net of issuance costs , from the issuance of secured promissory notes under a term loan as part of the facility . the remaining $ 15.0 million is available to us , at our sole discretion , until march 31 , 2015 , subject to achieving positive development results in our ongoing phase 2b clinical study . all secured promissory notes issued under the credit facility are due on july 1 , 2018 and are collateralized by substantially all of our personal property , other than our intellectual property . there are no financial covenants associated to the credit facility . however , there are negative covenants that limit or restrict our activities , which include limitations on incurring indebtedness , granting liens , mergers or acquisitions , dispositions of assets , making certain investments , entering into certain transactions with affiliates , paying dividends or distributions , encumbering or pledging interest its intellectual property and other certain business transactions .

our customers rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of existing hydrocarbons , to optimize the development and production of hydrocarbon reservoirs , to better delineate existing oil and natural gas fields , and to augment reservoir management techniques . we acquire geophysical data using the latest in 3-d survey techniques . we introduce acoustic energy into the ground by using vibration equipment or dynamite detonation , depending on the surface terrain and subsurface requirements . the reflected energy , or echoes , is received through geophones , converted into a digital signal at a multi-channel recording unit , and then transmitted to a central recording vehicle . subsurface requirements dictate the number of channels necessary to perform our services . with our state-of-the-art seismic equipment , including computer technology and multiple channels , we acquire , on a cost-effective basis , immense volumes of seismic data that when processed and interpreted produce more precise images of the earth 's subsurface . our customers then use 12 our seismic data to generate 3-d geologic models that help reduce finding costs and improve recovery rates from existing wells . currently , the seismic data acquisition industry is made up of a number of companies divided into two groups . the first group is made up of three publicly-traded companies with long operating histories which field numerous crews and work in a number of different regions and terrain . this group includes us , dawson geophysical company and cgg-veritas . we believe that these companies field approximately half of the seismic crews currently operating in the continental u.s. and canada . the second group is made up of smaller companies who generally run one or two seismic crews and often specialize in specific regions or types of operation . we provide our seismic data acquisition services primarily to onshore oil and natural gas exploration and development companies for use in the onshore drilling and production of oil and natural gas in the continental u.s. and canada . the main factors influencing demand for seismic data acquisition services in our industry are the level of drilling activity by oil and natural gas companies and the sizes of such companies ' exploration and development budgets , which , in turn , depend largely on current and anticipated future crude oil and natural gas prices and depletion rates . our customers are major and independent oil and natural gas exploration and development companies . the services we provide to our customers vary according to the size and needs of each customer . our services are marketed by sales , supervisory , and executive personnel who contact customers to determine their needs and respond to customer inquiries regarding the availability of crews . contacts are based principally upon professional relationships developed over a number of years . the acquisition of seismic data for the oil and natural gas industry is a highly competitive business . contracts for such services generally are awarded on the basis of price quotations , crew experience , and the availability of crews to perform in a timely manner , although factors other than price , such as crew safety , performance history , and technological and operational expertise , are often determinative . our competitors include companies with financial resources that are significantly greater than our own as well as companies of comparable and smaller size . our primary competitors are dawson geophysical company and cgg-veritas . in addition to the previously named companies , we also compete for projects from time to time with smaller seismic companies which operate in local markets with only one or two crews . we believe that our long-term industry expertise , the customer relationships developed over our history , and our financial stability gives us an advantage over most of our competitors in the industry . results of operations year ended december 31 , 2013 , compared to year ended december 31 , 2012 revenues . our revenues were $ 134,534,540 for the year ended december 31 , 2013 , compared to $ 196,317,215 for the same period of 2012 , a decrease of 31.5 % . revenues for the 12 months ended december 31 , 2013 decreased due to the softening in the seismic market that began early in 2013 , our operation of fewer crews in the u.s. and canada during the second , third , and fourth quarters of 2013 as compared to the same period of 2012 , and severe weather conditions in many or our key markets in the u.s. and canada during the fourth quarter of 2013. in 2013 in the u.s. , we operated nine crews in the first quarter , began the second quarter operating nine crews and ended the second quarter operating two crews . we started the third quarter with three crews and ended the quarter operating five crews which we continued operating during the fourth quarter of 2013. in canada , we operated six crews in the first quarter of 2013 , began the second quarter operating six crews , and ended the quarter operating two crews . we operated no crews in canada during the third quarter of 2013 and started and ended the fourth quarter operating three crews . this compares to 2012 when we operated eight seismic crews in the u.s. during the first and second quarters , added a ninth crew in the third quarter , and continued operating nine crews during the fourth quarter of 2012. we operated seven seismic crews in canada during the first quarter , two crews during the second quarter , the equivalent of 1.5 crews during the third quarter , and five crewsduring the fourth quarter of 2012. cost of services . story_separator_special_tag the inherent volatility of the energy industry 's business cycle can cause swift and unpredictable changes in the financial stability of our customers . in 2013 , 2012 and 2011 , no allowances were necessary . 18 impairment of long-lived assets we review long-lived assets for impairment when triggering events occur suggesting deterioration in the assets ' recoverability or fair value . recognition of an impairment charge is required if future expected net cash flows are insufficient to recover the carrying value of the asset . our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and profitability based on our historical results and analysis of future oil and natural gas prices which are fundamental to assessing demand for our services . if we are unable to achieve these cash flows , our estimates will be revised which could result in an impairment charge for the period of revision . depreciable lives of property , plant , and equipment our property , plant , and equipment are capitalized at historical cost and depreciated over the useful life of the asset . our estimate of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset . the technology of the equipment used to gather data in the seismic industry has historically evolved such that obsolescence does not occur quickly . as circumstances change and new information becomes available , these estimates could change . we amortize these capitalized items using the straight-line method . capital assets are depreciated over their useful lives ranging from one to seven years , depending on the classification of the asset . tax accounting we account for our income taxes in accordance with the recognition of amounts of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns . we determine deferred taxes by identifying the types and amounts of existing temporary differences , measuring the total deferred tax asset or liability using the applicable tax rate , and reducing the deferred tax asset by a valuation allowance if , based on available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates , including determining our annual effective tax rate and the valuation of deferred tax assets , which can create a variance between actual results and estimates and could have a material impact on our provision or benefit for income taxes . share-based compensation we recognize the fair value of the stock-based compensation awards , including stock options and restricted stock , as wages in the consolidated statements of earnings on a straight-line basis over the vesting period of the related stock options or restricted stock awards . this has resulted in the recognition of compensation expense , relative to stock-based awards , in wages in the consolidated statements of earnings of approximately $ 973,000 or approximately $ 0.04 per share for the year ended december 31 , 2013 , and $ 601,000 or approximately $ 0.03 per share for the year ended december 31 , 2012 shares of restricted stock were issued to employees of the company under the 2006 stock awards plan as follows : 18,000 in august of 2007 ; 10,000 in june of 2008 ; 5,000 in july of 2009 ; 5,000 in may of 2010 ; 25,331 in november of 2011 ; 21,520 in december of 2011 ; 6,000 in january of 2012 ; 213,125 in august of 2012 ; and 6,000 in february of 2013. in june of 2013 , 45,000 shares were rescinded from the august 2012 grant , and 30,000 shares were issued in their place . in addition , stock options were issued to employees of the company under the 2006 stock awards plan as follows : 335,000 in october of 2008 ; 135,000 in november of 2009 ; and 15,000 in november of 2011. no incentive stock options were granted to employees in 2010 , 2012 , or 2013. as of december 31 , 2013 , there was approximately $ 389,000 of unrecognized compensation expense related to our share-based compensation plan . 19 recently issued accounting pronouncements in july of 2012 , the financial accounting standards board ( “fasb” ) issued accounting standards update ( “asu” ) no . 2012-02 , intangibles-goodwill and other ( topic 350 ) — testing indefinite-lived intangible assets for impairment ( “asu 2012-02” ) . this asu provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired . if an entity concludes that it is more than 50 % likely that an indefinite-lived intangible asset is not impaired , no further analysis is required . however , if an entity concludes otherwise , it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment , if any , as currently required under accounting principles generally accepted in the united states ( “u.s . gaap” ) . the asu is effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012. the company adopted this update in the first quarter of 2013 , and it did not have a significant effect on its consolidated financial statements and related disclosures . in july of 2013 , the fasb issued asu no . 2013-11 , income taxes ( topic 740 ) - presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit

liquidity and capital resources we have funded our operations to date primarily through proceeds from sales of preferred stock , convertible promissory notes and warrants , public offerings of common stock and the incurrence of indebtedness . to date , we have not generated any revenue , and we anticipate that we will continue to incur losses for the foreseeable future . in july 2013 , we completed our ipo pursuant to a registration statement on form s-1 . in the ipo , we issued and sold an aggregate of 5,750,000 shares of common stock , including the underwriters ' exercise in full of their over-allotment option , under the registration statement at a public offering price of $ 14.00 per share . net proceeds were approximately $ 72.2 million , after deducting underwriting discounts and commissions and offering expenses . in june 2014 , we entered into a credit facility , which provides for initial borrowings of $ 5.0 million and additional borrowings of $ 15.0 million . we received proceeds of $ 4.9 million , net of issuance costs , from the issuance of secured promissory notes under a term loan as part of the facility . the remaining $ 15.0 million is available to us , at our sole discretion , until march 31 , 2015 , subject to achieving positive development results in our ongoing phase 2b clinical study . all secured promissory notes issued under the credit facility are due on july 1 , 2018 and are collateralized by substantially all of our personal property , other than our intellectual property . there are no financial covenants associated to the credit facility . however , there are negative covenants that limit or restrict our activities , which include limitations on incurring indebtedness , granting liens , mergers or acquisitions , dispositions of assets , making certain investments , entering into certain transactions with affiliates , paying dividends or distributions , encumbering or pledging interest its intellectual property and other certain business transactions .

our customers rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of existing hydrocarbons , to optimize the development and production of hydrocarbon reservoirs , to better delineate existing oil and natural gas fields , and to augment reservoir management techniques . we acquire geophysical data using the latest in 3-d survey techniques . we introduce acoustic energy into the ground by using vibration equipment or dynamite detonation , depending on the surface terrain and subsurface requirements . the reflected energy , or echoes , is received through geophones , converted into a digital signal at a multi-channel recording unit , and then transmitted to a central recording vehicle . subsurface requirements dictate the number of channels necessary to perform our services . with our state-of-the-art seismic equipment , including computer technology and multiple channels , we acquire , on a cost-effective basis , immense volumes of seismic data that when processed and interpreted produce more precise images of the earth 's subsurface . our customers then use 12 our seismic data to generate 3-d geologic models that help reduce finding costs and improve recovery rates from existing wells . currently , the seismic data acquisition industry is made up of a number of companies divided into two groups . the first group is made up of three publicly-traded companies with long operating histories which field numerous crews and work in a number of different regions and terrain . this group includes us , dawson geophysical company and cgg-veritas . we believe that these companies field approximately half of the seismic crews currently operating in the continental u.s. and canada . the second group is made up of smaller companies who generally run one or two seismic crews and often specialize in specific regions or types of operation . we provide our seismic data acquisition services primarily to onshore oil and natural gas exploration and development companies for use in the onshore drilling and production of oil and natural gas in the continental u.s. and canada . the main factors influencing demand for seismic data acquisition services in our industry are the level of drilling activity by oil and natural gas companies and the sizes of such companies ' exploration and development budgets , which , in turn , depend largely on current and anticipated future crude oil and natural gas prices and depletion rates . our customers are major and independent oil and natural gas exploration and development companies . the services we provide to our customers vary according to the size and needs of each customer . our services are marketed by sales , supervisory , and executive personnel who contact customers to determine their needs and respond to customer inquiries regarding the availability of crews . contacts are based principally upon professional relationships developed over a number of years . the acquisition of seismic data for the oil and natural gas industry is a highly competitive business . contracts for such services generally are awarded on the basis of price quotations , crew experience , and the availability of crews to perform in a timely manner , although factors other than price , such as crew safety , performance history , and technological and operational expertise , are often determinative . our competitors include companies with financial resources that are significantly greater than our own as well as companies of comparable and smaller size . our primary competitors are dawson geophysical company and cgg-veritas . in addition to the previously named companies , we also compete for projects from time to time with smaller seismic companies which operate in local markets with only one or two crews . we believe that our long-term industry expertise , the customer relationships developed over our history , and our financial stability gives us an advantage over most of our competitors in the industry . results of operations year ended december 31 , 2013 , compared to year ended december 31 , 2012 revenues . our revenues were $ 134,534,540 for the year ended december 31 , 2013 , compared to $ 196,317,215 for the same period of 2012 , a decrease of 31.5 % . revenues for the 12 months ended december 31 , 2013 decreased due to the softening in the seismic market that began early in 2013 , our operation of fewer crews in the u.s. and canada during the second , third , and fourth quarters of 2013 as compared to the same period of 2012 , and severe weather conditions in many or our key markets in the u.s. and canada during the fourth quarter of 2013. in 2013 in the u.s. , we operated nine crews in the first quarter , began the second quarter operating nine crews and ended the second quarter operating two crews . we started the third quarter with three crews and ended the quarter operating five crews which we continued operating during the fourth quarter of 2013. in canada , we operated six crews in the first quarter of 2013 , began the second quarter operating six crews , and ended the quarter operating two crews . we operated no crews in canada during the third quarter of 2013 and started and ended the fourth quarter operating three crews . this compares to 2012 when we operated eight seismic crews in the u.s. during the first and second quarters , added a ninth crew in the third quarter , and continued operating nine crews during the fourth quarter of 2012. we operated seven seismic crews in canada during the first quarter , two crews during the second quarter , the equivalent of 1.5 crews during the third quarter , and five crewsduring the fourth quarter of 2012. cost of services . story_separator_special_tag the inherent volatility of the energy industry 's business cycle can cause swift and unpredictable changes in the financial stability of our customers . in 2013 , 2012 and 2011 , no allowances were necessary . 18 impairment of long-lived assets we review long-lived assets for impairment when triggering events occur suggesting deterioration in the assets ' recoverability or fair value . recognition of an impairment charge is required if future expected net cash flows are insufficient to recover the carrying value of the asset . our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and profitability based on our historical results and analysis of future oil and natural gas prices which are fundamental to assessing demand for our services . if we are unable to achieve these cash flows , our estimates will be revised which could result in an impairment charge for the period of revision . depreciable lives of property , plant , and equipment our property , plant , and equipment are capitalized at historical cost and depreciated over the useful life of the asset . our estimate of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset . the technology of the equipment used to gather data in the seismic industry has historically evolved such that obsolescence does not occur quickly . as circumstances change and new information becomes available , these estimates could change . we amortize these capitalized items using the straight-line method . capital assets are depreciated over their useful lives ranging from one to seven years , depending on the classification of the asset . tax accounting we account for our income taxes in accordance with the recognition of amounts of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns . we determine deferred taxes by identifying the types and amounts of existing temporary differences , measuring the total deferred tax asset or liability using the applicable tax rate , and reducing the deferred tax asset by a valuation allowance if , based on available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates , including determining our annual effective tax rate and the valuation of deferred tax assets , which can create a variance between actual results and estimates and could have a material impact on our provision or benefit for income taxes . share-based compensation we recognize the fair value of the stock-based compensation awards , including stock options and restricted stock , as wages in the consolidated statements of earnings on a straight-line basis over the vesting period of the related stock options or restricted stock awards . this has resulted in the recognition of compensation expense , relative to stock-based awards , in wages in the consolidated statements of earnings of approximately $ 973,000 or approximately $ 0.04 per share for the year ended december 31 , 2013 , and $ 601,000 or approximately $ 0.03 per share for the year ended december 31 , 2012 shares of restricted stock were issued to employees of the company under the 2006 stock awards plan as follows : 18,000 in august of 2007 ; 10,000 in june of 2008 ; 5,000 in july of 2009 ; 5,000 in may of 2010 ; 25,331 in november of 2011 ; 21,520 in december of 2011 ; 6,000 in january of 2012 ; 213,125 in august of 2012 ; and 6,000 in february of 2013. in june of 2013 , 45,000 shares were rescinded from the august 2012 grant , and 30,000 shares were issued in their place . in addition , stock options were issued to employees of the company under the 2006 stock awards plan as follows : 335,000 in october of 2008 ; 135,000 in november of 2009 ; and 15,000 in november of 2011. no incentive stock options were granted to employees in 2010 , 2012 , or 2013. as of december 31 , 2013 , there was approximately $ 389,000 of unrecognized compensation expense related to our share-based compensation plan . 19 recently issued accounting pronouncements in july of 2012 , the financial accounting standards board ( “fasb” ) issued accounting standards update ( “asu” ) no . 2012-02 , intangibles-goodwill and other ( topic 350 ) — testing indefinite-lived intangible assets for impairment ( “asu 2012-02” ) . this asu provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired . if an entity concludes that it is more than 50 % likely that an indefinite-lived intangible asset is not impaired , no further analysis is required . however , if an entity concludes otherwise , it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment , if any , as currently required under accounting principles generally accepted in the united states ( “u.s . gaap” ) . the asu is effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012. the company adopted this update in the first quarter of 2013 , and it did not have a significant effect on its consolidated financial statements and related disclosures . in july of 2013 , the fasb issued asu no . 2013-11 , income taxes ( topic 740 ) - presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit

cash flows from operating activities . net cash provided by operating activities was $ 22,969,342 for the year ended december 31 , 2013 , compared to $ 39,283,062 for the same period of 2012. the $ 16,313,720 decrease was principally attributable to a net loss of $ 6,316,041 in 2013 as compared to net income of $ 15,671,879 for the same period in 2012. the timing of billings and revenue recognition , the collections of accounts receivable , the timing of receipt and payment of invoices , federal and state income taxes payable , depreciation and amortization , and the mix of contracts account for the remainder of the decrease . working capital increased $ 5,492,070 to $ 17,708,163 as of december 31 , 2013 , from the december 31 , 2012 , working capital of $ 12,216,093. this increase was due primarily to increases in cash and cash equivalents of $ 7,516,130 and $ 3,909,198 in prepaid federal and state income taxes , and decreases of $ 9,582,719 in trade accounts payable , $ 2,958,078 in accrued liabilities , $ 3,104,129 in billings in excess of costs and estimated earnings on uncompleted contracts , and $ 2,180,400 in current maturities of notes payable , partially offset by decreases in trade accounts receivable of $ 24,898,346 and $ 3,950,996 in costs and estimated earnings in excess of billings on uncompleted contracts . cash flows used in investing activities . net cash used in investing activities was $ 667,498 for the year ended december 31 , 2013 , and $ 30,265,696 for the year ended december 31 , 2012. this $ 29,598,198 decrease was due to a decrease in capital expenditures of $ 30,121,740 and a decrease in proceeds from the sale of property and equipment of $ 523,542. cash flows used in financing activities .

on may 28 , 2010 , we acquired black diamond equipment , ltd. ( which may be referred to as “ black diamond equipment ” or “ bdel ” ) and gregory mountain products ( which may be referred to as “ gregory mountain products ” or “ gmp ” ) ( the “ mergers ” ) . because the company had no operations at the time of our acquisition of black diamond equipment , black diamond equipment is considered to be our predecessor company ( the “ predecessor ” ) for financial reporting purposes ( see note 3 of our consolidated financial statements for a more detailed explanation of the acquisition ) . the predecessor does not include gregory mountain products . on january 20 , 2011 , the company changed its name from clarus corporation to black diamond , inc. , which we believe more accurately reflects our current business . in june 2012 we acquired poc sweden ab and its subsidiaries ( collectively , “ poc ” ) and in october 2012 we acquired pieps holding gmbh and its subsidiaries ( collectively , “ pieps ” ) . critical accounting policies and use of estimates management 's discussion of financial condition and results of operations is based on the consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements . estimates also affect the reported amounts of revenues and expenses during the reporting periods . we continually evaluate our estimates and assumptions including those related to derivatives , revenue recognition , income taxes , and valuation of long-lived assets , goodwill , and other intangible assets . we base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances . actual results could differ from these estimates . 32 we believe the following critical accounting policies include the more significant estimates and assumptions used in the preparation of our consolidated financial statements . our accounting policies are more fully described in note 1 of our consolidated financial statements . · we use derivative instruments to hedge currency rate movements on foreign currency denominated sales . we enter into forward contracts , option contracts , and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of our forecasted sales denominated in foreign currencies . these derivatives are carried at fair value on our consolidated balance sheets in other assets and accrued liabilities . changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income . for derivative contracts designated as hedge instruments , the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to earnings in the period the underlying hedged item is recognized in earnings . we use operating budgets and cash flow forecasts to estimate future sales and to determine the level and timing of derivative transactions intended to mitigate such sales in accordance with our risk management policies . if the forecasted sales levels are not reached , our derivative instruments may be deemed to be not effective which may result in foreign currency gains and losses being recorded in our statement of comprehensive income , which could materially affect our financial position and results of operations . · we sell our products pursuant to customer orders or sales contracts entered into with our customers . revenue is recognized when title and risk of loss pass to the customer and when collectability is reasonably assured . charges for shipping and handling fees are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying consolidated statements of operations . at the time of revenue recognition , we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues . the estimates are based on historical rates of product returns and claims . however , actual returns and claims in any future period are inherently uncertain and thus may differ from these estimates . if actual or expected returns and claims are significantly greater or lower than the reserves that we have established , we will record a reduction or increase to sales in the period in which we make such a determination . · we account for income taxes using the asset and liability method . the asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating loss and tax credit carryforwards . we make assumptions , judgments and estimates to determine our current provision for income taxes , our deferred tax assets and liabilities , and our uncertain tax positions . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , and possible outcomes of current and future audits conductions by foreign and domestic tax authorities . changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of taxable income . actual operating results and the underlying amount and category of income in future years could cause our current assumptions , judgments and estimates of recoverable net deferred taxes to be inaccurate . story_separator_special_tag . all inventory acquired , and related purchase accounting fair market value inventory adjustment , was sold in 2010. the increase in cost of goods sold was attributable to an increase in sales by bdel and from the inclusion of gmp 's sales in our financial results . gross profit consolidated gross profit increased $ 18,842 , or 50.2 % , to $ 56,352 during the year ended december 31 , 2011 compared to combined gross profit of $ 37,510 during the year ended december 31 , 2010. consolidated gross margin was 38.7 % during the year ended december 31 , 2011 compared to a combined gross margin of 33.8 % during the year ended december 31 , 2010. the dollar increase in gross profit was primarily attributable to an increase in sales by bdel and from the inclusion of gmp 's sales in our financial results . the increase in gross margin percentage is primarily driven by not being impacted by any purchase accounting fair value adjustments during the year ended december 31 , 2011. selling , general and administrative consolidated selling , general , and administrative expenses increased $ 7,147 , or 16.5 % , to $ 50,493 during the year ended december 31 , 2011 compared to combined selling , general , and administrative expenses of $ 43,346 during the year ended december 31 , 2010. the increase in selling , general , and administrative expenses was primarily attributable to the increase in operations with the inclusion of gmp and the company 's investments in its strategic initiatives and infrastructure to support both current and anticipated future growth of $ 8,434 , an increase in depreciation and amortization of $ 1,106 , off-set by a decrease in non-cash equity compensation expense of $ 2,393. restructuring charge consolidated restructuring expenses decreased $ 1,849 , or 65.1 % , to $ 993 during the year ended december 31 , 2011 compared to combined restructuring expenses of $ 2,842 during the same period in 2010. all of the restructuring expense incurred in 2011 and 2010 were attributable to the acquisitions of bdel and gmp . during 2011 , such restructuring expenses comprised of : ( i ) $ 781 related to the relocation of gmp to the company 's headquarters in salt lake city , utah , and ( ii ) $ 212 related to the disposal of long-lived assets in conjunction with the relocation of the company 's u.s. distribution facilities in salt lake city , ut to a new location in salt lake city , ut as part of integrating gmp . during 2010 , such restructuring expenses comprised of : ( i ) a total of $ 1,295 relating to the release of the company from its lease obligations and indemnifications by kanders & company in connection with the relocation of our corporate office from stamford , connecticut to salt lake city , utah , ( ii ) a total of $ 596 relating to the write-off of fixed assets , partially offset by $ 462 gain from the write-off of a deferred rent liability for the relocation of our corporate office from stamford , connecticut to salt lake city , utah , ( iii ) $ 352 related to severance and relocation benefits provided to gmp employees , and ( iv ) the complete amortization of the $ 1,061 paid for severance and transition service expenses pursuant to a transition services agreement between the company and kanders & company . 39 merger and integration consolidated merger and integration expenses decreased 100.0 % to $ 0 during the year ended december 31 , 2011 compared to combined merger and integration expenses of $ 974 during the same period in 2010 , which was attributable to transaction bonuses and consulting fees paid in connection with the acquisition of bdel and gmp in 2010. transaction costs consolidated transaction expense decreased 100.0 % to $ 0 during the year ended december 31 , 2011 compared to combined transaction expenses of $ 5,075 during the same period in 2010 , which consisted primarily of professional fees and expenses related to due diligence , negotiation , and documentation of acquisition , financing , and related agreements in connection with the acquisition of bdel and gmp in 2010. interest expense consolidated interest expense increased $ 1,033 , or 54.7 % , to $ 2,921 during the year ended december 31 , 2011 compared to combined interest expense of $ 1,888 during the year ended december 31 , 2010. the increase in interest expense was primarily attributable to new debt outstanding related to financing of the acquisitions of bdel and gmp and higher average balances outstanding on the line of credit during the year ended december 31 , 2011 compared to the same period in 2010. income tax expense consolidated income tax benefit decreased $ 66,575 , or 96.1 % , to a benefit of $ 2,688 during the year ended december 31 , 2011 compared to combined income tax benefit of $ 69,263 during the year ended december 31 , 2010. the decrease in tax benefit of $ 66,575 is due primarily to the reversal of $ 65,000 of the valuation allowance on the company 's deferred tax asset as well as recording a benefit for period losses during the year ended december 31 , 2010 ; the company reversed $ 3,000 of the company 's valuation allowance on the company 's deferred tax asset and recorded tax expense of $ 312 for income during the year ended december 31 , 2011. our effective income tax rate was a benefit of 122.0 % for the year ended december 31 , 2011 compared to a benefit of 439.5 % for the same period in 2010. liquidity and capital resources consolidated year ended december 31 , 2012 compared to consolidated year ended december 31 , 2011 the following presents a discussion of cash flows for the consolidated year ended december 31 , 2012 compared with

cash flows from operating activities . net cash provided by operating activities was $ 22,969,342 for the year ended december 31 , 2013 , compared to $ 39,283,062 for the same period of 2012. the $ 16,313,720 decrease was principally attributable to a net loss of $ 6,316,041 in 2013 as compared to net income of $ 15,671,879 for the same period in 2012. the timing of billings and revenue recognition , the collections of accounts receivable , the timing of receipt and payment of invoices , federal and state income taxes payable , depreciation and amortization , and the mix of contracts account for the remainder of the decrease . working capital increased $ 5,492,070 to $ 17,708,163 as of december 31 , 2013 , from the december 31 , 2012 , working capital of $ 12,216,093. this increase was due primarily to increases in cash and cash equivalents of $ 7,516,130 and $ 3,909,198 in prepaid federal and state income taxes , and decreases of $ 9,582,719 in trade accounts payable , $ 2,958,078 in accrued liabilities , $ 3,104,129 in billings in excess of costs and estimated earnings on uncompleted contracts , and $ 2,180,400 in current maturities of notes payable , partially offset by decreases in trade accounts receivable of $ 24,898,346 and $ 3,950,996 in costs and estimated earnings in excess of billings on uncompleted contracts . cash flows used in investing activities . net cash used in investing activities was $ 667,498 for the year ended december 31 , 2013 , and $ 30,265,696 for the year ended december 31 , 2012. this $ 29,598,198 decrease was due to a decrease in capital expenditures of $ 30,121,740 and a decrease in proceeds from the sale of property and equipment of $ 523,542. cash flows used in financing activities .

on may 28 , 2010 , we acquired black diamond equipment , ltd. ( which may be referred to as “ black diamond equipment ” or “ bdel ” ) and gregory mountain products ( which may be referred to as “ gregory mountain products ” or “ gmp ” ) ( the “ mergers ” ) . because the company had no operations at the time of our acquisition of black diamond equipment , black diamond equipment is considered to be our predecessor company ( the “ predecessor ” ) for financial reporting purposes ( see note 3 of our consolidated financial statements for a more detailed explanation of the acquisition ) . the predecessor does not include gregory mountain products . on january 20 , 2011 , the company changed its name from clarus corporation to black diamond , inc. , which we believe more accurately reflects our current business . in june 2012 we acquired poc sweden ab and its subsidiaries ( collectively , “ poc ” ) and in october 2012 we acquired pieps holding gmbh and its subsidiaries ( collectively , “ pieps ” ) . critical accounting policies and use of estimates management 's discussion of financial condition and results of operations is based on the consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements . estimates also affect the reported amounts of revenues and expenses during the reporting periods . we continually evaluate our estimates and assumptions including those related to derivatives , revenue recognition , income taxes , and valuation of long-lived assets , goodwill , and other intangible assets . we base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances . actual results could differ from these estimates . 32 we believe the following critical accounting policies include the more significant estimates and assumptions used in the preparation of our consolidated financial statements . our accounting policies are more fully described in note 1 of our consolidated financial statements . · we use derivative instruments to hedge currency rate movements on foreign currency denominated sales . we enter into forward contracts , option contracts , and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of our forecasted sales denominated in foreign currencies . these derivatives are carried at fair value on our consolidated balance sheets in other assets and accrued liabilities . changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income . for derivative contracts designated as hedge instruments , the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to earnings in the period the underlying hedged item is recognized in earnings . we use operating budgets and cash flow forecasts to estimate future sales and to determine the level and timing of derivative transactions intended to mitigate such sales in accordance with our risk management policies . if the forecasted sales levels are not reached , our derivative instruments may be deemed to be not effective which may result in foreign currency gains and losses being recorded in our statement of comprehensive income , which could materially affect our financial position and results of operations . · we sell our products pursuant to customer orders or sales contracts entered into with our customers . revenue is recognized when title and risk of loss pass to the customer and when collectability is reasonably assured . charges for shipping and handling fees are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying consolidated statements of operations . at the time of revenue recognition , we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues . the estimates are based on historical rates of product returns and claims . however , actual returns and claims in any future period are inherently uncertain and thus may differ from these estimates . if actual or expected returns and claims are significantly greater or lower than the reserves that we have established , we will record a reduction or increase to sales in the period in which we make such a determination . · we account for income taxes using the asset and liability method . the asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating loss and tax credit carryforwards . we make assumptions , judgments and estimates to determine our current provision for income taxes , our deferred tax assets and liabilities , and our uncertain tax positions . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , and possible outcomes of current and future audits conductions by foreign and domestic tax authorities . changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of taxable income . actual operating results and the underlying amount and category of income in future years could cause our current assumptions , judgments and estimates of recoverable net deferred taxes to be inaccurate . story_separator_special_tag . all inventory acquired , and related purchase accounting fair market value inventory adjustment , was sold in 2010. the increase in cost of goods sold was attributable to an increase in sales by bdel and from the inclusion of gmp 's sales in our financial results . gross profit consolidated gross profit increased $ 18,842 , or 50.2 % , to $ 56,352 during the year ended december 31 , 2011 compared to combined gross profit of $ 37,510 during the year ended december 31 , 2010. consolidated gross margin was 38.7 % during the year ended december 31 , 2011 compared to a combined gross margin of 33.8 % during the year ended december 31 , 2010. the dollar increase in gross profit was primarily attributable to an increase in sales by bdel and from the inclusion of gmp 's sales in our financial results . the increase in gross margin percentage is primarily driven by not being impacted by any purchase accounting fair value adjustments during the year ended december 31 , 2011. selling , general and administrative consolidated selling , general , and administrative expenses increased $ 7,147 , or 16.5 % , to $ 50,493 during the year ended december 31 , 2011 compared to combined selling , general , and administrative expenses of $ 43,346 during the year ended december 31 , 2010. the increase in selling , general , and administrative expenses was primarily attributable to the increase in operations with the inclusion of gmp and the company 's investments in its strategic initiatives and infrastructure to support both current and anticipated future growth of $ 8,434 , an increase in depreciation and amortization of $ 1,106 , off-set by a decrease in non-cash equity compensation expense of $ 2,393. restructuring charge consolidated restructuring expenses decreased $ 1,849 , or 65.1 % , to $ 993 during the year ended december 31 , 2011 compared to combined restructuring expenses of $ 2,842 during the same period in 2010. all of the restructuring expense incurred in 2011 and 2010 were attributable to the acquisitions of bdel and gmp . during 2011 , such restructuring expenses comprised of : ( i ) $ 781 related to the relocation of gmp to the company 's headquarters in salt lake city , utah , and ( ii ) $ 212 related to the disposal of long-lived assets in conjunction with the relocation of the company 's u.s. distribution facilities in salt lake city , ut to a new location in salt lake city , ut as part of integrating gmp . during 2010 , such restructuring expenses comprised of : ( i ) a total of $ 1,295 relating to the release of the company from its lease obligations and indemnifications by kanders & company in connection with the relocation of our corporate office from stamford , connecticut to salt lake city , utah , ( ii ) a total of $ 596 relating to the write-off of fixed assets , partially offset by $ 462 gain from the write-off of a deferred rent liability for the relocation of our corporate office from stamford , connecticut to salt lake city , utah , ( iii ) $ 352 related to severance and relocation benefits provided to gmp employees , and ( iv ) the complete amortization of the $ 1,061 paid for severance and transition service expenses pursuant to a transition services agreement between the company and kanders & company . 39 merger and integration consolidated merger and integration expenses decreased 100.0 % to $ 0 during the year ended december 31 , 2011 compared to combined merger and integration expenses of $ 974 during the same period in 2010 , which was attributable to transaction bonuses and consulting fees paid in connection with the acquisition of bdel and gmp in 2010. transaction costs consolidated transaction expense decreased 100.0 % to $ 0 during the year ended december 31 , 2011 compared to combined transaction expenses of $ 5,075 during the same period in 2010 , which consisted primarily of professional fees and expenses related to due diligence , negotiation , and documentation of acquisition , financing , and related agreements in connection with the acquisition of bdel and gmp in 2010. interest expense consolidated interest expense increased $ 1,033 , or 54.7 % , to $ 2,921 during the year ended december 31 , 2011 compared to combined interest expense of $ 1,888 during the year ended december 31 , 2010. the increase in interest expense was primarily attributable to new debt outstanding related to financing of the acquisitions of bdel and gmp and higher average balances outstanding on the line of credit during the year ended december 31 , 2011 compared to the same period in 2010. income tax expense consolidated income tax benefit decreased $ 66,575 , or 96.1 % , to a benefit of $ 2,688 during the year ended december 31 , 2011 compared to combined income tax benefit of $ 69,263 during the year ended december 31 , 2010. the decrease in tax benefit of $ 66,575 is due primarily to the reversal of $ 65,000 of the valuation allowance on the company 's deferred tax asset as well as recording a benefit for period losses during the year ended december 31 , 2010 ; the company reversed $ 3,000 of the company 's valuation allowance on the company 's deferred tax asset and recorded tax expense of $ 312 for income during the year ended december 31 , 2011. our effective income tax rate was a benefit of 122.0 % for the year ended december 31 , 2011 compared to a benefit of 439.5 % for the same period in 2010. liquidity and capital resources consolidated year ended december 31 , 2012 compared to consolidated year ended december 31 , 2011 the following presents a discussion of cash flows for the consolidated year ended december 31 , 2012 compared with

net cash from operating activities consolidated net cash used in operating activities was $ 3,441 during the year ended december 31 , 2012 compared to consolidated net cash used in operating activities of $ 5,067 during the year ended december 31 , 2011. the decrease in net cash used in operating activities during 2012 is primarily due to a decrease in working capital needs and timing differences of when accounts receivable were collected , inventory purchased , and accounts payable were paid during the year ended december 31 , 2012 compared to the same period in 2011. consolidated net cash used during the year ended december 31 , 2012 was also negatively impacted by the inclusion of $ 2,029 of transaction expenses relating to the acquisitions of poc and pieps , the increase in inventory sold of $ 2,257 due to the purchase accounting fair market value inventory adjustment , $ 244 in merger and integration charges related to the acquisition of poc and pieps , partially off-set by the decrease in restructuring charges of $ 768. free cash flow , defined as net cash provided by operating activities less capital expenditures , was free cash flows used of $ 8,937 during the year ended december 31 , 2012 compared to free cash flows used of $ 7,851 during the same period in 2011. the company believes that the non-gaap measure , free cash flow , provides an understanding of the capital required by the company to expand its asset base . a reconciliation of free cash flows to comparable gaap financial measures is set forth below : replace_table_token_9_th net cash from investing activities consolidated net cash used in investing activities increased by $ 53,038 to $ 55,792 during the year ended december 31 , 2012 compared to $ 2,754 during the year ended december 31 , 2011. the increase is primarily due to the $ 40,128 and $ 10,199 used for the purchase of poc and pieps , respectively , net of cash acquired , with the remaining increase due to the increase in capital expenditures .

factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in the “ risk factors ” section . for more information regarding key factors affecting our performance , see “ key factors affecting our performance ” below . overview business etsy operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers . our mission is to “ keep commerce human , ” and we 're committed to using the power of business and technology to strengthen communities and empower people around the world . our primary marketplace , etsy.com , is the global destination for unique and creative goods . the etsy marketplaceconnects creative entrepreneurs with thoughtful consumers looking for items that are intended to be special , reflect their sense of style , or represent a meaningful occasion.our sellers are the heart and soul of etsy , and our technology platform allows our sellers to turn their creative passions into economic opportunity . we have a seller-aligned business model : we make money when our sellers make money . we offer etsy sellers a marketplace with millions of buyers along with a range of seller tools and services that are specifically designed to help our creative entrepreneurs generate more sales and scale their businesses . we are focused on attracting potential buyers to the etsy marketplace for those “ special ” purchaseoccasions that happen throughout the year , and for everyday items that have meaning . we are deepening engagement with our existing buyers by inspiring purchases across our many retail categories and special occasions . special purchases for use in the every day include handmade or vintage unique clothing , accessories , household items , or furniture that the buyer wants to reflect her sense of style . special purchase occasions can occur many times throughout the year and include shopping for special occasions that reflects an individual 's unique style ; gifting that demonstrates thought and care ; and celebrations that express creativity and fun . buyers tell us that they come to etsy because etsy sellers offer items that they ca n't find anywhere else . on august 15 , 2019 , we acquired all of the outstanding capital stock of reverb holdings , inc. ( “ reverb ” ) for $ 270.4 million , net of cash acquired . the reverb marketplace is a leading global online marketplace dedicated to buying and selling new , used , and vintage musical instruments , with a vibrant community of buyers and sellers all over the world . reverb , now a wholly-owned subsidiary of etsy , inc. , is included in all financial and other metrics from august 15 , 2019 ( the date of acquisition ) , unless otherwise noted . our revenue is diversified , generated from a mix of marketplace activities and other optional services we provide to sellers to help them generate more sales and scale their businesses . marketplace revenue is comprised of the fees a seller pays us for marketplace activities . marketplace activities include listing an item for sale , completing transactions between a buyer and a seller , and using our payments services to process payments , including foreign currency transactions . marketplace revenue also includes revenue generated through our commercial partnerships , which was recorded in its own other revenue line prior to the fourth quarter of 2019. services revenue is comprised of the fees a seller pays us for our optional other services ( “ services ” ) . services primarily include advertising services , which allows sellers to pay for prominent placement of their listings in search results ; and shipping labels , which allows sellers in the united states , canada , united kingdom , and australia to purchase discounted shipping labels . our strategy is focused on growing the etsy marketplace in our six core geographies and building a sustainable competitive advantage around four elements of our business that we believe differentiate us from our competitors , or what we call our “ right to win . ” the foundation of etsy 's competitive advantage is our collection of our seller 's unique items , which , we believe , when combined with best-in-class search and discovery , human connections , and a trusted brand , will enable us to continue to stand out among other e-commerce platforms and marketplaces . our investments in product , marketing , and talent will be focused on capitalizing on these four elements of our business . ultimately , the goal of our long-term strategy is to drive 54 more new buyers to the website , give existing buyers reasons to come back more often , encourage buyers to spend more per order , and fuel success for our sellers . we see a number of similarities between the levers of growth for the etsy and reverb marketplaces , including improving search and discovery , making selling and buying easier , and building a global brand and user community . year highlights total revenue was $ 818.4 million in the year ended december 31 , 2019 , driven by growth in both marketplace and services revenue . in the year ended december 31 , 2019 , we recorded net income of $ 95.9 million , and non-gaap adjusted ebitda of $ 186.3 million . see “ non-gaap financial measures ” for more information and for a reconciliation of adjusted ebitda to net income , the most directly comparable financial measure calculated in accordance with gaap . as of december 31 , 2019 , our marketplaces connected 2.7 million active sellers and 46.4 million active buyers , in nearly every country in the world . in the year ended december 31 , 2019 , sellers generated gms of $ 5.0 billion of which approximately 58 % came from purchases made on mobile devices . story_separator_special_tag for the year s ended december 31 , 2019 , 2018 , and 2017 those amounts are as follows : replace_table_token_16_th ( 2 ) $ 2.7 million of restructuring-related stock-based compensation expense has been excluded from the year ended december 31 , 2017 and is included in the restructuring and other exit costs ( income ) line . see footnote ( 5 ) below . total stock-based compensation expense included in the consolidated statements of operations is as follows : replace_table_token_17_th ( 3 ) see “ results of operations — other expense , net ” for more information on the fluctuation in foreign exchange ( gain ) loss in the years ended december 31 , 2019 , 2018 , and 2017 . ( 4 ) acquisition-related expenses are expenses related to our acquisition of reverb . for further information , see “ note 5—business combinations ” in the notes to consolidated financial statements . 60 ( 5 ) see “ note 17—restructuring and other exit costs ( income ) ” in the notes to consolidated financial statements for a description of the matters related to these events . total restructuring and other exit costs ( income ) included in the consolidated statements of operations are as follows : replace_table_token_18_th ( 6 ) in the fourth quarter of 2017 , we made the decision to discontinue certain product offerings , including etsy studio and etsy manufacturing , which resulted in the recognition of a $ 3.2 million impairment charge to write the related capitalized web development and internal-use software assets down to zero . this decision was based on our strategy to focus on the growth of the etsy.com marketplace . 61 key factors affecting our performance we believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges , including those discussed in the section titled “ risk factors . ” our primary marketplace , etsy.com , is the largest driver of our business and thus the following key factors affecting our performance most significantly relate to the etsy marketplace . growth and retention of active buyers and active sellers on the etsy marketplace our success depends in part on the growth and retention of our active buyers and active sellers . our revenue is driven by the number of active buyers , buyer engagement , active sellers , seller engagement , and our ability to maintain a trusted marketplace . we believe two of our most significant opportunities to drive growth in our primary marketplace are to bring new buyers to etsy.com and encourage existing etsy buyers to purchase more frequently . we are particularly focused on increasing our number of habitual buyers , or buyers who have spent $ 200 or more and made purchases on six or more purchase days in the year . we are also focused on keeping our best sellers on the platform and helping them grow their businesses by enhancing the seller tools and services that help drive buyer demand . during 2019 , the etsy marketplace had 19 million new etsy buyers , or buyers who made their first-ever purchase on etsy . gms from new buyers was up 11 % year-over-year and represented approximately 16 % of overall etsy.com gms , a decrease compared to last year . etsy.com gms from existing buyers grew 24 % year-over-year in 2019 and represented approximately 84 % of overall etsy.com gms , an increase compared to last year . repeat purchases demonstrate the loyalty of etsy buyers . in 2019 , on the etsy marketplace , approximately 41.4 % of our active buyers made purchases on two or more days in the previous 12 months , up from 40.1 % in 2018 . habitual buyers represented approximately 5.5 % of etsy.com 's active buyers as of december 31 , 2019 . habitual buyers grew to 2.5 million as of december 31 , 2019 , an increase of 22.9 % compared to 2018 . we aim to increase repeat purchases and habitual buyers by inspiring purchases in additional categories and on additional occasions , building trust in the etsy brand , and removing friction from the buying experience to improve conversion rates . to analyze our retention rates on the etsy marketplace , we measure repeat activity by active buyers and active sellers . 62 active buyer cohorts on the etsy marketplace we refer to active buyers as of december 31 , 2016 as “ 2016 active buyers , ” as of december 31 , 2015 as “ 2015 active buyers , ” as of december 31 , 2014 as “ 2014 active buyers , ” as of december 31 , 2013 as “ 2013 active buyers , ” and as of december 31 , 2012 as “ 2012 active buyers . ” of total 2016 active buyers , 37.9 % remained active buyers through their fourth year on the platform , compared to 37.5 % for 2015 active buyers , 38.7 % for 2014 active buyers , 41.1 % for 2013 active buyers , and 42.5 % for 2012 active buyers . the average annual gms per 2016 active buyer during their fourth year on the platform was 85 % higher than their first year , compared to 78 % for 2015 active buyers , 70 % for 2014 active buyers , 81 % for 2013 active buyers , and 88 % for 2012 active buyers . we note that 2013 was the first year we started to significantly invest in our paid acquisition marketing efforts to grow our buyer base . replace_table_token_19_th etsy cohort of 2016 , 2015 , 2014 , 2013 , and 2012 active buyers these cohort data demonstrate our ability to consistently retain buyers over a multi-year period and reflects the loyalty of our buyer base . we have identified our ability to increase purchase frequency among these long-term and habitual buyers as one of our

net cash from operating activities consolidated net cash used in operating activities was $ 3,441 during the year ended december 31 , 2012 compared to consolidated net cash used in operating activities of $ 5,067 during the year ended december 31 , 2011. the decrease in net cash used in operating activities during 2012 is primarily due to a decrease in working capital needs and timing differences of when accounts receivable were collected , inventory purchased , and accounts payable were paid during the year ended december 31 , 2012 compared to the same period in 2011. consolidated net cash used during the year ended december 31 , 2012 was also negatively impacted by the inclusion of $ 2,029 of transaction expenses relating to the acquisitions of poc and pieps , the increase in inventory sold of $ 2,257 due to the purchase accounting fair market value inventory adjustment , $ 244 in merger and integration charges related to the acquisition of poc and pieps , partially off-set by the decrease in restructuring charges of $ 768. free cash flow , defined as net cash provided by operating activities less capital expenditures , was free cash flows used of $ 8,937 during the year ended december 31 , 2012 compared to free cash flows used of $ 7,851 during the same period in 2011. the company believes that the non-gaap measure , free cash flow , provides an understanding of the capital required by the company to expand its asset base . a reconciliation of free cash flows to comparable gaap financial measures is set forth below : replace_table_token_9_th net cash from investing activities consolidated net cash used in investing activities increased by $ 53,038 to $ 55,792 during the year ended december 31 , 2012 compared to $ 2,754 during the year ended december 31 , 2011. the increase is primarily due to the $ 40,128 and $ 10,199 used for the purchase of poc and pieps , respectively , net of cash acquired , with the remaining increase due to the increase in capital expenditures .

factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in the “ risk factors ” section . for more information regarding key factors affecting our performance , see “ key factors affecting our performance ” below . overview business etsy operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers . our mission is to “ keep commerce human , ” and we 're committed to using the power of business and technology to strengthen communities and empower people around the world . our primary marketplace , etsy.com , is the global destination for unique and creative goods . the etsy marketplaceconnects creative entrepreneurs with thoughtful consumers looking for items that are intended to be special , reflect their sense of style , or represent a meaningful occasion.our sellers are the heart and soul of etsy , and our technology platform allows our sellers to turn their creative passions into economic opportunity . we have a seller-aligned business model : we make money when our sellers make money . we offer etsy sellers a marketplace with millions of buyers along with a range of seller tools and services that are specifically designed to help our creative entrepreneurs generate more sales and scale their businesses . we are focused on attracting potential buyers to the etsy marketplace for those “ special ” purchaseoccasions that happen throughout the year , and for everyday items that have meaning . we are deepening engagement with our existing buyers by inspiring purchases across our many retail categories and special occasions . special purchases for use in the every day include handmade or vintage unique clothing , accessories , household items , or furniture that the buyer wants to reflect her sense of style . special purchase occasions can occur many times throughout the year and include shopping for special occasions that reflects an individual 's unique style ; gifting that demonstrates thought and care ; and celebrations that express creativity and fun . buyers tell us that they come to etsy because etsy sellers offer items that they ca n't find anywhere else . on august 15 , 2019 , we acquired all of the outstanding capital stock of reverb holdings , inc. ( “ reverb ” ) for $ 270.4 million , net of cash acquired . the reverb marketplace is a leading global online marketplace dedicated to buying and selling new , used , and vintage musical instruments , with a vibrant community of buyers and sellers all over the world . reverb , now a wholly-owned subsidiary of etsy , inc. , is included in all financial and other metrics from august 15 , 2019 ( the date of acquisition ) , unless otherwise noted . our revenue is diversified , generated from a mix of marketplace activities and other optional services we provide to sellers to help them generate more sales and scale their businesses . marketplace revenue is comprised of the fees a seller pays us for marketplace activities . marketplace activities include listing an item for sale , completing transactions between a buyer and a seller , and using our payments services to process payments , including foreign currency transactions . marketplace revenue also includes revenue generated through our commercial partnerships , which was recorded in its own other revenue line prior to the fourth quarter of 2019. services revenue is comprised of the fees a seller pays us for our optional other services ( “ services ” ) . services primarily include advertising services , which allows sellers to pay for prominent placement of their listings in search results ; and shipping labels , which allows sellers in the united states , canada , united kingdom , and australia to purchase discounted shipping labels . our strategy is focused on growing the etsy marketplace in our six core geographies and building a sustainable competitive advantage around four elements of our business that we believe differentiate us from our competitors , or what we call our “ right to win . ” the foundation of etsy 's competitive advantage is our collection of our seller 's unique items , which , we believe , when combined with best-in-class search and discovery , human connections , and a trusted brand , will enable us to continue to stand out among other e-commerce platforms and marketplaces . our investments in product , marketing , and talent will be focused on capitalizing on these four elements of our business . ultimately , the goal of our long-term strategy is to drive 54 more new buyers to the website , give existing buyers reasons to come back more often , encourage buyers to spend more per order , and fuel success for our sellers . we see a number of similarities between the levers of growth for the etsy and reverb marketplaces , including improving search and discovery , making selling and buying easier , and building a global brand and user community . year highlights total revenue was $ 818.4 million in the year ended december 31 , 2019 , driven by growth in both marketplace and services revenue . in the year ended december 31 , 2019 , we recorded net income of $ 95.9 million , and non-gaap adjusted ebitda of $ 186.3 million . see “ non-gaap financial measures ” for more information and for a reconciliation of adjusted ebitda to net income , the most directly comparable financial measure calculated in accordance with gaap . as of december 31 , 2019 , our marketplaces connected 2.7 million active sellers and 46.4 million active buyers , in nearly every country in the world . in the year ended december 31 , 2019 , sellers generated gms of $ 5.0 billion of which approximately 58 % came from purchases made on mobile devices . story_separator_special_tag for the year s ended december 31 , 2019 , 2018 , and 2017 those amounts are as follows : replace_table_token_16_th ( 2 ) $ 2.7 million of restructuring-related stock-based compensation expense has been excluded from the year ended december 31 , 2017 and is included in the restructuring and other exit costs ( income ) line . see footnote ( 5 ) below . total stock-based compensation expense included in the consolidated statements of operations is as follows : replace_table_token_17_th ( 3 ) see “ results of operations — other expense , net ” for more information on the fluctuation in foreign exchange ( gain ) loss in the years ended december 31 , 2019 , 2018 , and 2017 . ( 4 ) acquisition-related expenses are expenses related to our acquisition of reverb . for further information , see “ note 5—business combinations ” in the notes to consolidated financial statements . 60 ( 5 ) see “ note 17—restructuring and other exit costs ( income ) ” in the notes to consolidated financial statements for a description of the matters related to these events . total restructuring and other exit costs ( income ) included in the consolidated statements of operations are as follows : replace_table_token_18_th ( 6 ) in the fourth quarter of 2017 , we made the decision to discontinue certain product offerings , including etsy studio and etsy manufacturing , which resulted in the recognition of a $ 3.2 million impairment charge to write the related capitalized web development and internal-use software assets down to zero . this decision was based on our strategy to focus on the growth of the etsy.com marketplace . 61 key factors affecting our performance we believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges , including those discussed in the section titled “ risk factors . ” our primary marketplace , etsy.com , is the largest driver of our business and thus the following key factors affecting our performance most significantly relate to the etsy marketplace . growth and retention of active buyers and active sellers on the etsy marketplace our success depends in part on the growth and retention of our active buyers and active sellers . our revenue is driven by the number of active buyers , buyer engagement , active sellers , seller engagement , and our ability to maintain a trusted marketplace . we believe two of our most significant opportunities to drive growth in our primary marketplace are to bring new buyers to etsy.com and encourage existing etsy buyers to purchase more frequently . we are particularly focused on increasing our number of habitual buyers , or buyers who have spent $ 200 or more and made purchases on six or more purchase days in the year . we are also focused on keeping our best sellers on the platform and helping them grow their businesses by enhancing the seller tools and services that help drive buyer demand . during 2019 , the etsy marketplace had 19 million new etsy buyers , or buyers who made their first-ever purchase on etsy . gms from new buyers was up 11 % year-over-year and represented approximately 16 % of overall etsy.com gms , a decrease compared to last year . etsy.com gms from existing buyers grew 24 % year-over-year in 2019 and represented approximately 84 % of overall etsy.com gms , an increase compared to last year . repeat purchases demonstrate the loyalty of etsy buyers . in 2019 , on the etsy marketplace , approximately 41.4 % of our active buyers made purchases on two or more days in the previous 12 months , up from 40.1 % in 2018 . habitual buyers represented approximately 5.5 % of etsy.com 's active buyers as of december 31 , 2019 . habitual buyers grew to 2.5 million as of december 31 , 2019 , an increase of 22.9 % compared to 2018 . we aim to increase repeat purchases and habitual buyers by inspiring purchases in additional categories and on additional occasions , building trust in the etsy brand , and removing friction from the buying experience to improve conversion rates . to analyze our retention rates on the etsy marketplace , we measure repeat activity by active buyers and active sellers . 62 active buyer cohorts on the etsy marketplace we refer to active buyers as of december 31 , 2016 as “ 2016 active buyers , ” as of december 31 , 2015 as “ 2015 active buyers , ” as of december 31 , 2014 as “ 2014 active buyers , ” as of december 31 , 2013 as “ 2013 active buyers , ” and as of december 31 , 2012 as “ 2012 active buyers . ” of total 2016 active buyers , 37.9 % remained active buyers through their fourth year on the platform , compared to 37.5 % for 2015 active buyers , 38.7 % for 2014 active buyers , 41.1 % for 2013 active buyers , and 42.5 % for 2012 active buyers . the average annual gms per 2016 active buyer during their fourth year on the platform was 85 % higher than their first year , compared to 78 % for 2015 active buyers , 70 % for 2014 active buyers , 81 % for 2013 active buyers , and 88 % for 2012 active buyers . we note that 2013 was the first year we started to significantly invest in our paid acquisition marketing efforts to grow our buyer base . replace_table_token_19_th etsy cohort of 2016 , 2015 , 2014 , 2013 , and 2012 active buyers these cohort data demonstrate our ability to consistently retain buyers over a multi-year period and reflects the loyalty of our buyer base . we have identified our ability to increase purchase frequency among these long-term and habitual buyers as one of our

cash net income of $ 139.6 million as a result of increased revenue generated on our platform , and changes in our operating assets and liabilities that provided $ 59.3 million in cash , largely driven by timing of collections of accounts receivable due to the launch of our redesigned payment account in the fourth quarter of 2018 , which now automatically deducts our fees and applicable taxes from the seller 's funds earned through sales using etsy payments prior to settlement of those funds to the seller 's bank account and payment timing of payables . net cash provided by operating activities was $ 69.1 million in the year ended december 31 , 2017 , primarily driven by cash net income of $ 68.8 million as a result of increased revenue generated on our platform and changes in our operating assets and liabilities that provided $ 0.3 million in cash . net cash ( used in ) provided by investing activities our primary investing activities consist of cash paid in the acquisition of reverb , sales and purchases of short- and long-term marketable securities , cash paid to purchase intangible assets and capital expenditures , including investments in capitalized website development and internal-use software and purchases of property and equipment to support our overall business growth . net cash used in investing activities was $ 488.4 million in the year ended december 31 , 2019 . this was primarily attributable to $ 270.4 million in cash paid to acquire reverb , net purchases of marketable securities of $ 200.7 million , and $ 15.3 million in capital expenditures , including $ 7.8 million for website development and internal-use software as we continued to invest in projects adding new features and functionality to the etsy platform and focused on growth investments , such as our migration to google cloud . net cash used in investing activities was $ 285.4 million in the year ended december 31 , 2018 .

we intend to begin commercial sales of t : flex in the united states during the second quarter of 2015. we consider the number of units shipped per quarter to be an important metric for managing our business . since the launch of t : slim , we have shipped approximately 18,300 pumps as of december 31 , 2014 , broken down by quarter as follows : replace_table_token_4_th for the years ended december 31 , 2014 , 2013 and 2012 , our sales were $ 49.7 million , $ 29.0 million and $ 2.5 million , respectively . for the years ended december 31 , 2014 , 2013 and 2012 , our net loss was $ 79.5 million , $ 63.1 million and $ 33.0 million , respectively . our accumulated deficit as of december 31 , 2014 was $ 248.7 million . 56 we have derived nearly all of our revenue from the sale of t : slim and associated supplies in the united states and expect to continue to do so until we are able to commercialize t : flex and our other products that are currently under development . during the third quarter of 2014 , we submitted a pma application to the fda for the t : slim g4 insulin pump system , which we have previously referred to as t : sensor . a substantial portion of the purchase price of an insulin pump is typically paid for by third-party payors , including private insurance companies , preferred provider organizations and other managed care providers . access to adequate coverage and reimbursement for our current and future products by third-party payors is essential to the acceptance of our products by customers . future sales of our current and future products will be limited unless our customers can rely on third-party payors to pay for all or part of the associated purchase cost . in circumstances that we do not have contracts established with third-party payors , to the extent possible , we utilize our network of national and regional distributors to service our customers . we believe we can achieve profitability because our proprietary technology platform will allow us to maximize efficiencies in the development , production and sale of our products . by leveraging our technology platform , we believe we can develop and bring to market products more rapidly while significantly reducing our design and development costs . we also expect to continue to increase production volume , and to reduce the per-unit production cost for our pump products and their associated disposable cartridges over time . further , due to shared product design features , our production system is adaptable to new products and we intend to leverage our shared manufacturing infrastructure to reduce our product costs and drive operational efficiencies . by expanding our product offerings to address people in different segments of the large and growing insulin-dependent diabetes market , we believe we can increase the productivity of our sales force , thereby improving our operating margin . from inception through december 31 , 2014 , we have primarily financed our operations through sales of equity securities , and , to a lesser extent , debt financings . we expect to continue to incur net losses for the next several years and expect to pursue additional capital through equity and or debt financings in order to fund our operations to a level of revenues adequate to support our cost structure . we have experienced considerable revenue growth since the commercial launch of t : slim in the third quarter of 2012 , while incurring operating losses since our inception . our operating results may fluctuate on a quarterly or annual basis in the future , in particular during the initial stages of commercialization of new products , including t : flex , and our growth or operating results may not be consistent with predictions made by securities analysts . we may not be able to achieve profitability in the future . for additional information about the risks and uncertainties associated with our business , see the section entitled “ risk factors ” in part i , item 1a . voluntary recall on january 10 , 2014 , we announced a voluntary recall of select lots of cartridges used with t : slim that may have been at risk of leaking . the cause of the recall was identified during our internal product testing . the recall was expanded on january 20 , 2014 to include additional lots of affected cartridges used with t : slim . we incurred approximately $ 1.7 million in direct costs associated with the recall . we recorded a cost of sales charge of approximately $ 1.3 million in the fourth quarter of 2013 and recorded the cost of sales charge for the remainder in the first quarter of 2014 for affected cartridges shipped in the first quarter of 2014. the total cost of the recall consisted of approximately $ 0.7 million associated with the return and replacement of affected cartridges in the field and approximately $ 1.0 million for the write-off of affected cartridges within our internal inventory . we do not currently expect any further direct financial impact of the recall beyond these costs . components of results of operations sales we commenced commercial sales of t : slim in the united states in the third quarter of 2012. the t : slim insulin delivery system is comprised of the t : slim pump and pump-related supplies that include disposable cartridges and infusion sets . we also offer accessories including protective cases , belt clips , and power adapters . sales of accessories since commercial launch have not been material . we primarily sell our products through national and regional distributors on a non-exclusive basis . these distributors are generally providers of medical equipment and supplies to individuals with diabetes . our primary end customers are people with insulin-dependent diabetes . story_separator_special_tag other expense in 2013 was $ 13.7 million , compared to $ 33,000 of other income in 2012. other expense in 2013 was primarily comprised of $ 9.0 million associated with the revaluation of the fair value of common and preferred stock warrants and $ 4.7 million interest expense associated with the term loan agreement executed with capital royalty partners in december 2012. we borrowed $ 30 million under the agreement in january 2013. in comparison , other income in 2012 was primarily comprised of a $ 2.6 million decrease in the fair value of the common and preferred stock warrants , offset by $ 2.5 million in interest expense related to convertible notes payable to certain stockholders . the convertible notes were converted to series d preferred stock in august 2012 and interest was paid on a $ 5.0 million loan from silicon valley bank . we used proceeds from the capital royalty partners term loan agreement to repay all amounts outstanding under the silicon valley bank loan in january 2013. story_separator_special_tag style= `` margin-bottom:0pt ; margin-top:0pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : 'wingdings ' ; font-size:10pt ; `` > fluctuations in working capital . our primary short-term capital needs , which are subject to change , include expenditures related to : ● support of our commercialization efforts related to our current and future products ; ● improvements in our manufacturing capacity and efficiency ; ● new research and product development efforts ; ● payment of quarterly interest due under our term debt agreements ; ● the acquisition of equipment and other fixed assets ; ● facilities expansion needs ; and ● potential up-front , milestone payments or reimbursement of costs under r & d collaborations . although we believe the foregoing items reflect our most likely uses of cash in the short-term , we can not predict with certainty all of our particular short-term cash uses or the timing or amount of cash used . if cash generated from operations is insufficient to satisfy our working capital and capital expenditure requirements , we may be required to sell additional equity or debt securities or obtain additional credit facilities . there can be no assurance that equity or debt financing will be available on satisfactory terms , or at all . further , any additional equity financing may be dilutive to stockholders , and debt financing , if available , may include restrictive covenants . 62 indebtedness capital royalty partners term loans in december 2012 , we executed a term loan agreement ( the “ original term loan agreement ” ) with capital royalty partners ii l.p. ( “ capital royalty partners ” ) and capital royalty partners ii—parallel fund “ a ” l.p. ( “ crppf ” , together with capital royalty partners , the “ lenders ” ) , providing us access to $ 45.0 million under the arrangement , of which $ 30.0 million was available in january 2013 , and an additional amount up to $ 15.0 million became available upon our achievement of a 2013 revenue-based milestone . in january 2013 , $ 30.0 million was drawn under the agreement , a portion of which was used to repay all amounts outstanding under our $ 5.0 million loan from silicon valley bank . in april 2014 , we entered into an amended and restated term loan agreement ( the `` amended and restated term loan agreement `` ) with the lenders and capital royalty partners ii ( cayman ) l.p. ( “ crpc ” ) under which we may borrow up to $ 30.0 million . the amended and restated term loan agreement amends and restates the original term loan agreement . aggregate borrowings outstanding under the amended and restated term loan agreement were $ 30 million at december 31 , 2014. borrowings under the amended and restated term loan agreement were used to refinance amounts outstanding under the original term loan agreement . the amended and restated term loan agreement primarily amends the terms of the original term loan agreement to reduce the borrowing limit to $ 30.0 million , to reduce the applicable interest rate from 14.0 % to 11.5 % , and to extend the interest only payment period from december 31 , 2015 to march 31 , 2018. interest is payable , at our option , ( i ) in cash at a rate of 11.5 % per annum or ( ii ) in cash at a rate of 9.5 % per annum , with the remaining 2.0 % per annum added to the principal of the loan and thereafter subject to accruing interest . interest-only payments are due quarterly on march 31 , june 30 , september 30 and december 31 of each year of the interest-only payment period . thereafter , in addition to interest accrued during the period , the quarterly payments shall include an amount equal to the outstanding principal at march 31 , 2018 divided by the remaining number of quarters prior to the end of the term of the loan . the amended and restated term loan agreement provides for prepayment fees of 3 % of the outstanding balance of the loan if the loan is repaid prior to march 31 , 2015. the prepayment fee is reduced by 1 % per year for each subsequent year until maturity . certain affirmative and negative covenants were also amended to provide us with additional flexibility . the principal financial covenants require that we attain minimum annual revenues of $ 30.0 million in 2014 , $ 50.0 million in 2015 , $ 65.0 million in 2016 , $ 80.0 million in 2017 and $ 95.0 million thereafter . we expect to meet the minimum annual revenue covenant of $ 50.0 million in 2015. on the same date , we entered into a new term loan a greement ( the “ new tranche term

cash net income of $ 139.6 million as a result of increased revenue generated on our platform , and changes in our operating assets and liabilities that provided $ 59.3 million in cash , largely driven by timing of collections of accounts receivable due to the launch of our redesigned payment account in the fourth quarter of 2018 , which now automatically deducts our fees and applicable taxes from the seller 's funds earned through sales using etsy payments prior to settlement of those funds to the seller 's bank account and payment timing of payables . net cash provided by operating activities was $ 69.1 million in the year ended december 31 , 2017 , primarily driven by cash net income of $ 68.8 million as a result of increased revenue generated on our platform and changes in our operating assets and liabilities that provided $ 0.3 million in cash . net cash ( used in ) provided by investing activities our primary investing activities consist of cash paid in the acquisition of reverb , sales and purchases of short- and long-term marketable securities , cash paid to purchase intangible assets and capital expenditures , including investments in capitalized website development and internal-use software and purchases of property and equipment to support our overall business growth . net cash used in investing activities was $ 488.4 million in the year ended december 31 , 2019 . this was primarily attributable to $ 270.4 million in cash paid to acquire reverb , net purchases of marketable securities of $ 200.7 million , and $ 15.3 million in capital expenditures , including $ 7.8 million for website development and internal-use software as we continued to invest in projects adding new features and functionality to the etsy platform and focused on growth investments , such as our migration to google cloud . net cash used in investing activities was $ 285.4 million in the year ended december 31 , 2018 .

we intend to begin commercial sales of t : flex in the united states during the second quarter of 2015. we consider the number of units shipped per quarter to be an important metric for managing our business . since the launch of t : slim , we have shipped approximately 18,300 pumps as of december 31 , 2014 , broken down by quarter as follows : replace_table_token_4_th for the years ended december 31 , 2014 , 2013 and 2012 , our sales were $ 49.7 million , $ 29.0 million and $ 2.5 million , respectively . for the years ended december 31 , 2014 , 2013 and 2012 , our net loss was $ 79.5 million , $ 63.1 million and $ 33.0 million , respectively . our accumulated deficit as of december 31 , 2014 was $ 248.7 million . 56 we have derived nearly all of our revenue from the sale of t : slim and associated supplies in the united states and expect to continue to do so until we are able to commercialize t : flex and our other products that are currently under development . during the third quarter of 2014 , we submitted a pma application to the fda for the t : slim g4 insulin pump system , which we have previously referred to as t : sensor . a substantial portion of the purchase price of an insulin pump is typically paid for by third-party payors , including private insurance companies , preferred provider organizations and other managed care providers . access to adequate coverage and reimbursement for our current and future products by third-party payors is essential to the acceptance of our products by customers . future sales of our current and future products will be limited unless our customers can rely on third-party payors to pay for all or part of the associated purchase cost . in circumstances that we do not have contracts established with third-party payors , to the extent possible , we utilize our network of national and regional distributors to service our customers . we believe we can achieve profitability because our proprietary technology platform will allow us to maximize efficiencies in the development , production and sale of our products . by leveraging our technology platform , we believe we can develop and bring to market products more rapidly while significantly reducing our design and development costs . we also expect to continue to increase production volume , and to reduce the per-unit production cost for our pump products and their associated disposable cartridges over time . further , due to shared product design features , our production system is adaptable to new products and we intend to leverage our shared manufacturing infrastructure to reduce our product costs and drive operational efficiencies . by expanding our product offerings to address people in different segments of the large and growing insulin-dependent diabetes market , we believe we can increase the productivity of our sales force , thereby improving our operating margin . from inception through december 31 , 2014 , we have primarily financed our operations through sales of equity securities , and , to a lesser extent , debt financings . we expect to continue to incur net losses for the next several years and expect to pursue additional capital through equity and or debt financings in order to fund our operations to a level of revenues adequate to support our cost structure . we have experienced considerable revenue growth since the commercial launch of t : slim in the third quarter of 2012 , while incurring operating losses since our inception . our operating results may fluctuate on a quarterly or annual basis in the future , in particular during the initial stages of commercialization of new products , including t : flex , and our growth or operating results may not be consistent with predictions made by securities analysts . we may not be able to achieve profitability in the future . for additional information about the risks and uncertainties associated with our business , see the section entitled “ risk factors ” in part i , item 1a . voluntary recall on january 10 , 2014 , we announced a voluntary recall of select lots of cartridges used with t : slim that may have been at risk of leaking . the cause of the recall was identified during our internal product testing . the recall was expanded on january 20 , 2014 to include additional lots of affected cartridges used with t : slim . we incurred approximately $ 1.7 million in direct costs associated with the recall . we recorded a cost of sales charge of approximately $ 1.3 million in the fourth quarter of 2013 and recorded the cost of sales charge for the remainder in the first quarter of 2014 for affected cartridges shipped in the first quarter of 2014. the total cost of the recall consisted of approximately $ 0.7 million associated with the return and replacement of affected cartridges in the field and approximately $ 1.0 million for the write-off of affected cartridges within our internal inventory . we do not currently expect any further direct financial impact of the recall beyond these costs . components of results of operations sales we commenced commercial sales of t : slim in the united states in the third quarter of 2012. the t : slim insulin delivery system is comprised of the t : slim pump and pump-related supplies that include disposable cartridges and infusion sets . we also offer accessories including protective cases , belt clips , and power adapters . sales of accessories since commercial launch have not been material . we primarily sell our products through national and regional distributors on a non-exclusive basis . these distributors are generally providers of medical equipment and supplies to individuals with diabetes . our primary end customers are people with insulin-dependent diabetes . story_separator_special_tag other expense in 2013 was $ 13.7 million , compared to $ 33,000 of other income in 2012. other expense in 2013 was primarily comprised of $ 9.0 million associated with the revaluation of the fair value of common and preferred stock warrants and $ 4.7 million interest expense associated with the term loan agreement executed with capital royalty partners in december 2012. we borrowed $ 30 million under the agreement in january 2013. in comparison , other income in 2012 was primarily comprised of a $ 2.6 million decrease in the fair value of the common and preferred stock warrants , offset by $ 2.5 million in interest expense related to convertible notes payable to certain stockholders . the convertible notes were converted to series d preferred stock in august 2012 and interest was paid on a $ 5.0 million loan from silicon valley bank . we used proceeds from the capital royalty partners term loan agreement to repay all amounts outstanding under the silicon valley bank loan in january 2013. story_separator_special_tag style= `` margin-bottom:0pt ; margin-top:0pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : 'wingdings ' ; font-size:10pt ; `` > fluctuations in working capital . our primary short-term capital needs , which are subject to change , include expenditures related to : ● support of our commercialization efforts related to our current and future products ; ● improvements in our manufacturing capacity and efficiency ; ● new research and product development efforts ; ● payment of quarterly interest due under our term debt agreements ; ● the acquisition of equipment and other fixed assets ; ● facilities expansion needs ; and ● potential up-front , milestone payments or reimbursement of costs under r & d collaborations . although we believe the foregoing items reflect our most likely uses of cash in the short-term , we can not predict with certainty all of our particular short-term cash uses or the timing or amount of cash used . if cash generated from operations is insufficient to satisfy our working capital and capital expenditure requirements , we may be required to sell additional equity or debt securities or obtain additional credit facilities . there can be no assurance that equity or debt financing will be available on satisfactory terms , or at all . further , any additional equity financing may be dilutive to stockholders , and debt financing , if available , may include restrictive covenants . 62 indebtedness capital royalty partners term loans in december 2012 , we executed a term loan agreement ( the “ original term loan agreement ” ) with capital royalty partners ii l.p. ( “ capital royalty partners ” ) and capital royalty partners ii—parallel fund “ a ” l.p. ( “ crppf ” , together with capital royalty partners , the “ lenders ” ) , providing us access to $ 45.0 million under the arrangement , of which $ 30.0 million was available in january 2013 , and an additional amount up to $ 15.0 million became available upon our achievement of a 2013 revenue-based milestone . in january 2013 , $ 30.0 million was drawn under the agreement , a portion of which was used to repay all amounts outstanding under our $ 5.0 million loan from silicon valley bank . in april 2014 , we entered into an amended and restated term loan agreement ( the `` amended and restated term loan agreement `` ) with the lenders and capital royalty partners ii ( cayman ) l.p. ( “ crpc ” ) under which we may borrow up to $ 30.0 million . the amended and restated term loan agreement amends and restates the original term loan agreement . aggregate borrowings outstanding under the amended and restated term loan agreement were $ 30 million at december 31 , 2014. borrowings under the amended and restated term loan agreement were used to refinance amounts outstanding under the original term loan agreement . the amended and restated term loan agreement primarily amends the terms of the original term loan agreement to reduce the borrowing limit to $ 30.0 million , to reduce the applicable interest rate from 14.0 % to 11.5 % , and to extend the interest only payment period from december 31 , 2015 to march 31 , 2018. interest is payable , at our option , ( i ) in cash at a rate of 11.5 % per annum or ( ii ) in cash at a rate of 9.5 % per annum , with the remaining 2.0 % per annum added to the principal of the loan and thereafter subject to accruing interest . interest-only payments are due quarterly on march 31 , june 30 , september 30 and december 31 of each year of the interest-only payment period . thereafter , in addition to interest accrued during the period , the quarterly payments shall include an amount equal to the outstanding principal at march 31 , 2018 divided by the remaining number of quarters prior to the end of the term of the loan . the amended and restated term loan agreement provides for prepayment fees of 3 % of the outstanding balance of the loan if the loan is repaid prior to march 31 , 2015. the prepayment fee is reduced by 1 % per year for each subsequent year until maturity . certain affirmative and negative covenants were also amended to provide us with additional flexibility . the principal financial covenants require that we attain minimum annual revenues of $ 30.0 million in 2014 , $ 50.0 million in 2015 , $ 65.0 million in 2016 , $ 80.0 million in 2017 and $ 95.0 million thereafter . we expect to meet the minimum annual revenue covenant of $ 50.0 million in 2015. on the same date , we entered into a new term loan a greement ( the “ new tranche term

liquidity and capital resources at december 31 , 2014 , we had $ 69.3 million in cash and cash equivalents and short-term investments , which included $ 2.0 million of restricted cash . we believe that our cash on hand , cash available under our new tranche term loan agreement with capital royalty partners and proceeds from the exercise of options and warrants will be sufficient to satisfy our liquidity requirements for at least the next 12 months . we expect that our sales performance and the resulting operating income or loss , as well as the status of each of our new product development programs , will significantly impact our cash management decisions . we have utilized , and may continue to utilize , debt arrangements with debt providers and financial institutions to finance our operations . factors such as interest rates , repayment terms and available cash will impact our decision to continue to utilize debt arrangements as a source of cash . in november 2013 , we completed an initial public offering of common stock that resulted in net proceeds of approximately $ 125 million . in the future , we may give consideration to additional public offerings of equity securities as a source of financing . in december 2014 , we filed a registration statement on form s-3 with the sec , which was declared effective on december 19 , 2014. under this shelf registration statement , we may from time to time offer and sell any combination of common stock , preferred stock , warrants or units in one or more offerings . historically , our sources of cash have included private placements and a public offering of equity securities , debt arrangements , and cash generated from operations .

interest ( expense ) includes interest on outstanding borrowings , commitment fees charged on the unused portion of 25 our revolving credit facility and contingent consideration , as more fully described in this item 7 , under “liquidity and capital resources.” other income ( expense ) , net includes gains and losses on derivative instruments not designated as hedges , foreign currency transaction gains and losses , gains and losses on the liquidation of foreign subsidiaries and other miscellaneous income ( expense ) . our effective tax rate for the periods presented includes the effects of state income taxes , net of federal tax benefit , uncertain tax positions , tax holidays , valuation allowance changes , foreign rate differentials , foreign withholding and other taxes , and permanent differences . recent developments u.s. 2017 tax reform act on december 20 , 2017 , the tax cuts and jobs act ( the “2017 tax reform act” ) was approved by congress and received presidential approval on december 22 , 2017. in general , the 2017 tax reform act reduces the u.s. corporate income tax rate from 35 % to 21 % , effective in 2018. the 2017 tax reform act moves from a worldwide business taxation approach to a participation exemption regime . the 2017 tax reform act also imposes base-erosion prevention measures on non-u.s. earnings of u.s. entities , as well as a one-time mandatory deemed repatriation tax on accumulated non-u.s. earnings . the 2017 tax reform act will have an impact on our consolidated financial results beginning with the fourth quarter of 2017 , the period of enactment . this impact , along with the transitional taxes discussed in note 20 , income taxes , of the accompanying “notes to consolidated financial statements” is reflected in the other segment . acquisitions on may 31 , 2017 , we completed the acquisition of certain assets of a global 2000 telecommunications service provider ( the “telecommunications asset acquisition” ) , to strengthen and create new partnerships and expand our geographic footprint in north america . the total purchase price of $ 7.5 million was funded through cash on hand . the results of operations of the telecommunications asset acquisition have been reflected in the accompanying consolidated statement of operations since may 31 , 2017. in april 2016 , we completed the acquisition of clear link holdings , llc ( “clearlink” ) , to expand our suite of service offerings while creating differentiation in the marketplace , broadening our addressable market opportunity and extending executive level reach within our existing clients ' organization . we refer to such acquisition herein as the “clearlink acquisition.” the total purchase price of $ 207.9 million was funded by borrowings under our existing credit facility . the results of operations of clearlink have been reflected in the accompanying consolidated statements of operations since april 1 , 2016. in july 2015 , we completed the acquisition of qelp b.v. and its subsidiary ( together , known as “qelp” ) , to further broaden and strengthen our service portfolio around digital self-service customer support and extend our reach into adjacent , but complementary , markets . we refer to such acquisition herein as the “qelp acquisition.” the total purchase price of $ 15.8 million was funded by $ 9.8 million in cash on hand and contingent consideration with a fair value of $ 6.0 million as of july 2 , 2015. the results of operations of qelp have been reflected in the accompanying consolidated statements of operations since july 2 , 2015 . 26 results of operations the following table sets forth , for the years indicated , the amounts reflected in the accompanying consolidated statements of operations as well as the changes between the respective years : replace_table_token_7_th the following table sets forth , for the years indicated , the amounts presented in the accompanying consolidated statements of operations as a percentage of revenues : replace_table_token_8_th 27 2017 compared to 2016 revenues replace_table_token_9_th consolidated revenues increased $ 126.0 million , or 8.6 % , in 2017 from 2016. the increase in americas ' revenues was primarily due to higher volumes from existing clients of $ 51.3 million , new client sales of $ 51.1 million and clearlink acquisition revenues of $ 43.1 million , partially offset by end-of-life client programs of $ 39.7 million and the negative foreign currency impact of $ 1.0 million . revenues from our offshore operations represented 40.7 % of americas ' revenues , compared to 41.2 % in 2016. the increase in emea 's revenues was primarily due to higher volumes from existing clients of $ 24.9 million and new client sales of $ 2.7 million , partially offset by end-of-life client programs of $ 3.5 million and the negative foreign currency impact of $ 2.9 million . on a consolidated basis , we had 52,600 brick-and-mortar seats as of december 31 , 2017 , an increase of 4,900 seats from 2016. included in this seat count are 2,900 seats associated with the telecommunications asset acquisition . this increase in seats , net of the telecommunications asset acquisition additions , reflects seat additions to support higher projected demand . the capacity utilization rate on a combined basis was 72 % in 2017 , compared to 75 % in 2016. this decrease was primarily due to capacity additions owing to higher projected demand and certain operational inefficiencies . on a geographic segment basis , 45,400 seats were located in the americas , an increase of 4,200 seats from 2016 , and 7,200 seats were located in emea , an increase of 700 seats from 2016. the capacity utilization rate for the americas in 2017 was 71 % , compared to 74 % in 2016 , down primarily due to the aforementioned factors . story_separator_special_tag we continue to address the challenges in the u.s. through various measures , including shifting some existing and new client demand to either better positioned facilities , to at-home agent or to other international geographies , coupled with rationalizing excess capacity as well as negotiating price increases where feasible . our first quarter 2018 outlook reflects the above actions and we expect operational improvements from these actions as the year progresses . our revenues and earnings per share assumptions for the first quarter and full year 2018 are based on foreign exchange rates as of february 2018. therefore , the continued volatility in foreign exchange rates between the u.s. dollar and the functional currencies of the markets we serve could have a further impact , positive or negative , on revenues and earnings per share relative to the business outlook for the first quarter and full-year as discussed above . we anticipate total other interest income ( expense ) , net of approximately $ ( 0.7 ) million for the first quarter and $ ( 3.2 ) million for the full year 2018. the reduction in interest expense in 2018 versus 2017 largely reflects the $ 175.0 million repayment of long-term debt outstanding under 2015 credit agreement in january 2018 , partially offset by expectations of planned interest rates increases on the remaining borrowings and increased fees related to the undrawn portion of the credit facility . the amounts in the other interest income ( expense ) , net , however , exclude the potential impact of any future foreign exchange gains or losses . we expect a reduction in our full-year 2018 effective tax rate compared to 2017 due largely to the 2017 tax reform act , which reduced u.s. corporate income tax rate to 21 % from 35 % . not included in this guidance is the impact of any future acquisitions , share repurchase activities or a potential sale of previously exited customer engagement centers . story_separator_special_tag remaining audits and their resolution is not expected to have a material impact on our financial condition and results of operations . on april 24 , 2017 , we entered into a definitive asset purchase agreement to purchase certain assets of a global 2000 telecommunications services provider . the aggregate purchase price of $ 7.5 million was paid on may 31 , 2017 , using cash on hand . as part of the april 2016 clearlink acquisition , we assumed contingent consideration liabilities related to four separate acquisitions made by clearlink in 2015 and 2016 , prior to the clearlink acquisition . the fair value of the contingent consideration related to these previous acquisitions was $ 2.8 million as of april 1 , 2016 and was based on achieving targets primarily tied to revenues for varying periods of time during 2016 and 2017. as of october 31 , 2017 , no contingent consideration liability remained . as part of the july 2015 qelp acquisition , we recorded contingent consideration of $ 6.0 million as part of the purchase price . on september 26 , 2016 , we entered into an addendum to the qelp purchase agreement with the sellers to settle the outstanding contingent consideration for eur 4.0 million to be paid by june 30 , 2017. we paid $ 4.4 million in may 2017 to settle the outstanding contingent consideration obligation . as of december 31 , 2017 , we had $ 343.7 million in cash and cash equivalents , of which approximately 97.5 % , or $ 335.1 million , was held in international operations . most of these funds will not be subject to additional taxes if repatriated to the united states . there are circumstances where we may be unable to repatriate some of the cash and cash equivalents held by our international operations due to country restrictions . the 2017 tax reform act provides for a one-time transition tax based on our undistributed foreign earnings on which we previously had deferred u.s. income taxes . we recorded a $ 28.3 million provisional liability , which is net of $ 5.0 million of available tax credits , for our one-time transition tax , of which $ 3.8 million and $ 24.5 million were included in “income taxes payable” and “long-term income tax liabilities , ” respectively , in the accompanying consolidated balance sheet as of december 31 , 2017. this transition tax liability will be paid over the next eight years . no additional income taxes have been provided for any remaining outside basis difference inherent in these foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations . we expect our current cash levels and cash flows from operations to be adequate to meet our anticipated working capital needs , including investment activities such as capital expenditures and debt repayment for the next twelve months and the foreseeable future . however , from time to time , we may borrow funds under our 2015 credit agreement as a result of the timing of our working capital needs , including capital expenditures . our cash resources could also be affected by various risks and uncertainties , including but not limited to , the risks detailed in item 1a , risk factors . off-balance sheet arrangements and other at december 31 , 2017 , we did not have any material commercial commitments , including guarantees or standby repurchase obligations , or any relationships with unconsolidated entities or financial partnerships , including entities often referred to as structured finance or special purpose entities or variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . from time to time , during the normal course of business , we may make certain indemnities , commitments and guarantees under which we may be required to make payments in relation to certain transactions . these include , but are not limited to : (

liquidity and capital resources at december 31 , 2014 , we had $ 69.3 million in cash and cash equivalents and short-term investments , which included $ 2.0 million of restricted cash . we believe that our cash on hand , cash available under our new tranche term loan agreement with capital royalty partners and proceeds from the exercise of options and warrants will be sufficient to satisfy our liquidity requirements for at least the next 12 months . we expect that our sales performance and the resulting operating income or loss , as well as the status of each of our new product development programs , will significantly impact our cash management decisions . we have utilized , and may continue to utilize , debt arrangements with debt providers and financial institutions to finance our operations . factors such as interest rates , repayment terms and available cash will impact our decision to continue to utilize debt arrangements as a source of cash . in november 2013 , we completed an initial public offering of common stock that resulted in net proceeds of approximately $ 125 million . in the future , we may give consideration to additional public offerings of equity securities as a source of financing . in december 2014 , we filed a registration statement on form s-3 with the sec , which was declared effective on december 19 , 2014. under this shelf registration statement , we may from time to time offer and sell any combination of common stock , preferred stock , warrants or units in one or more offerings . historically , our sources of cash have included private placements and a public offering of equity securities , debt arrangements , and cash generated from operations .

interest ( expense ) includes interest on outstanding borrowings , commitment fees charged on the unused portion of 25 our revolving credit facility and contingent consideration , as more fully described in this item 7 , under “liquidity and capital resources.” other income ( expense ) , net includes gains and losses on derivative instruments not designated as hedges , foreign currency transaction gains and losses , gains and losses on the liquidation of foreign subsidiaries and other miscellaneous income ( expense ) . our effective tax rate for the periods presented includes the effects of state income taxes , net of federal tax benefit , uncertain tax positions , tax holidays , valuation allowance changes , foreign rate differentials , foreign withholding and other taxes , and permanent differences . recent developments u.s. 2017 tax reform act on december 20 , 2017 , the tax cuts and jobs act ( the “2017 tax reform act” ) was approved by congress and received presidential approval on december 22 , 2017. in general , the 2017 tax reform act reduces the u.s. corporate income tax rate from 35 % to 21 % , effective in 2018. the 2017 tax reform act moves from a worldwide business taxation approach to a participation exemption regime . the 2017 tax reform act also imposes base-erosion prevention measures on non-u.s. earnings of u.s. entities , as well as a one-time mandatory deemed repatriation tax on accumulated non-u.s. earnings . the 2017 tax reform act will have an impact on our consolidated financial results beginning with the fourth quarter of 2017 , the period of enactment . this impact , along with the transitional taxes discussed in note 20 , income taxes , of the accompanying “notes to consolidated financial statements” is reflected in the other segment . acquisitions on may 31 , 2017 , we completed the acquisition of certain assets of a global 2000 telecommunications service provider ( the “telecommunications asset acquisition” ) , to strengthen and create new partnerships and expand our geographic footprint in north america . the total purchase price of $ 7.5 million was funded through cash on hand . the results of operations of the telecommunications asset acquisition have been reflected in the accompanying consolidated statement of operations since may 31 , 2017. in april 2016 , we completed the acquisition of clear link holdings , llc ( “clearlink” ) , to expand our suite of service offerings while creating differentiation in the marketplace , broadening our addressable market opportunity and extending executive level reach within our existing clients ' organization . we refer to such acquisition herein as the “clearlink acquisition.” the total purchase price of $ 207.9 million was funded by borrowings under our existing credit facility . the results of operations of clearlink have been reflected in the accompanying consolidated statements of operations since april 1 , 2016. in july 2015 , we completed the acquisition of qelp b.v. and its subsidiary ( together , known as “qelp” ) , to further broaden and strengthen our service portfolio around digital self-service customer support and extend our reach into adjacent , but complementary , markets . we refer to such acquisition herein as the “qelp acquisition.” the total purchase price of $ 15.8 million was funded by $ 9.8 million in cash on hand and contingent consideration with a fair value of $ 6.0 million as of july 2 , 2015. the results of operations of qelp have been reflected in the accompanying consolidated statements of operations since july 2 , 2015 . 26 results of operations the following table sets forth , for the years indicated , the amounts reflected in the accompanying consolidated statements of operations as well as the changes between the respective years : replace_table_token_7_th the following table sets forth , for the years indicated , the amounts presented in the accompanying consolidated statements of operations as a percentage of revenues : replace_table_token_8_th 27 2017 compared to 2016 revenues replace_table_token_9_th consolidated revenues increased $ 126.0 million , or 8.6 % , in 2017 from 2016. the increase in americas ' revenues was primarily due to higher volumes from existing clients of $ 51.3 million , new client sales of $ 51.1 million and clearlink acquisition revenues of $ 43.1 million , partially offset by end-of-life client programs of $ 39.7 million and the negative foreign currency impact of $ 1.0 million . revenues from our offshore operations represented 40.7 % of americas ' revenues , compared to 41.2 % in 2016. the increase in emea 's revenues was primarily due to higher volumes from existing clients of $ 24.9 million and new client sales of $ 2.7 million , partially offset by end-of-life client programs of $ 3.5 million and the negative foreign currency impact of $ 2.9 million . on a consolidated basis , we had 52,600 brick-and-mortar seats as of december 31 , 2017 , an increase of 4,900 seats from 2016. included in this seat count are 2,900 seats associated with the telecommunications asset acquisition . this increase in seats , net of the telecommunications asset acquisition additions , reflects seat additions to support higher projected demand . the capacity utilization rate on a combined basis was 72 % in 2017 , compared to 75 % in 2016. this decrease was primarily due to capacity additions owing to higher projected demand and certain operational inefficiencies . on a geographic segment basis , 45,400 seats were located in the americas , an increase of 4,200 seats from 2016 , and 7,200 seats were located in emea , an increase of 700 seats from 2016. the capacity utilization rate for the americas in 2017 was 71 % , compared to 74 % in 2016 , down primarily due to the aforementioned factors . story_separator_special_tag we continue to address the challenges in the u.s. through various measures , including shifting some existing and new client demand to either better positioned facilities , to at-home agent or to other international geographies , coupled with rationalizing excess capacity as well as negotiating price increases where feasible . our first quarter 2018 outlook reflects the above actions and we expect operational improvements from these actions as the year progresses . our revenues and earnings per share assumptions for the first quarter and full year 2018 are based on foreign exchange rates as of february 2018. therefore , the continued volatility in foreign exchange rates between the u.s. dollar and the functional currencies of the markets we serve could have a further impact , positive or negative , on revenues and earnings per share relative to the business outlook for the first quarter and full-year as discussed above . we anticipate total other interest income ( expense ) , net of approximately $ ( 0.7 ) million for the first quarter and $ ( 3.2 ) million for the full year 2018. the reduction in interest expense in 2018 versus 2017 largely reflects the $ 175.0 million repayment of long-term debt outstanding under 2015 credit agreement in january 2018 , partially offset by expectations of planned interest rates increases on the remaining borrowings and increased fees related to the undrawn portion of the credit facility . the amounts in the other interest income ( expense ) , net , however , exclude the potential impact of any future foreign exchange gains or losses . we expect a reduction in our full-year 2018 effective tax rate compared to 2017 due largely to the 2017 tax reform act , which reduced u.s. corporate income tax rate to 21 % from 35 % . not included in this guidance is the impact of any future acquisitions , share repurchase activities or a potential sale of previously exited customer engagement centers . story_separator_special_tag remaining audits and their resolution is not expected to have a material impact on our financial condition and results of operations . on april 24 , 2017 , we entered into a definitive asset purchase agreement to purchase certain assets of a global 2000 telecommunications services provider . the aggregate purchase price of $ 7.5 million was paid on may 31 , 2017 , using cash on hand . as part of the april 2016 clearlink acquisition , we assumed contingent consideration liabilities related to four separate acquisitions made by clearlink in 2015 and 2016 , prior to the clearlink acquisition . the fair value of the contingent consideration related to these previous acquisitions was $ 2.8 million as of april 1 , 2016 and was based on achieving targets primarily tied to revenues for varying periods of time during 2016 and 2017. as of october 31 , 2017 , no contingent consideration liability remained . as part of the july 2015 qelp acquisition , we recorded contingent consideration of $ 6.0 million as part of the purchase price . on september 26 , 2016 , we entered into an addendum to the qelp purchase agreement with the sellers to settle the outstanding contingent consideration for eur 4.0 million to be paid by june 30 , 2017. we paid $ 4.4 million in may 2017 to settle the outstanding contingent consideration obligation . as of december 31 , 2017 , we had $ 343.7 million in cash and cash equivalents , of which approximately 97.5 % , or $ 335.1 million , was held in international operations . most of these funds will not be subject to additional taxes if repatriated to the united states . there are circumstances where we may be unable to repatriate some of the cash and cash equivalents held by our international operations due to country restrictions . the 2017 tax reform act provides for a one-time transition tax based on our undistributed foreign earnings on which we previously had deferred u.s. income taxes . we recorded a $ 28.3 million provisional liability , which is net of $ 5.0 million of available tax credits , for our one-time transition tax , of which $ 3.8 million and $ 24.5 million were included in “income taxes payable” and “long-term income tax liabilities , ” respectively , in the accompanying consolidated balance sheet as of december 31 , 2017. this transition tax liability will be paid over the next eight years . no additional income taxes have been provided for any remaining outside basis difference inherent in these foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations . we expect our current cash levels and cash flows from operations to be adequate to meet our anticipated working capital needs , including investment activities such as capital expenditures and debt repayment for the next twelve months and the foreseeable future . however , from time to time , we may borrow funds under our 2015 credit agreement as a result of the timing of our working capital needs , including capital expenditures . our cash resources could also be affected by various risks and uncertainties , including but not limited to , the risks detailed in item 1a , risk factors . off-balance sheet arrangements and other at december 31 , 2017 , we did not have any material commercial commitments , including guarantees or standby repurchase obligations , or any relationships with unconsolidated entities or financial partnerships , including entities often referred to as structured finance or special purpose entities or variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . from time to time , during the normal course of business , we may make certain indemnities , commitments and guarantees under which we may be required to make payments in relation to certain transactions . these include , but are not limited to : (

liquidity and capital resources our primary sources of liquidity are generally cash flows generated by operating activities and from available borrowings under our revolving credit facility . we utilize these capital resources to make capital expenditures associated primarily with our customer engagement services , invest in technology applications and tools to further develop our service offerings and for working capital and other general corporate purposes , including the repurchase of our common stock in the open market and to fund acquisitions . in future periods , we intend similar uses of these funds . on august 18 , 2011 , the board authorized us to purchase up to 5.0 million shares of our outstanding common stock ( the “2011 share repurchase program” ) . on march 16 , 2016 , the board authorized an increase of 5.0 million shares to the 2011 share repurchase program , for a total of 10.0 million . a total of 5.3 million shares have been repurchased under the 2011 share repurchase program since inception . the shares are purchased , from time to time , through open market purchases or in negotiated private transactions , and the purchases are based on factors , including but not limited to , the stock price , management discretion and general market conditions . the 2011 share repurchase program has no expiration date . during 2017 , cash increased $ 134.8 million from operating activities , $ 8.0 million from proceeds from issuance of long-term debt and $ 0.2 million of proceeds from grants , which was partially offset by $ 63.3 million used for capital expenditures , $ 9.1 million of cash paid for acquisitions , a $ 5.8 million payment of contingent consideration , a $ 5.1 million settlement of the net investment hedge , a $ 5.0 million investment in equity method investees , a $ 4.8 million purchase of intangible assets and $ 3.9 million to repurchase common stock for minimum tax withholding on equity awards , resulting in a $ 77.1 million increase in available cash ( including the favorable effects of foreign currency exchange rates on cash and cash equivalents of $ 31.1 million ) .

we continue to develop initiatives to build strong relationships with consumers , dental , veterinary and skin health professionals and traditional and ecommerce retailers . in addition , we continue to invest behind our brands , not just in terms of advertising , but also to build key growth capabilities in areas such as innovation and data and analytics . we also continue to broaden our ecommerce offerings , including direct-to-consumer and subscription services . we continue to believe that growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the company 's products . we are also working to integrate our sustainability strategy across our organization . we are also changing the way we work to drive growth and how we approach innovation to respond to the dynamic retail landscape and the evolving preferences of our customers and consumers . the retail landscape , the ease of new entrants into the market in many of our categories and the evolving preferences of our customers and consumers demand that we work differently and faster in an agile , authentic and culturally relevant manner to drive innovation . 20 ( dollars in millions except per share amounts ) the investments needed to support growth are developed through continuous , company-wide initiatives to lower costs and increase effective asset utilization . through these initiatives , which are referred to as our funding-the-growth initiatives , we seek to become even more effective and efficient throughout our businesses . these initiatives are designed to reduce costs associated with direct materials , indirect expenses , distribution and logistics , and advertising and promotional materials , among other things , and encompass a wide range of projects , examples of which include raw material substitution , reduction of packaging materials , consolidating suppliers to leverage volumes and increasing manufacturing efficiency through sku reductions and formulation simplification . we also continue to prioritize our investments in high growth segments within our oral care , personal care and pet nutrition businesses , including by expanding our portfolio in premium skin health . 21 ( dollars in millions except per share amounts ) significant items impacting comparability on september 19 , 2019 , the company acquired laboratoires filorga cosmétiques s.a. ( “ filorga ” ) , a skin health business , for cash consideration of 1,548 ( approximately $ 1,712 ) . filorga is a premium anti-aging skin health brand focused primarily on facial care . the acquisition was financed with a combination of debt and cash . this acquisition is part of our strategy to focus on high growth segments within our oral care , personal care and pet nutrition businesses , including by expanding our portfolio in premium skin health . see note 3 , acquisitions to the consolidated financial statements for additional information . in december 2019 , the swiss government enacted changes to its corporate tax regime , which included , among other items , the repeal of certain preferential tax regimes and an increase to the cantonal tax rate for future periods . additionally , the government provided transition rules which allowed companies to record goodwill for tax purposes , partially offsetting the impact on cash taxes of the higher cantonal rate over the next ten years . as a result of these changes , the company recorded an estimated net benefit of $ 29 to the provision for income taxes . in 2019 , the company received a favorable judgment regarding certain value-added tax previously paid in brazil . as a result of the favorable judgment , during the fourth quarter of 2019 , the company filed an application with the brazilian government to recover value-added tax previously paid and recorded a benefit of $ 30 pretax ( $ 20 aftertax ) . the recovery will be utilized to offset corporate income tax payments in brazil in future periods . in january 2018 , the company acquired all of the outstanding equity interests of physicians care alliance , llc and elta md holdings , inc. , professional skin health businesses , for aggregate cash consideration of approximately $ 730. see note 3 , acquisitions to the consolidated financial statements for additional information . as a result of the enactment of the tax cuts and jobs act ( the “ tcja ” or “ u.s . tax reform ” ) , in the fourth quarter of 2017 , the company recorded a provisional charge of $ 275 based on its initial analysis of the tcja using information and estimates available as of february 15 , 2018 , the date on which the company filed its annual report on form 10-k for the year ended december 31 , 2017. during 2018 , the company finalized its assessment of the impact of the tcja and recognized an additional tax expense of $ 80 reflecting the impact of transition tax guidance issued by the u.s. treasury and the update of certain estimates and calculations based on information available through the end of 2018. our restructuring program , known as the “ global growth and efficiency program , ” concluded on december 31 , 2019 . the program 's initiatives were designed to help us ensure sustained solid worldwide growth in unit volume , organic sales , operating profit and earnings per share and to enhance our global leadership positions in our core businesses . substantially all initiatives under the program were implemented as of december 31 , 2019 . the initiatives under the global growth and efficiency program focused on the following areas : ▪ expanding commercial hubs ▪ extending shared business services and streamlining global functions ▪ optimizing global supply chain and facilities savings , substantially all of which have been realized , are projected to be in the range of $ 640 to $ 660 pretax ( $ 580 to $ 590 aftertax ) annually . story_separator_special_tag 30 ( dollars in millions except per share amounts ) net income attributable to colgate-palmolive company and earnings per share net income attributable to colgate-palmolive company was $ 2,367 , or $ 2.75 per share on a diluted basis , in 2019 compared to $ 2,400 , or $ 2.75 per share on a diluted basis , in 2018 . in 2019 and 2018 , net income attributable to colgate-palmolive company included aftertax charges related to the global growth and efficiency program . in 2019 , net income attributable to colgate-palmolive company also included aftertax acquisition-related costs , an aftertax benefit related to a value-added tax matter in brazil and a tax benefit related to swiss income tax reform . in 2018 , net income attributable to colgate-palmolive company also included a benefit from a foreign tax matter and a charge related to u.s. tax reform . see `` income taxes `` above for additional information . excluding the items described above in both periods , as applicable , net income attributable to colgate-palmolive company decreased 6 % to $ 2,440 in 2019 and diluted earnings per share decreased 5 % to $ 2.83 , as compared to 2018 . replace_table_token_14_th replace_table_token_15_th _ ( 1 ) the income tax effect on non-gaap items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction ( s ) of the underlying non-gaap adjustment . ( 2 ) the impact of non-gaap adjustments on diluted earnings per share may not necessarily equal the difference between “ gaap ” and “ non-gaap ” as a result of rounding . 31 ( dollars in millions except per share amounts ) segment results the company markets its products in over 200 countries and territories throughout the world in two product segments : oral , personal and home care ; and pet nutrition . the company evaluates segment performance based on several factors , including operating profit . the company uses operating profit as a measure of the operating segment performance because it excludes the impact of corporate-driven decisions related to interest expense and income taxes . oral , personal and home care north america replace_table_token_16_th net sales in north america increased 2.0 % in 2019 to $ 3,424 , as volume growth of 2.0 % and net selling price increases of 0.5 % were partially offset by negative foreign exchange of 0.5 % . organic sales in north america increased 2.5 % in 2019 . the increase in organic sales in north america in 2019 versus 2018 was due to increases in oral care , personal care and home care organic sales . the increase in oral care was primarily due to organic sales growth in the toothpaste category , partially offset by declines in organic sales in the manual toothbrush and mouthwash categories . the increase in personal care was primarily due to organic sales growth in the skin health , body wash and bar soap categories , partially offset by a decline in organic sales in the liquid hand soap category . the increase in home care was primarily due to organic sales growth in the liquid cleaner and fabric softener categories , partially offset by a decline in organic sales in the hand dish category . operating profit in north america decreased 5 % in 2019 to $ 982 , or 230 bps to 28.7 % of net sales . this decrease in operating profit as a percentage of net sales was due to a decrease in gross profit ( 130 bps ) , an increase in selling , general and administrative expenses ( 70 bps ) and an increase in other ( income ) expense , net ( 30 bps ) , all as a percentage of net sales . this decrease in gross profit was primarily due to higher raw and packaging material costs ( 300 bps ) , partially offset by cost savings from the company 's funding-the-growth initiatives ( 210 bps ) . this increase in selling , general and administrative expenses was due to increased advertising investment ( 50 bps ) and higher overhead expenses ( 20 bps ) . this increase in other ( income ) expense , net was primarily due to the write-off of certain fixed assets . 32 ( dollars in millions except per share amounts ) latin america replace_table_token_17_th net sales in latin america were $ 3,606 in 2019 , even with 2018 , as volume growth of 3.0 % and net selling price increases of 4.0 % were offset by negative foreign exchange of 7.0 % . volume gains were led by mexico , brazil and central america . organic sales in latin america increased 7.0 % in 2019 . the increase in organic sales in latin america in 2019 versus 2018 was due to increases in oral care , personal care and home care organic sales . the increase in oral care was primarily due to organic sales growth in the toothpaste and manual toothbrush categories . the increase in personal care was primarily due to organic sales growth in the bar soap and shampoo categories . the increase in home care was primarily due to organic sales growth in the liquid cleaner , fabric softener and hand dish categories . operating profit in latin america decreased 3 % in 2019 to $ 963 , or 90 bps to 26.7 % of net sales . this decrease in operating profit as a percentage of net sales was primarily due to an increase in selling , general and administrative expenses ( 80 bps ) , partially offset by an increase in gross profit ( 10 bps ) , both as a percentage of net sales . this increase in gross profit was primarily due to cost savings from the company 's funding-the-growth initiatives ( 240 bps ) and higher pricing , which were partially offset by higher raw and packaging material costs ( 360 bps

liquidity and capital resources our primary sources of liquidity are generally cash flows generated by operating activities and from available borrowings under our revolving credit facility . we utilize these capital resources to make capital expenditures associated primarily with our customer engagement services , invest in technology applications and tools to further develop our service offerings and for working capital and other general corporate purposes , including the repurchase of our common stock in the open market and to fund acquisitions . in future periods , we intend similar uses of these funds . on august 18 , 2011 , the board authorized us to purchase up to 5.0 million shares of our outstanding common stock ( the “2011 share repurchase program” ) . on march 16 , 2016 , the board authorized an increase of 5.0 million shares to the 2011 share repurchase program , for a total of 10.0 million . a total of 5.3 million shares have been repurchased under the 2011 share repurchase program since inception . the shares are purchased , from time to time , through open market purchases or in negotiated private transactions , and the purchases are based on factors , including but not limited to , the stock price , management discretion and general market conditions . the 2011 share repurchase program has no expiration date . during 2017 , cash increased $ 134.8 million from operating activities , $ 8.0 million from proceeds from issuance of long-term debt and $ 0.2 million of proceeds from grants , which was partially offset by $ 63.3 million used for capital expenditures , $ 9.1 million of cash paid for acquisitions , a $ 5.8 million payment of contingent consideration , a $ 5.1 million settlement of the net investment hedge , a $ 5.0 million investment in equity method investees , a $ 4.8 million purchase of intangible assets and $ 3.9 million to repurchase common stock for minimum tax withholding on equity awards , resulting in a $ 77.1 million increase in available cash ( including the favorable effects of foreign currency exchange rates on cash and cash equivalents of $ 31.1 million ) .

we continue to develop initiatives to build strong relationships with consumers , dental , veterinary and skin health professionals and traditional and ecommerce retailers . in addition , we continue to invest behind our brands , not just in terms of advertising , but also to build key growth capabilities in areas such as innovation and data and analytics . we also continue to broaden our ecommerce offerings , including direct-to-consumer and subscription services . we continue to believe that growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the company 's products . we are also working to integrate our sustainability strategy across our organization . we are also changing the way we work to drive growth and how we approach innovation to respond to the dynamic retail landscape and the evolving preferences of our customers and consumers . the retail landscape , the ease of new entrants into the market in many of our categories and the evolving preferences of our customers and consumers demand that we work differently and faster in an agile , authentic and culturally relevant manner to drive innovation . 20 ( dollars in millions except per share amounts ) the investments needed to support growth are developed through continuous , company-wide initiatives to lower costs and increase effective asset utilization . through these initiatives , which are referred to as our funding-the-growth initiatives , we seek to become even more effective and efficient throughout our businesses . these initiatives are designed to reduce costs associated with direct materials , indirect expenses , distribution and logistics , and advertising and promotional materials , among other things , and encompass a wide range of projects , examples of which include raw material substitution , reduction of packaging materials , consolidating suppliers to leverage volumes and increasing manufacturing efficiency through sku reductions and formulation simplification . we also continue to prioritize our investments in high growth segments within our oral care , personal care and pet nutrition businesses , including by expanding our portfolio in premium skin health . 21 ( dollars in millions except per share amounts ) significant items impacting comparability on september 19 , 2019 , the company acquired laboratoires filorga cosmétiques s.a. ( “ filorga ” ) , a skin health business , for cash consideration of 1,548 ( approximately $ 1,712 ) . filorga is a premium anti-aging skin health brand focused primarily on facial care . the acquisition was financed with a combination of debt and cash . this acquisition is part of our strategy to focus on high growth segments within our oral care , personal care and pet nutrition businesses , including by expanding our portfolio in premium skin health . see note 3 , acquisitions to the consolidated financial statements for additional information . in december 2019 , the swiss government enacted changes to its corporate tax regime , which included , among other items , the repeal of certain preferential tax regimes and an increase to the cantonal tax rate for future periods . additionally , the government provided transition rules which allowed companies to record goodwill for tax purposes , partially offsetting the impact on cash taxes of the higher cantonal rate over the next ten years . as a result of these changes , the company recorded an estimated net benefit of $ 29 to the provision for income taxes . in 2019 , the company received a favorable judgment regarding certain value-added tax previously paid in brazil . as a result of the favorable judgment , during the fourth quarter of 2019 , the company filed an application with the brazilian government to recover value-added tax previously paid and recorded a benefit of $ 30 pretax ( $ 20 aftertax ) . the recovery will be utilized to offset corporate income tax payments in brazil in future periods . in january 2018 , the company acquired all of the outstanding equity interests of physicians care alliance , llc and elta md holdings , inc. , professional skin health businesses , for aggregate cash consideration of approximately $ 730. see note 3 , acquisitions to the consolidated financial statements for additional information . as a result of the enactment of the tax cuts and jobs act ( the “ tcja ” or “ u.s . tax reform ” ) , in the fourth quarter of 2017 , the company recorded a provisional charge of $ 275 based on its initial analysis of the tcja using information and estimates available as of february 15 , 2018 , the date on which the company filed its annual report on form 10-k for the year ended december 31 , 2017. during 2018 , the company finalized its assessment of the impact of the tcja and recognized an additional tax expense of $ 80 reflecting the impact of transition tax guidance issued by the u.s. treasury and the update of certain estimates and calculations based on information available through the end of 2018. our restructuring program , known as the “ global growth and efficiency program , ” concluded on december 31 , 2019 . the program 's initiatives were designed to help us ensure sustained solid worldwide growth in unit volume , organic sales , operating profit and earnings per share and to enhance our global leadership positions in our core businesses . substantially all initiatives under the program were implemented as of december 31 , 2019 . the initiatives under the global growth and efficiency program focused on the following areas : ▪ expanding commercial hubs ▪ extending shared business services and streamlining global functions ▪ optimizing global supply chain and facilities savings , substantially all of which have been realized , are projected to be in the range of $ 640 to $ 660 pretax ( $ 580 to $ 590 aftertax ) annually . story_separator_special_tag 30 ( dollars in millions except per share amounts ) net income attributable to colgate-palmolive company and earnings per share net income attributable to colgate-palmolive company was $ 2,367 , or $ 2.75 per share on a diluted basis , in 2019 compared to $ 2,400 , or $ 2.75 per share on a diluted basis , in 2018 . in 2019 and 2018 , net income attributable to colgate-palmolive company included aftertax charges related to the global growth and efficiency program . in 2019 , net income attributable to colgate-palmolive company also included aftertax acquisition-related costs , an aftertax benefit related to a value-added tax matter in brazil and a tax benefit related to swiss income tax reform . in 2018 , net income attributable to colgate-palmolive company also included a benefit from a foreign tax matter and a charge related to u.s. tax reform . see `` income taxes `` above for additional information . excluding the items described above in both periods , as applicable , net income attributable to colgate-palmolive company decreased 6 % to $ 2,440 in 2019 and diluted earnings per share decreased 5 % to $ 2.83 , as compared to 2018 . replace_table_token_14_th replace_table_token_15_th _ ( 1 ) the income tax effect on non-gaap items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction ( s ) of the underlying non-gaap adjustment . ( 2 ) the impact of non-gaap adjustments on diluted earnings per share may not necessarily equal the difference between “ gaap ” and “ non-gaap ” as a result of rounding . 31 ( dollars in millions except per share amounts ) segment results the company markets its products in over 200 countries and territories throughout the world in two product segments : oral , personal and home care ; and pet nutrition . the company evaluates segment performance based on several factors , including operating profit . the company uses operating profit as a measure of the operating segment performance because it excludes the impact of corporate-driven decisions related to interest expense and income taxes . oral , personal and home care north america replace_table_token_16_th net sales in north america increased 2.0 % in 2019 to $ 3,424 , as volume growth of 2.0 % and net selling price increases of 0.5 % were partially offset by negative foreign exchange of 0.5 % . organic sales in north america increased 2.5 % in 2019 . the increase in organic sales in north america in 2019 versus 2018 was due to increases in oral care , personal care and home care organic sales . the increase in oral care was primarily due to organic sales growth in the toothpaste category , partially offset by declines in organic sales in the manual toothbrush and mouthwash categories . the increase in personal care was primarily due to organic sales growth in the skin health , body wash and bar soap categories , partially offset by a decline in organic sales in the liquid hand soap category . the increase in home care was primarily due to organic sales growth in the liquid cleaner and fabric softener categories , partially offset by a decline in organic sales in the hand dish category . operating profit in north america decreased 5 % in 2019 to $ 982 , or 230 bps to 28.7 % of net sales . this decrease in operating profit as a percentage of net sales was due to a decrease in gross profit ( 130 bps ) , an increase in selling , general and administrative expenses ( 70 bps ) and an increase in other ( income ) expense , net ( 30 bps ) , all as a percentage of net sales . this decrease in gross profit was primarily due to higher raw and packaging material costs ( 300 bps ) , partially offset by cost savings from the company 's funding-the-growth initiatives ( 210 bps ) . this increase in selling , general and administrative expenses was due to increased advertising investment ( 50 bps ) and higher overhead expenses ( 20 bps ) . this increase in other ( income ) expense , net was primarily due to the write-off of certain fixed assets . 32 ( dollars in millions except per share amounts ) latin america replace_table_token_17_th net sales in latin america were $ 3,606 in 2019 , even with 2018 , as volume growth of 3.0 % and net selling price increases of 4.0 % were offset by negative foreign exchange of 7.0 % . volume gains were led by mexico , brazil and central america . organic sales in latin america increased 7.0 % in 2019 . the increase in organic sales in latin america in 2019 versus 2018 was due to increases in oral care , personal care and home care organic sales . the increase in oral care was primarily due to organic sales growth in the toothpaste and manual toothbrush categories . the increase in personal care was primarily due to organic sales growth in the bar soap and shampoo categories . the increase in home care was primarily due to organic sales growth in the liquid cleaner , fabric softener and hand dish categories . operating profit in latin america decreased 3 % in 2019 to $ 963 , or 90 bps to 26.7 % of net sales . this decrease in operating profit as a percentage of net sales was primarily due to an increase in selling , general and administrative expenses ( 80 bps ) , partially offset by an increase in gross profit ( 10 bps ) , both as a percentage of net sales . this increase in gross profit was primarily due to cost savings from the company 's funding-the-growth initiatives ( 240 bps ) and higher pricing , which were partially offset by higher raw and packaging material costs ( 360 bps

liquidity and capital resources the company expects cash flow from operations and debt issuances will be sufficient to meet foreseeable business operating and recurring cash needs ( including for debt service , dividends , capital expenditures , stock repurchases and acquisitions ) . the company believes its strong cash generation and financial position should continue to allow it broad access to global credit and capital markets . cash flow net cash provided by operations increased to $ 3,133 in 2019 as compared to $ 3,056 in 2018 , primarily due to improved working capital and lower income tax payments , which were partially offset by higher voluntary contributions to the company 's pension plans and lower net income . the company 's working capital as a percentage of net sales was ( 1.6 ) % in 2019 and ( 1.7 ) % in 2018 . this change in working capital as a percentage of net sales is primarily due to lower accrued income taxes , partially offset by the impact of the company 's adoption of the new lease accounting standard effective january 1 , 2019. see note 15 , leases to the consolidated financial statements for additional information . the company defines working capital as the difference between current assets ( excluding cash and cash equivalents and marketable securities , the latter of which is reported in other current assets ) and current liabilities ( excluding short-term debt ) . in the fourth quarter of 2012 , the company commenced the global growth and efficiency program . the program was expanded in 2014 , expanded and extended in each of 2015 and 2017 , and expanded again on october 31 , 2019 to take advantage of additional savings opportunities near the end of the program . the program concluded on december 31 , 2019 . substantially all initiatives under the program were implemented as of december 31 , 2019 . total program charges resulting from the global growth and efficiency program were $ 1,854 pretax ( $ 1,380 aftertax ) , in line with the previously disclosed range . approximately 80 % of total program charges resulting from the global growth and efficiency program resulted in cash expenditures .

included in consolidated net realized investments gains and other for the year ended december 31 , 2014 was a $ 2.0 million gain resulting from the extinguishment of one of our junior subordinated debentures and a $ 4.0 million in realized losses resulting from the write-down of an asset held for sale . included in consolidated net realized investment and other gains for the years ended december 31 , 2014 , 2013 and 2012 were write-downs of approximately $ 2.3 million , $ 7.8 million and $ 3.7 million , respectively , from the recognition of other-than-temporary impairments on certain investment securities . consolidated losses and loss adjustment expenses were $ 747.4 million , $ 742.0 million and $ 747.6 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . included in losses and loss adjustment expenses during 2014 were $ 25.6 million in large losses for the current accident year along with $ 18.7 million in catastrophe losses resulting from storm activity in the u.s. , various hailstorms , typhoon rammasum and hurricane odile . partially offsetting these current accident year losses was $ 37.7 million of net favorable development on prior year accident loss reserves , primarily attributable to favorable development in our general liability line and our syndicate 1200 liability and property lines , partially offset by unfavorable development in the commercial multi-peril and commercial automobile lines . included in losses and loss adjustment expenses during 2013 were $ 16.8 million in current accident year large losses in our excess and surplus lines , commercial specialty and international specialty segments . there was also $ 24.6 million in catastrophe losses 44 primarily attributable to storm activity in the u.s. and germany and flooding in europe and canada . offsetting these 2013 accident year losses was $ 33.6 million in net favorable loss reserve development on prior accident years , primarily within our general liability lines of business . included in losses and loss adjustment expenses for the year ended december 31 , 2012 was $ 75.2 million in catastrophe losses from storm activity in the united states , including superstorm sandy and hurricane isaac . partially offsetting these catastrophe losses was $ 32.9 million in net favorable loss reserve development on prior accident years . the net favorable development was primarily attributable to our general liability , workers compensation and syndicate 1200 segment property lines , partially offset by unfavorable development in our commercial multi-peril lines . the following table summarizes the above referenced loss reserve development as respects to prior year loss reserves by line of business for the year ended december 31 , 2014 : replace_table_token_8_th in determining appropriate reserve levels for the year ended december 31 , 2014 , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates . consolidated gross reserves for loss and loss adjustment expenses were $ 3,042.4 million ( including $ 80.3 million of reserves attributable to argoglobal syndicate 1200 's trade capital providers ) , $ 3,230.3 million ( including $ 128.6 million of reserves attributable to the trade capital providers ) and $ 3,223.5 million ( including $ 161.6 million of reserves attributable to the trade capital providers ) as of december 31 , 2014 , 2013 and 2012 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . in 2011 , we entered into two reinsurance transactions with a special purpose reinsurance company which provided coverage through the issuance of two catastrophe bond transactions . the reinsurance transactions provided coverage for selected events . the initial catastrophe bond cover expired on december 31 , 2012. the second catastrophe bond cover expired on december 31 , 2013. in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) , we accounted for these covers as derivatives , and as such , presented the financial statement impact in “ other reinsurance-related expenses ” in our consolidated statements of income . other reinsurance-related expenses totaled $ 19.2 million and $ 27.3 million for the years ended december 31 , 2013 and 2012 , respectively . as the last of these contracts expired in december 2013 , there was no expense recognized in 2014. as management viewed these coverages as reinsurance protection , we treated the financial statement effects of these covers as ceded premium for the purposes of calculating our loss , expense and combined ratios . consolidated underwriting , acquisition and insurance expenses were $ 539.2 million , $ 510.8 million and $ 464.5 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . story_separator_special_tag the fee income , net for the year ended december 31 , 2014 was primarily due to the reduced 50 syndicate participation maintained by argo group , which resulted in increased commissions for managing the business for the trade capital providers . the fee expense , net for the year ended december 31 , 2013 was primarily due to the allocation of certain compensation expense not borne by the syndicate . run-off lines the following table summarizes the results of operations for the run-off lines segment : replace_table_token_13_th earned premiums for the years ended december 31 , 2014 , 2013 and 2012 were primarily attributable to adjustments resulting from final audits , reinstatement premiums and other adjustments on policies previously underwritten . through our subsidiary argonaut insurance company , we are exposed to asbestos liability at the primary level through claims filed against our direct insureds , as well as through its position as a reinsurer of other primary carriers . argonaut insurance company has direct liability arising primarily from policies issued from the 1960s to the early 1980s , which pre-dated policy contract wording that excluded asbestos exposure . the majority of the direct policies were issued on behalf of small contractors or construction companies . we believe that the frequency and severity of asbestos claims for such insureds is typically less than that experienced for large , industrial manufacturing and distribution concerns . argonaut insurance company also assumed risk as a reinsurer , primarily for the period from 1970 to 1975 , a portion of which was assumed from the london market . argonaut insurance company also reinsured risks on policies written by domestic carriers . such reinsurance typically provided coverage for limits attaching at a relatively high level , which are payable only after other layers of reinsurance are exhausted . some of the claims now being filed on policies reinsured by argonaut insurance company are on behalf of claimants who may have been exposed at some time to asbestos incorporated into buildings they occupied , but have no apparent medical problems resulting from such exposure . additionally , lawsuits are being brought against businesses that were not directly involved in the manufacture or installation of materials containing asbestos . we believe that a significant portion of claims generated out of this population of claimants may result in incurred losses generally lower than the asbestos claims filed over the past decade and could be below the attachment level of argonaut insurance company . losses and loss adjustment expenses for the year ended december 31 , 2014 included $ 24.4 million of net unfavorable loss reserve development on prior accident years primarily driven by $ 13.5 million from our asbestos and environmental exposure and $ 10.3 million in our run-off workers compensation lines . the unfavorable development from our asbestos and environmental exposures was driven by our primary exposures and our domestic assumed programs . the unfavorable development for our workers compensation lines was the result of increasing medical costs on older claims . losses and loss adjustment expenses for the year ended december 31 , 2013 included $ 10.5 million of unfavorable loss reserve development in general liability lines resulting from asbestos exposure . the unfavorable development was driven by increasing defense costs in the primary book of business , higher than expected loss activity in the assumed book of business and commutations and settlements in 2013. other run-off lines recorded $ 4.4 million in unfavorable development , including $ 2.0 million in unfavorable development in medical malpractice liability due to the loss of the new york liquidation bureau funding for structured annuity payments . losses and loss adjustment expenses for the year ended december 31 , 2012 included $ 9.8 million in net unfavorable loss reserve development on prior accident years primarily attributable to $ 9.1 million of unfavorable development in general liability lines resulting from asbestos exposure . the unfavorable development was driven by increasing defense costs in the primary book of business and increasing settlement costs in the assumed book of business . underwriting , acquisition and insurance expenses for the run-off lines segment consists primarily of administrative expenses . underwriting expense for the year ended december 31 , 2014 was favorably impacted by a $ 1.1 million recovery of a 51 policyholder dividend in the run-off risk management lines , offset by $ 1.8 million in higher fee and bad debt expenses . underwriting expense for the year ended december 31 , 2013 was reduced by $ 2.3 million received due to the settlement of a disputed assessment . underwriting expense for the year ended december 31 , 2012 were reduced $ 2.6 million due to a reduction in insurance assessments . absent these items , underwriting expenses were comparable for the years presented . the following table represents a reconciliation of total gross and net reserves for the run-off lines . amounts in the net column are reduced by reinsurance recoverables . replace_table_token_14_th the following table represents the components of gross loss reserves for the run-off lines : replace_table_token_15_th we perform an extensive actuarial analysis of the asbestos and environmental reserves on at least an annual basis . we continually monitor the status of the claims and may make adjustments outside the annual review period . the review entails a detailed analysis of our direct and assumed exposure . we consider the indications from the various actuarial methods from the review to determine our best estimate of the asbestos and environmental losses and loss adjustment expense reserves . we primarily relied on a method that projects future reported claims and severities , with some weight given to other methods . this method relies most heavily on our historical claims and severity information , whereas other methods rely more heavily on industry information . the method produces an 52 estimate of ibnr losses based on projections of future claims and the average severity for those future claims . the severities were calculated based

liquidity and capital resources the company expects cash flow from operations and debt issuances will be sufficient to meet foreseeable business operating and recurring cash needs ( including for debt service , dividends , capital expenditures , stock repurchases and acquisitions ) . the company believes its strong cash generation and financial position should continue to allow it broad access to global credit and capital markets . cash flow net cash provided by operations increased to $ 3,133 in 2019 as compared to $ 3,056 in 2018 , primarily due to improved working capital and lower income tax payments , which were partially offset by higher voluntary contributions to the company 's pension plans and lower net income . the company 's working capital as a percentage of net sales was ( 1.6 ) % in 2019 and ( 1.7 ) % in 2018 . this change in working capital as a percentage of net sales is primarily due to lower accrued income taxes , partially offset by the impact of the company 's adoption of the new lease accounting standard effective january 1 , 2019. see note 15 , leases to the consolidated financial statements for additional information . the company defines working capital as the difference between current assets ( excluding cash and cash equivalents and marketable securities , the latter of which is reported in other current assets ) and current liabilities ( excluding short-term debt ) . in the fourth quarter of 2012 , the company commenced the global growth and efficiency program . the program was expanded in 2014 , expanded and extended in each of 2015 and 2017 , and expanded again on october 31 , 2019 to take advantage of additional savings opportunities near the end of the program . the program concluded on december 31 , 2019 . substantially all initiatives under the program were implemented as of december 31 , 2019 . total program charges resulting from the global growth and efficiency program were $ 1,854 pretax ( $ 1,380 aftertax ) , in line with the previously disclosed range . approximately 80 % of total program charges resulting from the global growth and efficiency program resulted in cash expenditures .

included in consolidated net realized investments gains and other for the year ended december 31 , 2014 was a $ 2.0 million gain resulting from the extinguishment of one of our junior subordinated debentures and a $ 4.0 million in realized losses resulting from the write-down of an asset held for sale . included in consolidated net realized investment and other gains for the years ended december 31 , 2014 , 2013 and 2012 were write-downs of approximately $ 2.3 million , $ 7.8 million and $ 3.7 million , respectively , from the recognition of other-than-temporary impairments on certain investment securities . consolidated losses and loss adjustment expenses were $ 747.4 million , $ 742.0 million and $ 747.6 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . included in losses and loss adjustment expenses during 2014 were $ 25.6 million in large losses for the current accident year along with $ 18.7 million in catastrophe losses resulting from storm activity in the u.s. , various hailstorms , typhoon rammasum and hurricane odile . partially offsetting these current accident year losses was $ 37.7 million of net favorable development on prior year accident loss reserves , primarily attributable to favorable development in our general liability line and our syndicate 1200 liability and property lines , partially offset by unfavorable development in the commercial multi-peril and commercial automobile lines . included in losses and loss adjustment expenses during 2013 were $ 16.8 million in current accident year large losses in our excess and surplus lines , commercial specialty and international specialty segments . there was also $ 24.6 million in catastrophe losses 44 primarily attributable to storm activity in the u.s. and germany and flooding in europe and canada . offsetting these 2013 accident year losses was $ 33.6 million in net favorable loss reserve development on prior accident years , primarily within our general liability lines of business . included in losses and loss adjustment expenses for the year ended december 31 , 2012 was $ 75.2 million in catastrophe losses from storm activity in the united states , including superstorm sandy and hurricane isaac . partially offsetting these catastrophe losses was $ 32.9 million in net favorable loss reserve development on prior accident years . the net favorable development was primarily attributable to our general liability , workers compensation and syndicate 1200 segment property lines , partially offset by unfavorable development in our commercial multi-peril lines . the following table summarizes the above referenced loss reserve development as respects to prior year loss reserves by line of business for the year ended december 31 , 2014 : replace_table_token_8_th in determining appropriate reserve levels for the year ended december 31 , 2014 , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates . consolidated gross reserves for loss and loss adjustment expenses were $ 3,042.4 million ( including $ 80.3 million of reserves attributable to argoglobal syndicate 1200 's trade capital providers ) , $ 3,230.3 million ( including $ 128.6 million of reserves attributable to the trade capital providers ) and $ 3,223.5 million ( including $ 161.6 million of reserves attributable to the trade capital providers ) as of december 31 , 2014 , 2013 and 2012 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . in 2011 , we entered into two reinsurance transactions with a special purpose reinsurance company which provided coverage through the issuance of two catastrophe bond transactions . the reinsurance transactions provided coverage for selected events . the initial catastrophe bond cover expired on december 31 , 2012. the second catastrophe bond cover expired on december 31 , 2013. in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) , we accounted for these covers as derivatives , and as such , presented the financial statement impact in “ other reinsurance-related expenses ” in our consolidated statements of income . other reinsurance-related expenses totaled $ 19.2 million and $ 27.3 million for the years ended december 31 , 2013 and 2012 , respectively . as the last of these contracts expired in december 2013 , there was no expense recognized in 2014. as management viewed these coverages as reinsurance protection , we treated the financial statement effects of these covers as ceded premium for the purposes of calculating our loss , expense and combined ratios . consolidated underwriting , acquisition and insurance expenses were $ 539.2 million , $ 510.8 million and $ 464.5 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . story_separator_special_tag the fee income , net for the year ended december 31 , 2014 was primarily due to the reduced 50 syndicate participation maintained by argo group , which resulted in increased commissions for managing the business for the trade capital providers . the fee expense , net for the year ended december 31 , 2013 was primarily due to the allocation of certain compensation expense not borne by the syndicate . run-off lines the following table summarizes the results of operations for the run-off lines segment : replace_table_token_13_th earned premiums for the years ended december 31 , 2014 , 2013 and 2012 were primarily attributable to adjustments resulting from final audits , reinstatement premiums and other adjustments on policies previously underwritten . through our subsidiary argonaut insurance company , we are exposed to asbestos liability at the primary level through claims filed against our direct insureds , as well as through its position as a reinsurer of other primary carriers . argonaut insurance company has direct liability arising primarily from policies issued from the 1960s to the early 1980s , which pre-dated policy contract wording that excluded asbestos exposure . the majority of the direct policies were issued on behalf of small contractors or construction companies . we believe that the frequency and severity of asbestos claims for such insureds is typically less than that experienced for large , industrial manufacturing and distribution concerns . argonaut insurance company also assumed risk as a reinsurer , primarily for the period from 1970 to 1975 , a portion of which was assumed from the london market . argonaut insurance company also reinsured risks on policies written by domestic carriers . such reinsurance typically provided coverage for limits attaching at a relatively high level , which are payable only after other layers of reinsurance are exhausted . some of the claims now being filed on policies reinsured by argonaut insurance company are on behalf of claimants who may have been exposed at some time to asbestos incorporated into buildings they occupied , but have no apparent medical problems resulting from such exposure . additionally , lawsuits are being brought against businesses that were not directly involved in the manufacture or installation of materials containing asbestos . we believe that a significant portion of claims generated out of this population of claimants may result in incurred losses generally lower than the asbestos claims filed over the past decade and could be below the attachment level of argonaut insurance company . losses and loss adjustment expenses for the year ended december 31 , 2014 included $ 24.4 million of net unfavorable loss reserve development on prior accident years primarily driven by $ 13.5 million from our asbestos and environmental exposure and $ 10.3 million in our run-off workers compensation lines . the unfavorable development from our asbestos and environmental exposures was driven by our primary exposures and our domestic assumed programs . the unfavorable development for our workers compensation lines was the result of increasing medical costs on older claims . losses and loss adjustment expenses for the year ended december 31 , 2013 included $ 10.5 million of unfavorable loss reserve development in general liability lines resulting from asbestos exposure . the unfavorable development was driven by increasing defense costs in the primary book of business , higher than expected loss activity in the assumed book of business and commutations and settlements in 2013. other run-off lines recorded $ 4.4 million in unfavorable development , including $ 2.0 million in unfavorable development in medical malpractice liability due to the loss of the new york liquidation bureau funding for structured annuity payments . losses and loss adjustment expenses for the year ended december 31 , 2012 included $ 9.8 million in net unfavorable loss reserve development on prior accident years primarily attributable to $ 9.1 million of unfavorable development in general liability lines resulting from asbestos exposure . the unfavorable development was driven by increasing defense costs in the primary book of business and increasing settlement costs in the assumed book of business . underwriting , acquisition and insurance expenses for the run-off lines segment consists primarily of administrative expenses . underwriting expense for the year ended december 31 , 2014 was favorably impacted by a $ 1.1 million recovery of a 51 policyholder dividend in the run-off risk management lines , offset by $ 1.8 million in higher fee and bad debt expenses . underwriting expense for the year ended december 31 , 2013 was reduced by $ 2.3 million received due to the settlement of a disputed assessment . underwriting expense for the year ended december 31 , 2012 were reduced $ 2.6 million due to a reduction in insurance assessments . absent these items , underwriting expenses were comparable for the years presented . the following table represents a reconciliation of total gross and net reserves for the run-off lines . amounts in the net column are reduced by reinsurance recoverables . replace_table_token_14_th the following table represents the components of gross loss reserves for the run-off lines : replace_table_token_15_th we perform an extensive actuarial analysis of the asbestos and environmental reserves on at least an annual basis . we continually monitor the status of the claims and may make adjustments outside the annual review period . the review entails a detailed analysis of our direct and assumed exposure . we consider the indications from the various actuarial methods from the review to determine our best estimate of the asbestos and environmental losses and loss adjustment expense reserves . we primarily relied on a method that projects future reported claims and severities , with some weight given to other methods . this method relies most heavily on our historical claims and severity information , whereas other methods rely more heavily on industry information . the method produces an 52 estimate of ibnr losses based on projections of future claims and the average severity for those future claims . the severities were calculated based

liquidity and capital resources the primary sources of our cash flows are premiums , reinsurance recoveries , proceeds from sales and redemptions of investments and investment income . the primary cash outflows are claim payments , loss adjustment expenses , reinsurance costs and operating expenses . the nature of insurance is that cash collected for premiums written is invested , interest and dividends are earned thereon and loss and settlement expenses are paid out over a period of years . this period of time varies by line of business and the circumstances surrounding each claim . a substantial portion of our losses and loss expenses are paid out after more than one year . additional cash outflows occur through payments of underwriting and acquisition costs such as commissions , taxes , payroll and general overhead expenses . management believes that cash receipts from premiums , proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future . should the need for additional cash arise , we believe we have access to additional sources of liquidity . cash provided ( used ) by operating activities can fluctuate due to timing difference in the collection of premiums and reinsurance recoveries and the payment of losses and expenses . for the years ended december 31 , 2014 and 2012 , cash provided by operating activities was $ 130.5 million and $ 30.5 million , respectively , while cash used by operating activities was $ 0.2 million for the year ended december 31 , 2013. for 2014 , cash provided by operating activities was primarily due to increased collections on our reinsurance recoverables on paid losses offset by the settlement of our reinsurance payable due to the closing of the syndicate 1200 segment 's remaining whole account quota share contract covering segment loss reserves for 2009 and prior years of account in addition to the closing of the 2011 year of account .

no significant integration costs are anticipated in the future , as such the majority of the acquisition and integration related costs have been paid as of december 31 , 2011. since the wag acquisition , certain residual wag operations have been separately accounted for during the integration process . these operations relate to certain wag product revenues , the related operating costs and integration costs . we have presented such residual wag operations for purposes of providing comparable financial information for the impacted fiscal years ended 2010 and 2011. we will not provide this information going forward into 2012 , since 2011 represented a full year with these residual wag operations and will thus be more comparable to 2012. we expect such revenues and expenses that directly relate to wag products will gradually decrease over fiscal 2012. for additional information , see “note 5 – business combination” of the notes to consolidated financial statements , included in part iv , item 15 of this report . we may pursue additional acquisition opportunities in the future to increase our share of the aftermarket auto parts market or expand our product offering . executive summary for the fiscal year 2011 , the company generated net sales of $ 327.1 million , compared with $ 262.3 million for fiscal 2010 , representing an increase of 25 % . excluding $ 83.4 million and $ 39.1 million of net sales from wag in fiscal 2011 and 2010 , respectively , our net sales for fiscal 2011 and 2010 were $ 243.7 million and $ 223.2 million , respectively , for an increase of 9 % over the prior year . net loss for fiscal 2011 was $ 15.1 million , or $ 0.50 per share , which included a non-cash write-down of intangibles and restructuring charges related to wag of $ 3.4 million ( net of a $ 1.7 million tax benefit ) and $ 7.4 million , respectively , and $ 0.5 million of legal expenses to protect intellectual property . this compares to a net loss of $ 13.9 million , or $ 0.46 per share for fiscal 2010 , which included $ 3.1 million of restructuring charges related to wag , and $ 2.3 million of legal expenses to protect intellectual property . earnings per share for fiscal 2011 and 2010 also included amortization expense related to intangibles of $ 3.7 million or $ 0.12 per share and $ 2.8 million or $ 0.09 per share , respectively . we generated adjusted ebitda ( earnings before interest , taxes , depreciation , and amortization plus current year 's share-based compensation expense , legal costs to enforce intellectual property rights , restructuring expenses related to acquisition and a fiscal 2010 only charge for change in revenue recognition ) of $ 16.3 million in fiscal 2011 compared to $ 19.5 million in fiscal 2010. adjusted ebitda excludes share-based compensation expense of $ 2.6 million in fiscal 2011 and $ 2.7 million in fiscal 2010. adjusted ebitda is presented because such measure is used by rating agencies , securities analysts , investors and other parties in evaluating the company . it should not be considered , however , as an alternative to operating income as an indicator of the company 's operating performance or as an alternative cash flows as measures of the company 's overall liquidity as presented in the company 's consolidated financial statements . further , the adjusted ebitda measure shown for the company may not be comparable to similarly titled measures used by other companies . to understand revenue generation through our network of e-commerce websites , we monitor several key business metrics , including the following : unique visitors : a unique visitor to a particular website represents a user with a distinct ip address that visits that particular website . we define the total number of unique visitors in a given month as the sum of unique visitors to each of our websites during that month . we measure unique visitors to understand the volume of traffic to our websites and to track the effectiveness of our online marketing efforts . the number of unique visitors has historically varied based on a number of factors , including our marketing activities and seasonality . we believe an increase in unique visitors to our websites will result in an increase in the number of orders . we seek to increase the number of unique visitors to our websites by attracting repeat customers and improving search engine marketing and other internet marketing activities . total number of orders : we monitor the total number of orders as an indicator of future revenue trends . we recognize revenue associated with an order when the products have been delivered , consistent with our revenue recognition policy . average order value : average order value represents our net sales on a placed orders basis for a given period of time divided by the total number of orders recorded during the same period of time . we seek to increase the average order value as a means of increasing net sales . average order values vary depending upon a number of factors , including the components of our product offering , the order volume in certain online sales channels , macro-economic conditions , and the general level of competition online . 23 the tables below reconcile net ( loss ) income to consolidated adjusted ebitda and u.s. auto parts ( “usap” ) excluding the wag acquisition for the periods presented ( in thousands ) : replace_table_token_4_th replace_table_token_5_th basis of presentation net sales . online and offline sales represent two different sales channels for our products . we generate online net sales primarily through the sale of auto parts to individual consumers through our network of e-commerce websites and online marketplaces , including online advertising . e-commerce sales are derived from our network of websites , which are company owned and operated . story_separator_special_tag under asc 740 , deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . when appropriate , a valuation reserve is established to reduce deferred tax assets , which include tax credits and loss carry forwards , to the amount that is more likely than not to be realized . the ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction . we consider the following possible sources of taxable income when assessing the realization of our deferred tax assets : future reversals of existing taxable temporary differences ; 27 future taxable income exclusive of reversing temporary differences and carryforwards ; taxable income in prior carryback years ; and tax-planning strategies . the assessment regarding whether a valuation allowance is required or should be adjusted also considers , among other matters , the nature , frequency and severity of recent losses of the combined usap and wag operations , forecasts of future profitability , the duration of statutory carryforward periods , our experience with tax attributes expiring unused and tax planning alternatives . in making such judgments , significant weight is given to evidence that can be objectively verified . concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable , such as cumulative losses in recent years . although we expect that the operations of the recently acquired wag business and our ability to achieve future profitability of these operations was enhanced by the cost reductions that occurred as a result of the acquisition and subsequent integration efforts , wag 's historic operating results remain relevant as they are reflective of the industry and the effect of economic conditions . the fundamental businesses and inherent risks in which the wag business operates did not change from those which existed prior to the acquisition . we utilized a three-year analysis of actual results as the primary measure of cumulative losses in recent years . however , because a substantial portion of those cumulative losses relate to impairment of intangible assets and goodwill , those three-year cumulative results are adjusted for the effect of these items . in addition , the near- and medium-term financial outlook is considered when assessing the need for a valuation allowance . the valuation of deferred tax assets requires judgment and assessment of the future tax consequences of events that have been recorded in the financial statements or in the tax returns , and our future profitability represents our best estimate of those future events . changes in our current estimates , due to unanticipated events or otherwise , could have a material effect on our financial condition and results of operations . prior to the acquisition of wag , the company concluded that it was more likely than not that we would realize the deferred tax assets in all jurisdictions . however , with the acquisition of wag in 2010 , based largely on the weight of the combined cumulative three-year adjusted loss position , it was determined that it was not more likely than not that the company would realize its net deferred tax assets as of january 1 , 2011. therefore , a valuation allowance of $ 18.3 million was recorded as of january 1 , 2011 , of which $ 4.7 million was recorded in relation to wag in connection with our acquisition in august 2010. based on the same determination , an additional valuation allowance of $ 5.7 million was recorded as of december 31 , 2011 , resulting in a valuation allowance balance of $ 22.8 million as of december 31 , 2011. if , in the future , we generate taxable income on a sustained basis in jurisdictions where we have recorded full valuation allowances , our conclusion regarding the need for full valuation allowances in these tax jurisdictions could change , resulting in the reversal of some or all of the valuation allowances . if our operations generate taxable income prior to reaching profitability on a sustained basis , we would reverse a portion of the valuation allowance related to the corresponding realized tax benefit for that period , without changing our conclusions on the need for a full valuation allowance against the remaining net deferred tax assets . at december 31 , 2011 , federal and state net operating loss ( “nol” ) carryforwards were $ 28.3 million and $ 42.2 million , respectively . federal nol carryforwards of $ 2.7 million were acquired in the acquisition of wag which are subject to internal revenue code section 382 and limited to an annual usage limitation of $ 135,000. additionally the tax benefit of $ 0.9 million of the federal and state nol carryforwards which was created by the exercise of stock options will be credited to additional paid-in-capital once recognized . federal nol carryforwards expire in 2029 and 2030 , while state nol carryforwards begin to expire in 2016. the state nol carryforwards expire in the respective tax years as follows ( in thousands ) : replace_table_token_6_th the company utilizes a two-step approach to recognizing and measuring uncertain tax positions . the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes . the second step is to measure the tax benefit as the largest amount which is more than 50 % likely of being realized

liquidity and capital resources the primary sources of our cash flows are premiums , reinsurance recoveries , proceeds from sales and redemptions of investments and investment income . the primary cash outflows are claim payments , loss adjustment expenses , reinsurance costs and operating expenses . the nature of insurance is that cash collected for premiums written is invested , interest and dividends are earned thereon and loss and settlement expenses are paid out over a period of years . this period of time varies by line of business and the circumstances surrounding each claim . a substantial portion of our losses and loss expenses are paid out after more than one year . additional cash outflows occur through payments of underwriting and acquisition costs such as commissions , taxes , payroll and general overhead expenses . management believes that cash receipts from premiums , proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future . should the need for additional cash arise , we believe we have access to additional sources of liquidity . cash provided ( used ) by operating activities can fluctuate due to timing difference in the collection of premiums and reinsurance recoveries and the payment of losses and expenses . for the years ended december 31 , 2014 and 2012 , cash provided by operating activities was $ 130.5 million and $ 30.5 million , respectively , while cash used by operating activities was $ 0.2 million for the year ended december 31 , 2013. for 2014 , cash provided by operating activities was primarily due to increased collections on our reinsurance recoverables on paid losses offset by the settlement of our reinsurance payable due to the closing of the syndicate 1200 segment 's remaining whole account quota share contract covering segment loss reserves for 2009 and prior years of account in addition to the closing of the 2011 year of account .

no significant integration costs are anticipated in the future , as such the majority of the acquisition and integration related costs have been paid as of december 31 , 2011. since the wag acquisition , certain residual wag operations have been separately accounted for during the integration process . these operations relate to certain wag product revenues , the related operating costs and integration costs . we have presented such residual wag operations for purposes of providing comparable financial information for the impacted fiscal years ended 2010 and 2011. we will not provide this information going forward into 2012 , since 2011 represented a full year with these residual wag operations and will thus be more comparable to 2012. we expect such revenues and expenses that directly relate to wag products will gradually decrease over fiscal 2012. for additional information , see “note 5 – business combination” of the notes to consolidated financial statements , included in part iv , item 15 of this report . we may pursue additional acquisition opportunities in the future to increase our share of the aftermarket auto parts market or expand our product offering . executive summary for the fiscal year 2011 , the company generated net sales of $ 327.1 million , compared with $ 262.3 million for fiscal 2010 , representing an increase of 25 % . excluding $ 83.4 million and $ 39.1 million of net sales from wag in fiscal 2011 and 2010 , respectively , our net sales for fiscal 2011 and 2010 were $ 243.7 million and $ 223.2 million , respectively , for an increase of 9 % over the prior year . net loss for fiscal 2011 was $ 15.1 million , or $ 0.50 per share , which included a non-cash write-down of intangibles and restructuring charges related to wag of $ 3.4 million ( net of a $ 1.7 million tax benefit ) and $ 7.4 million , respectively , and $ 0.5 million of legal expenses to protect intellectual property . this compares to a net loss of $ 13.9 million , or $ 0.46 per share for fiscal 2010 , which included $ 3.1 million of restructuring charges related to wag , and $ 2.3 million of legal expenses to protect intellectual property . earnings per share for fiscal 2011 and 2010 also included amortization expense related to intangibles of $ 3.7 million or $ 0.12 per share and $ 2.8 million or $ 0.09 per share , respectively . we generated adjusted ebitda ( earnings before interest , taxes , depreciation , and amortization plus current year 's share-based compensation expense , legal costs to enforce intellectual property rights , restructuring expenses related to acquisition and a fiscal 2010 only charge for change in revenue recognition ) of $ 16.3 million in fiscal 2011 compared to $ 19.5 million in fiscal 2010. adjusted ebitda excludes share-based compensation expense of $ 2.6 million in fiscal 2011 and $ 2.7 million in fiscal 2010. adjusted ebitda is presented because such measure is used by rating agencies , securities analysts , investors and other parties in evaluating the company . it should not be considered , however , as an alternative to operating income as an indicator of the company 's operating performance or as an alternative cash flows as measures of the company 's overall liquidity as presented in the company 's consolidated financial statements . further , the adjusted ebitda measure shown for the company may not be comparable to similarly titled measures used by other companies . to understand revenue generation through our network of e-commerce websites , we monitor several key business metrics , including the following : unique visitors : a unique visitor to a particular website represents a user with a distinct ip address that visits that particular website . we define the total number of unique visitors in a given month as the sum of unique visitors to each of our websites during that month . we measure unique visitors to understand the volume of traffic to our websites and to track the effectiveness of our online marketing efforts . the number of unique visitors has historically varied based on a number of factors , including our marketing activities and seasonality . we believe an increase in unique visitors to our websites will result in an increase in the number of orders . we seek to increase the number of unique visitors to our websites by attracting repeat customers and improving search engine marketing and other internet marketing activities . total number of orders : we monitor the total number of orders as an indicator of future revenue trends . we recognize revenue associated with an order when the products have been delivered , consistent with our revenue recognition policy . average order value : average order value represents our net sales on a placed orders basis for a given period of time divided by the total number of orders recorded during the same period of time . we seek to increase the average order value as a means of increasing net sales . average order values vary depending upon a number of factors , including the components of our product offering , the order volume in certain online sales channels , macro-economic conditions , and the general level of competition online . 23 the tables below reconcile net ( loss ) income to consolidated adjusted ebitda and u.s. auto parts ( “usap” ) excluding the wag acquisition for the periods presented ( in thousands ) : replace_table_token_4_th replace_table_token_5_th basis of presentation net sales . online and offline sales represent two different sales channels for our products . we generate online net sales primarily through the sale of auto parts to individual consumers through our network of e-commerce websites and online marketplaces , including online advertising . e-commerce sales are derived from our network of websites , which are company owned and operated . story_separator_special_tag under asc 740 , deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . when appropriate , a valuation reserve is established to reduce deferred tax assets , which include tax credits and loss carry forwards , to the amount that is more likely than not to be realized . the ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction . we consider the following possible sources of taxable income when assessing the realization of our deferred tax assets : future reversals of existing taxable temporary differences ; 27 future taxable income exclusive of reversing temporary differences and carryforwards ; taxable income in prior carryback years ; and tax-planning strategies . the assessment regarding whether a valuation allowance is required or should be adjusted also considers , among other matters , the nature , frequency and severity of recent losses of the combined usap and wag operations , forecasts of future profitability , the duration of statutory carryforward periods , our experience with tax attributes expiring unused and tax planning alternatives . in making such judgments , significant weight is given to evidence that can be objectively verified . concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable , such as cumulative losses in recent years . although we expect that the operations of the recently acquired wag business and our ability to achieve future profitability of these operations was enhanced by the cost reductions that occurred as a result of the acquisition and subsequent integration efforts , wag 's historic operating results remain relevant as they are reflective of the industry and the effect of economic conditions . the fundamental businesses and inherent risks in which the wag business operates did not change from those which existed prior to the acquisition . we utilized a three-year analysis of actual results as the primary measure of cumulative losses in recent years . however , because a substantial portion of those cumulative losses relate to impairment of intangible assets and goodwill , those three-year cumulative results are adjusted for the effect of these items . in addition , the near- and medium-term financial outlook is considered when assessing the need for a valuation allowance . the valuation of deferred tax assets requires judgment and assessment of the future tax consequences of events that have been recorded in the financial statements or in the tax returns , and our future profitability represents our best estimate of those future events . changes in our current estimates , due to unanticipated events or otherwise , could have a material effect on our financial condition and results of operations . prior to the acquisition of wag , the company concluded that it was more likely than not that we would realize the deferred tax assets in all jurisdictions . however , with the acquisition of wag in 2010 , based largely on the weight of the combined cumulative three-year adjusted loss position , it was determined that it was not more likely than not that the company would realize its net deferred tax assets as of january 1 , 2011. therefore , a valuation allowance of $ 18.3 million was recorded as of january 1 , 2011 , of which $ 4.7 million was recorded in relation to wag in connection with our acquisition in august 2010. based on the same determination , an additional valuation allowance of $ 5.7 million was recorded as of december 31 , 2011 , resulting in a valuation allowance balance of $ 22.8 million as of december 31 , 2011. if , in the future , we generate taxable income on a sustained basis in jurisdictions where we have recorded full valuation allowances , our conclusion regarding the need for full valuation allowances in these tax jurisdictions could change , resulting in the reversal of some or all of the valuation allowances . if our operations generate taxable income prior to reaching profitability on a sustained basis , we would reverse a portion of the valuation allowance related to the corresponding realized tax benefit for that period , without changing our conclusions on the need for a full valuation allowance against the remaining net deferred tax assets . at december 31 , 2011 , federal and state net operating loss ( “nol” ) carryforwards were $ 28.3 million and $ 42.2 million , respectively . federal nol carryforwards of $ 2.7 million were acquired in the acquisition of wag which are subject to internal revenue code section 382 and limited to an annual usage limitation of $ 135,000. additionally the tax benefit of $ 0.9 million of the federal and state nol carryforwards which was created by the exercise of stock options will be credited to additional paid-in-capital once recognized . federal nol carryforwards expire in 2029 and 2030 , while state nol carryforwards begin to expire in 2016. the state nol carryforwards expire in the respective tax years as follows ( in thousands ) : replace_table_token_6_th the company utilizes a two-step approach to recognizing and measuring uncertain tax positions . the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes . the second step is to measure the tax benefit as the largest amount which is more than 50 % likely of being realized

cash flows the following table summarizes the key cash flow metrics from our consolidated statements of cash flow for fiscal 2009 , fiscal 2010 and fiscal 2011 , respectively , ended : replace_table_token_28_th operating activities net cash provided by operating activities increased by approximately $ 12.1 million for fiscal 2011 , as compared to fiscal 2010. the increase over prior year was primarily due to a significant decrease in the purchase of inventory and an improvement in timing of payments on accounts payable . this was partially offset by an increase in accounts receivable and a reduction in net earnings in fiscal 2011 compared to 2010 , after adjusting for non-cash items such as depreciation , amortization , impairment loss on intangibles , share-based compensation and deferred income taxes . net cash provided by operating activities decreased by approximately $ 13.3 million for fiscal 2010 , as compared to fiscal 2009. the decrease was primarily due to an increase in purchase of inventory , which was offset by an improvement in timing of payments on accounts payable and net earnings in fiscal 2010 after adjusting for non-cash items such as depreciation and amortization and deferred income taxes . 36 investing activities net cash used in investing activities decreased by approximately $ 19.5 million for fiscal 2011 , as compared to fiscal 2010. the decrease was primarily due to the cash paid for the wag acquisition in fiscal 2010 , which was partially offset by net proceeds from the sale of marketable securities . net cash used in investing activities increased by approximately $ 13.0 million for fiscal 2010 , as compared to fiscal 2009. the increase was primarily due to our acquisition of wag and purchase of property and equipment , which was partially offset by proceeds from the sale of marketable securities .

further , we believe that we are experiencing an improving but still uncertain global macroeconomic environment in which our customers exercise care and conservatism in their investment prioritization and project deployments . we expect that our customers will remain thoughtful with their capital spending . we believe our product gross margins may decline in the future due to competitive pricing pressures , which may be offset by additional operational improvements and cost efficiencies . nevertheless , we are focused on executing our strategy to address the market trends of mobile internet and cloud computing and we continue to believe there are positive long-term fundamentals for high-performance networking , including high-iq networking , as well as cloud environments for data centers . 33 we continued to invest in innovation and strengthening our product portfolio , which resulted in new product offerings during 2013 , including a series of new products for the enterprise campus and data center infrastructures , including the ex9200 ethernet switch , a programmable core switch , to support emerging applications and growing workloads . additionally , we enhanced our mx series portfolio with the release of the mx104 , the mx2010 , and the mx2020 , service provider edge routers designed for rapid service delivery and application enablement . we also released the world 's smallest supercore , the ptx3000 , to address the scale and flexibility challenges facing service providers as they converge their networks to optimize their business . furthermore , to help enterprise organizations and service providers address the challenges associated with managing multiple , geographically dispersed data centers , we unveiled metafabric , a new architecture for next generation data centers . metafabric simplifies and accelerates the deployment and delivery of applications within and across multiple data center locations . we also announced the availability of juniper networks contrail , a standards-based and highly scalable network virtualization and intelligence solution for sdn and introduced opencontrail , a new initiative that makes the source code library for contrail available through an open source license , which we believe will help to foster innovation in sdn . we also announced enhancements to the sdn-ready mx series 3d universal edge router portfolio that significantly expands system capacity , subscriber bandwidth and service performance . during 2013 , we initiated a restructuring plan ( the `` 2013 restructuring plan `` ) to continue to improve our cost structure and rationalize our product portfolio and rebalance our investments . the 2013 restructuring plan consists of workforce reductions , contract terminations , and project cancellations of which $ 28.3 million were recorded in 2013. we were not able to achieve the full benefit of our cost savings goal of $ 100.0 million in 2013. see note 9 , restructuring and other charges , in notes to consolidated financial statements in item 8 of part ii of this report , for further discussion of our restructuring activities . in february 2014 , we announced an integrated operating plan ( `` iop `` ) to refocus the company on innovation that matters most to service providers and enterprises where demand for high-iq networks and best-in-class cloud environments are driving growth . the iop strategy capitalizes upon our engineering expertise across routing , switching , security , control and network management to align our focus to become a leading provider of secure high-iq networks while serving the needs of cloud builders . through the execution of the iop , we plan to coalesce our engineering talent , go-to-market teams and r & d around this strategy resulting in streamlined operations and business portfolio and operational efficiencies . as we implement the iop , it is possible that our segments may change . 34 financial results and key performance metrics overview the following table provides an overview of our key financial metrics for the years ended december 31 , 2013 , 2012 , and 2011 ( in millions , except per share amounts , percentages , days sales outstanding ( `` dso `` ) , and book-to-bill ) : replace_table_token_6_th ( * ) dso and book-to-bill are for the fourth quarter ended 2013 , 2012 , and 2011. net revenues : during 2013 , compared to 2012 , we experienced net revenue growth in the americas , in both service provider and enterprise , offset by declines in revenue in apac and emea . the year-over-year increase in our net revenues during 2013 was primarily due to increases in edge routing , switching , and services , partially offset by a decline in our security products . gross margin : our gross margin as a percentage of net revenues increased in 2013 , compared to 2012 , primarily due to higher restructuring and other charges recorded in 2012 , partially offset by higher inventory provisions in 2013 for legacy platforms . operating income : our operating income as a percentage of revenues increased in 2013 , compared to 2012 , primarily due to growth in net revenues . also contributing to the increase in operating income were lower restructuring and other charges of $ 52.2 million compared to 2012. stock repurchase plan activity : under our stock repurchase programs , we repurchased approximately 28.9 million shares of our common stock in the open market at an average price of $ 19.76 per share for an aggregate purchase of $ 570.6 million during the year ended december 31 , 2013 . operating cash flows : operating cash flows increased in 2013 , compared to 2012 , primarily due to higher net income , the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of receipts from our customers . 35 dso : dso is calculated as the ratio of ending accounts receivable , net of allowances , divided by average daily net sales for the preceding 90 days . story_separator_special_tag determination of which market a particular revenue transaction relates to is based primarily upon the customer 's industrial classification code , but may also include subjective factors such as the intended use of the product . the service provider market generally includes wireline and wireless carriers , and cable operators , as well as major internet content and application providers , including those that provide social networking and search engine services . the enterprise market generally is comprised of businesses ; federal , state , and local governments ; financial services ; and research and education institutions . 2013 compared to 2012 net revenues from sales to the service provider market increased in 2013 , compared to 2012 , primarily due to an increase in sales to content providers and cable providers in the americas , partially offset by a slight decrease in sales with wireless carriers , while the service provider market in emea and apac was relatively flat . in addition , service provider demand for switching and data center solutions in 2013 was stronger than in 2012. net revenues from the enterprise market increased in 2013 , compared to 2012 , primarily due to broad-based growth in the americas enterprise market , as well as recognition of a large u.s. federal government contract , partially offset by weaker demand in apac and emea . 39 2012 compared to 2011 net revenues from sales to the service provider market decreased in 2012 , compared to 2011 , primarily due to reduced routing purchases by some of our international and content service providers , partially offset by strong growth from large service providers in the americas . net revenues generated from the enterprise market decreased in 2012 , compared to 2011 , primarily due to lower revenue in federal and financial services , offset by our expanding presence in apac and emea . customer no customer accounted for greater than 10 % of our net revenues during the year ended december 31 , 2013 and 2011. during the year ended december 31 , 2012 , verizon accounted for 10.3 % of our net revenues . net revenues by geographic region the following table presents net revenues by geographic region ( in millions , except percentages ) : replace_table_token_9_th 2013 compared to 2012 net revenues in the americas increased in 2013 , compared to 2012 , primarily due to an increase in revenues from both the service provider and enterprise markets . the increase in service provider revenues was due to an increase in sales to content providers and cable providers , partially offset by a slight decrease in sales to carriers . the increase in enterprise revenues in 2013 , compared to 2012 , was primarily attributable to a broad-based improvement in customer demand as well as the recognition of a large u.s. federal government contract . net revenues in emea decreased in 2013 , compared to 2012 , primarily due to a decline in revenues in the enterprise market attributable to certain large sales in 2012. net revenues in apac decreased in 2013 , compared to 2012 , primarily due to lower revenues in enterprise resulting from weaker conditions in the china enterprise market . service provider revenues were relatively flat as a decline in sales with certain large service providers in japan were offset by higher revenue with certain large carriers in china . additionally , the recognition of revenue from a large service provider in singapore was offset by declines in revenues from certain service providers in apac . 2012 compared to 2011 net revenues in the americas increased in 2012 , compared to 2011 , primarily due to increased sales in the united states to certain service providers , offset by a decline in the enterprise market particularly among federal and financial services customers . net revenues in emea decreased in 2012 , compared to 2011 , primarily due to decreased sales in western and southern europe , which we believe was a result of the challenging economic climate in those areas . the decrease was partially offset by increased revenues in the middle east and from a top service provider in eastern europe , across a broad range of our product portfolio . 40 net revenues in apac decreased in 2012 , compared to 2011 , primarily due to a decrease in sales to a certain service provider customer in japan , following a large product deployment that occurred in 2011. gross margins the following table presents gross margins ( in millions , except percentages ) : replace_table_token_10_th 2013 compared to 2012 product gross margin percentage increased slightly in 2013 , compared to 2012 , primarily due to higher restructuring and other charges recorded in 2012 , partially offset by higher inventory provisions in 2013 for legacy platforms . product gross margin benefited from cost reductions in the supply chain in 2013 , which more than offset the impact of higher pricing discounts . service gross margin increased in 2013 , compared to 2012 , primarily due to higher service revenues and greater efficiency in the delivery of services . 2012 compared to 2011 product gross margin percentage decreased in 2012 , compared to 2011 , primarily due to a $ 44.3 million inventory charge related to component inventory held in excess of forecasted demand and to an intangible asset impairment charge of $ 16.1 million related to our 2012 restructuring activities . to a lesser extent , the decrease was due to an increase in the size and number of strategic contracts with lower margins and to a shift in product mix to lower margin products . service gross margin increased in 2012 , compared to 2011 , primarily due to higher service revenues , combined with a continuing focus on operational improvements and cost efficiencies . operating expenses the following table presents operating expenses ( in millions , except percentages ) : replace_table_token_11_th 41 our operating expenses have historically been driven by

cash flows the following table summarizes the key cash flow metrics from our consolidated statements of cash flow for fiscal 2009 , fiscal 2010 and fiscal 2011 , respectively , ended : replace_table_token_28_th operating activities net cash provided by operating activities increased by approximately $ 12.1 million for fiscal 2011 , as compared to fiscal 2010. the increase over prior year was primarily due to a significant decrease in the purchase of inventory and an improvement in timing of payments on accounts payable . this was partially offset by an increase in accounts receivable and a reduction in net earnings in fiscal 2011 compared to 2010 , after adjusting for non-cash items such as depreciation , amortization , impairment loss on intangibles , share-based compensation and deferred income taxes . net cash provided by operating activities decreased by approximately $ 13.3 million for fiscal 2010 , as compared to fiscal 2009. the decrease was primarily due to an increase in purchase of inventory , which was offset by an improvement in timing of payments on accounts payable and net earnings in fiscal 2010 after adjusting for non-cash items such as depreciation and amortization and deferred income taxes . 36 investing activities net cash used in investing activities decreased by approximately $ 19.5 million for fiscal 2011 , as compared to fiscal 2010. the decrease was primarily due to the cash paid for the wag acquisition in fiscal 2010 , which was partially offset by net proceeds from the sale of marketable securities . net cash used in investing activities increased by approximately $ 13.0 million for fiscal 2010 , as compared to fiscal 2009. the increase was primarily due to our acquisition of wag and purchase of property and equipment , which was partially offset by proceeds from the sale of marketable securities .

further , we believe that we are experiencing an improving but still uncertain global macroeconomic environment in which our customers exercise care and conservatism in their investment prioritization and project deployments . we expect that our customers will remain thoughtful with their capital spending . we believe our product gross margins may decline in the future due to competitive pricing pressures , which may be offset by additional operational improvements and cost efficiencies . nevertheless , we are focused on executing our strategy to address the market trends of mobile internet and cloud computing and we continue to believe there are positive long-term fundamentals for high-performance networking , including high-iq networking , as well as cloud environments for data centers . 33 we continued to invest in innovation and strengthening our product portfolio , which resulted in new product offerings during 2013 , including a series of new products for the enterprise campus and data center infrastructures , including the ex9200 ethernet switch , a programmable core switch , to support emerging applications and growing workloads . additionally , we enhanced our mx series portfolio with the release of the mx104 , the mx2010 , and the mx2020 , service provider edge routers designed for rapid service delivery and application enablement . we also released the world 's smallest supercore , the ptx3000 , to address the scale and flexibility challenges facing service providers as they converge their networks to optimize their business . furthermore , to help enterprise organizations and service providers address the challenges associated with managing multiple , geographically dispersed data centers , we unveiled metafabric , a new architecture for next generation data centers . metafabric simplifies and accelerates the deployment and delivery of applications within and across multiple data center locations . we also announced the availability of juniper networks contrail , a standards-based and highly scalable network virtualization and intelligence solution for sdn and introduced opencontrail , a new initiative that makes the source code library for contrail available through an open source license , which we believe will help to foster innovation in sdn . we also announced enhancements to the sdn-ready mx series 3d universal edge router portfolio that significantly expands system capacity , subscriber bandwidth and service performance . during 2013 , we initiated a restructuring plan ( the `` 2013 restructuring plan `` ) to continue to improve our cost structure and rationalize our product portfolio and rebalance our investments . the 2013 restructuring plan consists of workforce reductions , contract terminations , and project cancellations of which $ 28.3 million were recorded in 2013. we were not able to achieve the full benefit of our cost savings goal of $ 100.0 million in 2013. see note 9 , restructuring and other charges , in notes to consolidated financial statements in item 8 of part ii of this report , for further discussion of our restructuring activities . in february 2014 , we announced an integrated operating plan ( `` iop `` ) to refocus the company on innovation that matters most to service providers and enterprises where demand for high-iq networks and best-in-class cloud environments are driving growth . the iop strategy capitalizes upon our engineering expertise across routing , switching , security , control and network management to align our focus to become a leading provider of secure high-iq networks while serving the needs of cloud builders . through the execution of the iop , we plan to coalesce our engineering talent , go-to-market teams and r & d around this strategy resulting in streamlined operations and business portfolio and operational efficiencies . as we implement the iop , it is possible that our segments may change . 34 financial results and key performance metrics overview the following table provides an overview of our key financial metrics for the years ended december 31 , 2013 , 2012 , and 2011 ( in millions , except per share amounts , percentages , days sales outstanding ( `` dso `` ) , and book-to-bill ) : replace_table_token_6_th ( * ) dso and book-to-bill are for the fourth quarter ended 2013 , 2012 , and 2011. net revenues : during 2013 , compared to 2012 , we experienced net revenue growth in the americas , in both service provider and enterprise , offset by declines in revenue in apac and emea . the year-over-year increase in our net revenues during 2013 was primarily due to increases in edge routing , switching , and services , partially offset by a decline in our security products . gross margin : our gross margin as a percentage of net revenues increased in 2013 , compared to 2012 , primarily due to higher restructuring and other charges recorded in 2012 , partially offset by higher inventory provisions in 2013 for legacy platforms . operating income : our operating income as a percentage of revenues increased in 2013 , compared to 2012 , primarily due to growth in net revenues . also contributing to the increase in operating income were lower restructuring and other charges of $ 52.2 million compared to 2012. stock repurchase plan activity : under our stock repurchase programs , we repurchased approximately 28.9 million shares of our common stock in the open market at an average price of $ 19.76 per share for an aggregate purchase of $ 570.6 million during the year ended december 31 , 2013 . operating cash flows : operating cash flows increased in 2013 , compared to 2012 , primarily due to higher net income , the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of receipts from our customers . 35 dso : dso is calculated as the ratio of ending accounts receivable , net of allowances , divided by average daily net sales for the preceding 90 days . story_separator_special_tag determination of which market a particular revenue transaction relates to is based primarily upon the customer 's industrial classification code , but may also include subjective factors such as the intended use of the product . the service provider market generally includes wireline and wireless carriers , and cable operators , as well as major internet content and application providers , including those that provide social networking and search engine services . the enterprise market generally is comprised of businesses ; federal , state , and local governments ; financial services ; and research and education institutions . 2013 compared to 2012 net revenues from sales to the service provider market increased in 2013 , compared to 2012 , primarily due to an increase in sales to content providers and cable providers in the americas , partially offset by a slight decrease in sales with wireless carriers , while the service provider market in emea and apac was relatively flat . in addition , service provider demand for switching and data center solutions in 2013 was stronger than in 2012. net revenues from the enterprise market increased in 2013 , compared to 2012 , primarily due to broad-based growth in the americas enterprise market , as well as recognition of a large u.s. federal government contract , partially offset by weaker demand in apac and emea . 39 2012 compared to 2011 net revenues from sales to the service provider market decreased in 2012 , compared to 2011 , primarily due to reduced routing purchases by some of our international and content service providers , partially offset by strong growth from large service providers in the americas . net revenues generated from the enterprise market decreased in 2012 , compared to 2011 , primarily due to lower revenue in federal and financial services , offset by our expanding presence in apac and emea . customer no customer accounted for greater than 10 % of our net revenues during the year ended december 31 , 2013 and 2011. during the year ended december 31 , 2012 , verizon accounted for 10.3 % of our net revenues . net revenues by geographic region the following table presents net revenues by geographic region ( in millions , except percentages ) : replace_table_token_9_th 2013 compared to 2012 net revenues in the americas increased in 2013 , compared to 2012 , primarily due to an increase in revenues from both the service provider and enterprise markets . the increase in service provider revenues was due to an increase in sales to content providers and cable providers , partially offset by a slight decrease in sales to carriers . the increase in enterprise revenues in 2013 , compared to 2012 , was primarily attributable to a broad-based improvement in customer demand as well as the recognition of a large u.s. federal government contract . net revenues in emea decreased in 2013 , compared to 2012 , primarily due to a decline in revenues in the enterprise market attributable to certain large sales in 2012. net revenues in apac decreased in 2013 , compared to 2012 , primarily due to lower revenues in enterprise resulting from weaker conditions in the china enterprise market . service provider revenues were relatively flat as a decline in sales with certain large service providers in japan were offset by higher revenue with certain large carriers in china . additionally , the recognition of revenue from a large service provider in singapore was offset by declines in revenues from certain service providers in apac . 2012 compared to 2011 net revenues in the americas increased in 2012 , compared to 2011 , primarily due to increased sales in the united states to certain service providers , offset by a decline in the enterprise market particularly among federal and financial services customers . net revenues in emea decreased in 2012 , compared to 2011 , primarily due to decreased sales in western and southern europe , which we believe was a result of the challenging economic climate in those areas . the decrease was partially offset by increased revenues in the middle east and from a top service provider in eastern europe , across a broad range of our product portfolio . 40 net revenues in apac decreased in 2012 , compared to 2011 , primarily due to a decrease in sales to a certain service provider customer in japan , following a large product deployment that occurred in 2011. gross margins the following table presents gross margins ( in millions , except percentages ) : replace_table_token_10_th 2013 compared to 2012 product gross margin percentage increased slightly in 2013 , compared to 2012 , primarily due to higher restructuring and other charges recorded in 2012 , partially offset by higher inventory provisions in 2013 for legacy platforms . product gross margin benefited from cost reductions in the supply chain in 2013 , which more than offset the impact of higher pricing discounts . service gross margin increased in 2013 , compared to 2012 , primarily due to higher service revenues and greater efficiency in the delivery of services . 2012 compared to 2011 product gross margin percentage decreased in 2012 , compared to 2011 , primarily due to a $ 44.3 million inventory charge related to component inventory held in excess of forecasted demand and to an intangible asset impairment charge of $ 16.1 million related to our 2012 restructuring activities . to a lesser extent , the decrease was due to an increase in the size and number of strategic contracts with lower margins and to a shift in product mix to lower margin products . service gross margin increased in 2012 , compared to 2011 , primarily due to higher service revenues , combined with a continuing focus on operational improvements and cost efficiencies . operating expenses the following table presents operating expenses ( in millions , except percentages ) : replace_table_token_11_th 41 our operating expenses have historically been driven by

liquidity and capital resources historically , we have funded our business primarily through our operating activities , the issuance of our common stock , and the issuance of our long-term debt . the following table shows our capital resources ( in millions , except percentages ) : replace_table_token_16_th 46 the significant components of our working capital are cash and cash equivalents , short-term investments , and accounts receivable , reduced by accounts payable , accrued liabilities , and short-term deferred revenue . working capital increased by $ 83.8 million during the year ended december 31 , 2013 , primarily due to an increase in current assets , primarily accounts receivable and short-term investments , and lower accounts payable , partially offset by a decrease in cash and cash equivalents . summary of cash flows as of december 31 , 2013 , our cash and cash equivalents decreased by $ 123.8 million from december 31 , 2012 primarily due to cash used in our investing and financing activities related to the repurchase of our common stock , purchase of investments , and capital expenditures . the following table summarizes cash flows from our consolidated statements of cash flows ( in millions , except percentages ) : replace_table_token_17_th operating activities 2013 compared to 2012 cash flows from operations increased by $ 199.9 million in 2013 , compared to 2012 , primarily due to higher consolidated net income , the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of collections on our outstanding receivables . 2012 compared to 2011 cash flow from operations decreased by $ 344.3 million in 2012 , compared to 2011 , primarily due to lower consolidated net income , higher taxes paid , timing of payments to our vendors , and a decrease in deferred revenue , offset by the timing of collections of our outstanding receivables .

based on our historical experience , calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectibility estimates . however , the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates . payor terms are periodically revised necessitating continual review and assessment of the estimates made by management . our billing system may not capture the exact change in our contractual allowance reserve estimate from period to period . therefore , in order to assess the accuracy of our revenues and hence our contractual allowance reserves , our management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis . in the aggregate , the historical difference between net revenues and corresponding cash collections has generally reflected a difference within approximately 1 % of net revenues . additionally , analysis of subsequent period 's contractual write-offs on a payor basis reflects a difference within approximately 1 % between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance . as a result , we believe that a reasonable likely change in the contractual allowance reserve estimate would not be more than 1 % at december 31 , 2014. for purposes of demonstrating the sensitivity of this estimate on the company 's financial condition , a one percent increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase , respectively , net patient revenue by approximately $ 798,000 for the year ended december 31 , 2014. management believes the changes in the estimate of the contractual allowance reserve for the periods ended december 31 , 2014 , 2013 and 2012 have not been material to the statement of operations . the following table sets forth information regarding our patient accounts receivable as of the dates indicated ( in thousands ) : replace_table_token_8_th 23 the following table presents our patient accounts receivable aging by payor class as of the dates indicated ( in thousands ) : replace_table_token_9_th * workers compensation is paid by state administrators or their designated agents . * * other includes primarily litigation claims and , to a lesser extent , vehicular insurance claims . reimbursement for medicare beneficiaries is based upon a fee schedule published by hhs . for a more complete description of our third party revenue sources , see “ business—sources of revenue ” in item 1. provision for doubtful accounts . we determine our provision for doubtful accounts based on the specific agings and payor classifications at each clinic . we review the accounts receivable aging and rely on prior experience with particular payors to determine an appropriate reserve for doubtful accounts . historically , clinics that have a large number of aged accounts generally have less favorable collection experience , and thus , require a higher allowance . accounts that are ultimately determined to be uncollectible are written off against our bad debt allowance . the amount of our aggregate allowance for doubtful accounts is regularly reviewed for adequacy in light of current and historical experience . accounting for income taxes . we account for income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . the company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit . for tax positions meeting the more-likely-than-not threshold , the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . we do not believe that we have any significant uncertain tax positions at december 31 , 2014 , nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation . we did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the twelve months ended december 31 , 2014 and 2013. carrying value of long-lived assets . our property and equipment , intangible assets and goodwill ( collectively , our “ long-lived assets ” ) comprise a significant portion of our total assets . the accounting standards require that we periodically , and upon the occurrence of certain events , assess the recoverability of our long-lived assets . if the carrying value of our property and equipment exceeds their undiscounted cash flows , we are required to write the carrying value down to estimated fair value . goodwill . the fair value of goodwill and other intangible assets with indefinite lives are tested for impairment annually and upon the occurrence of certain events , and are written down to fair value if considered impaired . we evaluate goodwill for impairment on at least an annual basis ( in the third quarter ) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill . we operate a one segment business which is made up of various clinics within partnerships . story_separator_special_tag at december 31 , 2013 , $ 40.0 million was outstanding under our credit agreement ; however , $ 36.0 million was drawn on december 13 , 2013 resulting in a minimal effect on interest expense and average borrowings for 2013. see “ liquidity and capital resources ” below for a discussion of the terms of our credit agreement . 28 provision for income taxes the provision for income taxes was $ 12.2 million for 2013 and $ 11.2 million for 2013. for 2013 , we accrued state and federal income taxes at an effective tax rate ( provision for taxes divided by the difference between income from operations and net income attributable to non-controlling interest ) of 41.1 % . for 2013 , the provision for income taxes for the 2013 period includes an adjustment of $ 393,000 related to the true-up of our 2012 tax provision based on a detailed reconciliation of our federal and state taxes payable and receivable accounts along with our federal and state deferred tax asset and liability accounts . the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interests is 40 % for 2013. in 2012 , the income tax provision was reduced by $ 350,000 related to a taxable deduction charged to additional-paid-in-capital for the reduction of a subsidiary intercompany loan and included a charge of $ 162,000 for a true-up of our 2011 tax provision . net income attributable to non-controlling interests net income attributable to non-controlling interests was $ 8.5 million in 2013 and $ 8.4 million in 2012. as a percentage of operating income before corporate office costs , net income attributable to non-controlling interests was 13.2 % in 2013 compared to 13.4 % in 2012. the reduction is attributable to the company 's increased ownership interest in certain physical therapy partnerships . story_separator_special_tag financing . any large acquisition would likely require financing . we make reasonable and appropriate efforts to collect accounts receivable , including applicable deductible and co-payment amounts . claims are submitted to payors daily , weekly or monthly in accordance with our policy or payor 's requirements . when possible , we submit our claims electronically . the collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor . claims under litigation and vehicular incidents can take a year or longer to collect . medicare and other payor claims relating to new clinics awaiting medicare rehab agency status approval initially may not be submitted for six months or more . when all reasonable internal collection efforts have been exhausted , accounts are written off prior to sending them to outside collection firms . with managed care , commercial health plans and self-pay payor type receivables , the write-off generally occurs after the account receivable has been outstanding for 120 days or longer . we have future obligations for debt repayments , employment agreements and future minimum rentals under operating leases . the obligations as of december 31 , 2014 are summarized as follows ( in thousands ) : replace_table_token_11_th we generally enter into various notes payable as a means of financing our acquisitions . our present outstanding notes payable relate only to certain of the acquisitions of businesses and non-controlling interests that occurred in 2014 and 2013. for those acquisitions , we entered into several notes payables aggregating $ 1.8 million . the notes are payable in equal annual installments of principal over two years plus any accrued and unpaid interest . interest accrues at various interest rates ranging from 3.25 % to 4.0 % per annum , subject to adjustment . in addition , we assumed leases with remaining terms of 1 month to 6 years for the operating facilities . at december 31 , 2014 , the balance on these notes payable was $ 1.1 million . in conjunction with the above mentioned acquisitions , in the event that a limited minority partner 's employment ceases at any time after three or four years from the acquisition date , as applicable , we have agreed to repurchase that individual 's non-controlling interest at a predetermined multiple of earnings before interest and taxes . as of december 31 , 2014 , we have accrued $ 1.8 million related to credit balances and overpayments due to patients and payors . this amount is expected to be paid in 2015 . 30 from september 2001 through december 31 , 2008 , the board authorized us to purchase , in the open market or in privately negotiated transactions , up to 2,250,000 shares of our common stock . in march 2009 , the board authorized the repurchase of up to 10 % or approximately 1,200,000 shares of our common stock ( “ march 2009 authorization ” ) . in connection with the march 2009 authorization , we amended our prior credit agreement to permit share repurchases of up to $ 15,000,000. we are required to retire shares purchased under the march 2009 authorization . under the march 2009 authorization , we have purchased a total of 859,499 shares . there is no expiration date for the share repurchase program . the credit agreement permits the company to purchase , commencing on october 24 , 2012 and at all times thereafter , up to $ 15,000,000 of its common stock subject to compliance with covenants . there are currently an additional estimated 340,501 shares that may be purchased from time to time in the open market or private transactions depending on price , availability and our cash position . we did not purchase any shares of our common stock during 2013 or 2014. off balance sheet arrangements with the exception of operating leases for our executive offices and clinic facilities discussed in note 14 to our consolidated financial statements included in item 8 , we have no off-balance sheet debt or

liquidity and capital resources historically , we have funded our business primarily through our operating activities , the issuance of our common stock , and the issuance of our long-term debt . the following table shows our capital resources ( in millions , except percentages ) : replace_table_token_16_th 46 the significant components of our working capital are cash and cash equivalents , short-term investments , and accounts receivable , reduced by accounts payable , accrued liabilities , and short-term deferred revenue . working capital increased by $ 83.8 million during the year ended december 31 , 2013 , primarily due to an increase in current assets , primarily accounts receivable and short-term investments , and lower accounts payable , partially offset by a decrease in cash and cash equivalents . summary of cash flows as of december 31 , 2013 , our cash and cash equivalents decreased by $ 123.8 million from december 31 , 2012 primarily due to cash used in our investing and financing activities related to the repurchase of our common stock , purchase of investments , and capital expenditures . the following table summarizes cash flows from our consolidated statements of cash flows ( in millions , except percentages ) : replace_table_token_17_th operating activities 2013 compared to 2012 cash flows from operations increased by $ 199.9 million in 2013 , compared to 2012 , primarily due to higher consolidated net income , the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of collections on our outstanding receivables . 2012 compared to 2011 cash flow from operations decreased by $ 344.3 million in 2012 , compared to 2011 , primarily due to lower consolidated net income , higher taxes paid , timing of payments to our vendors , and a decrease in deferred revenue , offset by the timing of collections of our outstanding receivables .

based on our historical experience , calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectibility estimates . however , the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates . payor terms are periodically revised necessitating continual review and assessment of the estimates made by management . our billing system may not capture the exact change in our contractual allowance reserve estimate from period to period . therefore , in order to assess the accuracy of our revenues and hence our contractual allowance reserves , our management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis . in the aggregate , the historical difference between net revenues and corresponding cash collections has generally reflected a difference within approximately 1 % of net revenues . additionally , analysis of subsequent period 's contractual write-offs on a payor basis reflects a difference within approximately 1 % between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance . as a result , we believe that a reasonable likely change in the contractual allowance reserve estimate would not be more than 1 % at december 31 , 2014. for purposes of demonstrating the sensitivity of this estimate on the company 's financial condition , a one percent increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase , respectively , net patient revenue by approximately $ 798,000 for the year ended december 31 , 2014. management believes the changes in the estimate of the contractual allowance reserve for the periods ended december 31 , 2014 , 2013 and 2012 have not been material to the statement of operations . the following table sets forth information regarding our patient accounts receivable as of the dates indicated ( in thousands ) : replace_table_token_8_th 23 the following table presents our patient accounts receivable aging by payor class as of the dates indicated ( in thousands ) : replace_table_token_9_th * workers compensation is paid by state administrators or their designated agents . * * other includes primarily litigation claims and , to a lesser extent , vehicular insurance claims . reimbursement for medicare beneficiaries is based upon a fee schedule published by hhs . for a more complete description of our third party revenue sources , see “ business—sources of revenue ” in item 1. provision for doubtful accounts . we determine our provision for doubtful accounts based on the specific agings and payor classifications at each clinic . we review the accounts receivable aging and rely on prior experience with particular payors to determine an appropriate reserve for doubtful accounts . historically , clinics that have a large number of aged accounts generally have less favorable collection experience , and thus , require a higher allowance . accounts that are ultimately determined to be uncollectible are written off against our bad debt allowance . the amount of our aggregate allowance for doubtful accounts is regularly reviewed for adequacy in light of current and historical experience . accounting for income taxes . we account for income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . the company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit . for tax positions meeting the more-likely-than-not threshold , the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . we do not believe that we have any significant uncertain tax positions at december 31 , 2014 , nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation . we did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the twelve months ended december 31 , 2014 and 2013. carrying value of long-lived assets . our property and equipment , intangible assets and goodwill ( collectively , our “ long-lived assets ” ) comprise a significant portion of our total assets . the accounting standards require that we periodically , and upon the occurrence of certain events , assess the recoverability of our long-lived assets . if the carrying value of our property and equipment exceeds their undiscounted cash flows , we are required to write the carrying value down to estimated fair value . goodwill . the fair value of goodwill and other intangible assets with indefinite lives are tested for impairment annually and upon the occurrence of certain events , and are written down to fair value if considered impaired . we evaluate goodwill for impairment on at least an annual basis ( in the third quarter ) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill . we operate a one segment business which is made up of various clinics within partnerships . story_separator_special_tag at december 31 , 2013 , $ 40.0 million was outstanding under our credit agreement ; however , $ 36.0 million was drawn on december 13 , 2013 resulting in a minimal effect on interest expense and average borrowings for 2013. see “ liquidity and capital resources ” below for a discussion of the terms of our credit agreement . 28 provision for income taxes the provision for income taxes was $ 12.2 million for 2013 and $ 11.2 million for 2013. for 2013 , we accrued state and federal income taxes at an effective tax rate ( provision for taxes divided by the difference between income from operations and net income attributable to non-controlling interest ) of 41.1 % . for 2013 , the provision for income taxes for the 2013 period includes an adjustment of $ 393,000 related to the true-up of our 2012 tax provision based on a detailed reconciliation of our federal and state taxes payable and receivable accounts along with our federal and state deferred tax asset and liability accounts . the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interests is 40 % for 2013. in 2012 , the income tax provision was reduced by $ 350,000 related to a taxable deduction charged to additional-paid-in-capital for the reduction of a subsidiary intercompany loan and included a charge of $ 162,000 for a true-up of our 2011 tax provision . net income attributable to non-controlling interests net income attributable to non-controlling interests was $ 8.5 million in 2013 and $ 8.4 million in 2012. as a percentage of operating income before corporate office costs , net income attributable to non-controlling interests was 13.2 % in 2013 compared to 13.4 % in 2012. the reduction is attributable to the company 's increased ownership interest in certain physical therapy partnerships . story_separator_special_tag financing . any large acquisition would likely require financing . we make reasonable and appropriate efforts to collect accounts receivable , including applicable deductible and co-payment amounts . claims are submitted to payors daily , weekly or monthly in accordance with our policy or payor 's requirements . when possible , we submit our claims electronically . the collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor . claims under litigation and vehicular incidents can take a year or longer to collect . medicare and other payor claims relating to new clinics awaiting medicare rehab agency status approval initially may not be submitted for six months or more . when all reasonable internal collection efforts have been exhausted , accounts are written off prior to sending them to outside collection firms . with managed care , commercial health plans and self-pay payor type receivables , the write-off generally occurs after the account receivable has been outstanding for 120 days or longer . we have future obligations for debt repayments , employment agreements and future minimum rentals under operating leases . the obligations as of december 31 , 2014 are summarized as follows ( in thousands ) : replace_table_token_11_th we generally enter into various notes payable as a means of financing our acquisitions . our present outstanding notes payable relate only to certain of the acquisitions of businesses and non-controlling interests that occurred in 2014 and 2013. for those acquisitions , we entered into several notes payables aggregating $ 1.8 million . the notes are payable in equal annual installments of principal over two years plus any accrued and unpaid interest . interest accrues at various interest rates ranging from 3.25 % to 4.0 % per annum , subject to adjustment . in addition , we assumed leases with remaining terms of 1 month to 6 years for the operating facilities . at december 31 , 2014 , the balance on these notes payable was $ 1.1 million . in conjunction with the above mentioned acquisitions , in the event that a limited minority partner 's employment ceases at any time after three or four years from the acquisition date , as applicable , we have agreed to repurchase that individual 's non-controlling interest at a predetermined multiple of earnings before interest and taxes . as of december 31 , 2014 , we have accrued $ 1.8 million related to credit balances and overpayments due to patients and payors . this amount is expected to be paid in 2015 . 30 from september 2001 through december 31 , 2008 , the board authorized us to purchase , in the open market or in privately negotiated transactions , up to 2,250,000 shares of our common stock . in march 2009 , the board authorized the repurchase of up to 10 % or approximately 1,200,000 shares of our common stock ( “ march 2009 authorization ” ) . in connection with the march 2009 authorization , we amended our prior credit agreement to permit share repurchases of up to $ 15,000,000. we are required to retire shares purchased under the march 2009 authorization . under the march 2009 authorization , we have purchased a total of 859,499 shares . there is no expiration date for the share repurchase program . the credit agreement permits the company to purchase , commencing on october 24 , 2012 and at all times thereafter , up to $ 15,000,000 of its common stock subject to compliance with covenants . there are currently an additional estimated 340,501 shares that may be purchased from time to time in the open market or private transactions depending on price , availability and our cash position . we did not purchase any shares of our common stock during 2013 or 2014. off balance sheet arrangements with the exception of operating leases for our executive offices and clinic facilities discussed in note 14 to our consolidated financial statements included in item 8 , we have no off-balance sheet debt or

liquidity and capital resources we believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements , other than those with respect to future significant acquisitions . at december 31 , 2014 , we had $ 14.3 million in cash and cash equivalents compared to $ 12.9 million at december 31 , 2013. although the start-up costs associated with opening new clinics and our planned capital expenditures are significant , we believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries , future clinic development and acquisitions and investments through at least december 2015. the amount outstanding under our credit agreement was $ 34.5 million at december 31 , 2014 compared to $ 40.0 million at december 31 , 2013. at december 31 , 2014 , we had $ 90.5 million available under our credit agreement . significant acquisitions would likely require financing under our credit agreement . the increase in cash and cash equivalents of $ 1.4 million from december 31 , 2013 to december 31 , 2014 was due primarily to $ 45.2 million provided by operations and $ 0.9 million from the tax benefit of equity compensation transactions . the major uses of cash for investing and financing activities included : purchase of businesses ( $ 12.3 million ) , distributions to non-controlling interests ( $ 9.9 million ) , payments of cash dividends to our shareholders ( $ 5.9 million ) , net reduction of balance under our credit agreement ( $ 5.5 million ) , acquisitions of non-controlling interests ( $ 5.5 million ) , purchases of fixed assets ( $ 5.2 million ) , and payments on notes payable ( $ 0.8 million ) . effective december 5 , 2013 , we entered into an amended and restated credit agreement with a commitment for a $ 125.0 million revolving credit facility with a maturity date of november 30 , 2018 ( “ credit agreement ” ) .

the regulated companies estimate unbilled sales volumes monthly by first allocating billed sales volumes to the current calendar month based on the daily load ( for electric distribution companies ) or the daily send-out ( for natural gas distribution companies ) for each billing cycle . the billed sales volumes are then subtracted from total month load or send-out , net of delivery losses , to estimate unbilled sales volumes . unbilled revenues are estimated by first allocating unbilled sales volumes to the respective customer classes , then applying an estimated rate by customer class to those sales volumes . the estimate of unbilled revenues can significantly impact the amount of revenues recorded at nstar electric , psnh and yankee gas because they do not have a revenue decoupling mechanism . cl & p , wmeco and nstar gas record a regulatory deferral to reflect the actual allowed amount of revenue associated with their respective decoupled distribution rate design . pension and pbop : we sponsor pension and pbop plans to provide retirement benefits to our employees . for each of these plans , several significant assumptions are used to determine the projected benefit obligation , funded status and net periodic benefit cost . these assumptions include the expected long-term rate of return on plan assets , discount rate , compensation/progression rate and mortality and retirement assumptions . we evaluate these assumptions at least annually and adjust them as necessary . changes in these assumptions could have a material impact on our financial position , results of operations or cash flows . expected long-term rate of return on plan assets : in developing this assumption , we consider historical and expected returns , as well as input from our consultants . our expected long-term rate of return on assets is based on assumptions regarding target asset allocations and corresponding expected rates of return for each asset class . we routinely review the actual asset allocations and periodically rebalance the investments to the targeted asset allocations when appropriate . for the year ended december 31 , 2016 , our aggregate expected long-term rate-of-return assumption of 8.25 percent was used to determine our pension and pbop expense . for the forecasted 2017 pension and pbop expense , our expected long-term rate of return of 8.25 percent will be used reflecting our target asset allocations . discount rate : payment obligations related to the pension and pbop plans are discounted at interest rates applicable to the expected timing of each plan 's cash flows . the discount rate that was utilized in determining the 2016 pension and pbop obligations was based on a yield-curve approach . this approach utilizes a population of bonds with an average rating of aa based on bond ratings by moody 's , s & p and fitch , and uses bonds with above median yields within that population . as of december 31 , 2016 , the discount rates used to determine the funded status were 4.33 percent for the pension plan and 4.21 percent for the pbop plan . as of december 31 , 2015 , the discount rates used were 4.6 percent for the pension plan and 4.62 percent for the pbop plan . the decrease in the discount rate used to calculate the funded status resulted in an increase on the pension and pbop plans ' liability of approximately $ 177 million and $ 75 million , respectively , as of december 31 , 2016 . 42 effective january 1 , 2016 , we elected to transition the discount rate to the spot rate methodology from the yield-curve approach for the service and interest cost components of pension and pbop expense because it provides a more precise measurement by matching projected cash flows to the corresponding spot rates on the yield curve . historically , these components were estimated using the same weighted-average discount rate as for the funded status . the discount rates used to estimate the 2016 service costs were 4.89 percent and 4.09 percent for the pension and pbop plans , respectively . the discount rates used to estimate the 2016 interest costs were 3.80 percent and 2.88 percent for the pension and pbop plans , respectively . the total pre-tax benefit of this change on pension and pbop expense , prior to the capitalized portion and amounts deferred and recovered through rate reconciliation mechanisms , for the year ended december 31 , 2016 resulted in decreases to pension and pbop costs of $ 46 million and $ 10 million , respectively . pension and pbop expense charged to earnings is net of the amounts capitalized . mortality assumptions : assumptions as to mortality of the participants in our pension and pbop plans are a key estimate in measuring the expected payments a participant may receive over their lifetime and the corresponding plan liability we need to record . in 2016 , a revised scale for the mortality table was released having the effect of decreasing the estimate of benefits to be provided to plan participants . the impact of the adoption of the new mortality scale resulted in a decrease of approximately $ 32 million and $ 11 million for the pension and pbop plans ' liability , respectively , as of december 31 , 2016 . compensation/progression rate : this assumption reflects the expected long-term salary growth rate , including consideration of the levels of increases built into collective bargaining agreements , and impacts the estimated benefits that pension plan participants receive in the future . as of both december 31 , 2016 and 2015 , the compensation/progression rate used to determine the funded status was 3.5 percent . health care cost : in august 2016 , we amended the pbop plan to standardize benefit design and make benefit changes . as a result , the plan is no longer subject to health care cost trends . story_separator_special_tag tracked electric distribution segment revenues decreased as a result of decreases in energy supply costs ( $ 625.2 million ) , driven by decreased average retail rates and lower sales volumes , partially offset by an increase in retail electric transmission charges ( $ 84.6 million ) , an increase in federally mandated congestion charges ( $ 103.0 million ) , an increase in energy efficiency program revenues ( $ 51.7 million ) , an increase in stranded cost recovery charges ( $ 39.2 million ) and an increase in net metering for distributed generation revenues ( $ 34.0 million ) . in addition , as a result of a change to the amounts collected in the system benefits charge , cl & p 's calculated rate base increased , providing an increase to distribution revenues that positively impacted earnings by $ 23.2 million . in 2016 , tracked natural gas distribution segment revenues decreased as a result of decreases in natural gas supply costs ( $ 128.2 million ) driven by decreased average rates and lower sales volumes , and a decrease in energy efficiency program revenues ( $ 22.7 million ) . electric transmission revenues : the electric transmission segment revenues increased by $ 140.9 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure and the absence in 2016 of a $ 20 million reserve charge recorded in 2015 associated with the march 2015 ferc roe order . other : other revenues decreased due primarily to the sale of eversource 's unregulated contracting business on april 13 , 2015 ( $ 11.4 million ) . purchased power , fuel and transmission expense includes costs associated with purchasing electricity and natural gas on behalf of our customers . these energy supply costs are recovered from customers in rates through cost tracking mechanisms , which have no impact on earnings ( tracked costs ) . purchased power , fuel and transmission expense decreased in 2016 , as compared to 2015 , due primarily to the following : ( millions of dollars ) ( decrease ) /increase electric distribution $ ( 625.9 ) natural gas distribution ( 130.3 ) transmission 170.1 total purchased power , fuel and transmission $ ( 586.1 ) the decrease in purchased power expense at the electric distribution business was driven by lower prices associated with the procurement of energy supply , lower sales volumes , and a decrease in the amount of electricity generated by psnh facilities in 2016 , as compared to 2015. the decrease in purchased power expense at the natural gas distribution business was due to lower sales volumes and lower average natural gas prices . the increase in transmission costs was primarily the result of an increase in costs billed by iso-ne that support regional grid investment . 47 operations and maintenance expense includes tracked costs and costs that are part of base electric and natural gas distribution rates with changes impacting earnings ( non-tracked costs ) . operations and maintenance expense decreased in 2016 , as compared to 2015 , due primarily to the following : replace_table_token_34_th depreciation expense increased in 2016 , as compared to 2015 , due primarily to higher utility plant in service balances . amortization of regulatory assets , net expense includes the deferral of energy supply and energy-related costs included in certain regulatory-approved tracking mechanisms and the amortization of certain costs . the deferral adjusts expense to match the corresponding revenues . amortization of regulatory assets , net increased in 2016 , as compared to 2015 , due primarily to the deferral of energy supply and energy-related costs which can fluctuate from period to period based on the timing of costs incurred and the related rate changes to recover these costs . energy supply and energy-related costs at cl & p , nstar electric , psnh and wmeco , which are the primary drivers in amortization , are recovered from customers in rates and have no impact on earnings . the increase in amortization of regulatory assets , net for the year ended december 31 , 2016 also includes the absence in 2016 of the $ 11.7 million benefit recorded in 2015 at nstar electric in connection with the comprehensive settlement agreement . energy efficiency programs expense increased in 2016 , as compared to 2015 , due primarily to deferral adjustments at nstar electric , partially offset by deferral adjustments for the natural gas businesses , which reflect the actual costs of energy efficiency programs compared to the estimated amounts billed to customers , and the timing of the recovery of energy efficiency costs incurred in accordance with the three-year program guidelines established by the dpu . the deferrals adjust expense to match the energy efficiency programs revenue . the costs for various state energy policy initiatives and expanded energy efficiency programs are recovered from customers in rates and have no impact on earnings . taxes other than income taxes expense increased in 2016 , as compared to 2015 , due primarily to an increase in property taxes as a result of higher utility plant balances and an increase in gross earnings taxes . gross earnings taxes are recovered from customers in rates and have no impact on earnings . interest expense increased in 2016 , as compared to 2015 , due primarily to an increase in interest on long-term debt ( $ 33.8 million ) as a result of new debt issuances and an increase in interest on notes payable ( $ 2.2 million ) , partially offset by a decrease in regulatory deferrals which decreased interest expense ( $ 5.5 million ) . other income , net increased in 2016 , as compared to 2015 , due primarily to higher equity afudc amounts ( $ 7.4 million ) , higher gains related to the sales of unregulated businesses ( $ 9.4 million ) and an increase in interest income ( $ 4.1 million ) .

liquidity and capital resources we believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements , other than those with respect to future significant acquisitions . at december 31 , 2014 , we had $ 14.3 million in cash and cash equivalents compared to $ 12.9 million at december 31 , 2013. although the start-up costs associated with opening new clinics and our planned capital expenditures are significant , we believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries , future clinic development and acquisitions and investments through at least december 2015. the amount outstanding under our credit agreement was $ 34.5 million at december 31 , 2014 compared to $ 40.0 million at december 31 , 2013. at december 31 , 2014 , we had $ 90.5 million available under our credit agreement . significant acquisitions would likely require financing under our credit agreement . the increase in cash and cash equivalents of $ 1.4 million from december 31 , 2013 to december 31 , 2014 was due primarily to $ 45.2 million provided by operations and $ 0.9 million from the tax benefit of equity compensation transactions . the major uses of cash for investing and financing activities included : purchase of businesses ( $ 12.3 million ) , distributions to non-controlling interests ( $ 9.9 million ) , payments of cash dividends to our shareholders ( $ 5.9 million ) , net reduction of balance under our credit agreement ( $ 5.5 million ) , acquisitions of non-controlling interests ( $ 5.5 million ) , purchases of fixed assets ( $ 5.2 million ) , and payments on notes payable ( $ 0.8 million ) . effective december 5 , 2013 , we entered into an amended and restated credit agreement with a commitment for a $ 125.0 million revolving credit facility with a maturity date of november 30 , 2018 ( “ credit agreement ” ) .

the regulated companies estimate unbilled sales volumes monthly by first allocating billed sales volumes to the current calendar month based on the daily load ( for electric distribution companies ) or the daily send-out ( for natural gas distribution companies ) for each billing cycle . the billed sales volumes are then subtracted from total month load or send-out , net of delivery losses , to estimate unbilled sales volumes . unbilled revenues are estimated by first allocating unbilled sales volumes to the respective customer classes , then applying an estimated rate by customer class to those sales volumes . the estimate of unbilled revenues can significantly impact the amount of revenues recorded at nstar electric , psnh and yankee gas because they do not have a revenue decoupling mechanism . cl & p , wmeco and nstar gas record a regulatory deferral to reflect the actual allowed amount of revenue associated with their respective decoupled distribution rate design . pension and pbop : we sponsor pension and pbop plans to provide retirement benefits to our employees . for each of these plans , several significant assumptions are used to determine the projected benefit obligation , funded status and net periodic benefit cost . these assumptions include the expected long-term rate of return on plan assets , discount rate , compensation/progression rate and mortality and retirement assumptions . we evaluate these assumptions at least annually and adjust them as necessary . changes in these assumptions could have a material impact on our financial position , results of operations or cash flows . expected long-term rate of return on plan assets : in developing this assumption , we consider historical and expected returns , as well as input from our consultants . our expected long-term rate of return on assets is based on assumptions regarding target asset allocations and corresponding expected rates of return for each asset class . we routinely review the actual asset allocations and periodically rebalance the investments to the targeted asset allocations when appropriate . for the year ended december 31 , 2016 , our aggregate expected long-term rate-of-return assumption of 8.25 percent was used to determine our pension and pbop expense . for the forecasted 2017 pension and pbop expense , our expected long-term rate of return of 8.25 percent will be used reflecting our target asset allocations . discount rate : payment obligations related to the pension and pbop plans are discounted at interest rates applicable to the expected timing of each plan 's cash flows . the discount rate that was utilized in determining the 2016 pension and pbop obligations was based on a yield-curve approach . this approach utilizes a population of bonds with an average rating of aa based on bond ratings by moody 's , s & p and fitch , and uses bonds with above median yields within that population . as of december 31 , 2016 , the discount rates used to determine the funded status were 4.33 percent for the pension plan and 4.21 percent for the pbop plan . as of december 31 , 2015 , the discount rates used were 4.6 percent for the pension plan and 4.62 percent for the pbop plan . the decrease in the discount rate used to calculate the funded status resulted in an increase on the pension and pbop plans ' liability of approximately $ 177 million and $ 75 million , respectively , as of december 31 , 2016 . 42 effective january 1 , 2016 , we elected to transition the discount rate to the spot rate methodology from the yield-curve approach for the service and interest cost components of pension and pbop expense because it provides a more precise measurement by matching projected cash flows to the corresponding spot rates on the yield curve . historically , these components were estimated using the same weighted-average discount rate as for the funded status . the discount rates used to estimate the 2016 service costs were 4.89 percent and 4.09 percent for the pension and pbop plans , respectively . the discount rates used to estimate the 2016 interest costs were 3.80 percent and 2.88 percent for the pension and pbop plans , respectively . the total pre-tax benefit of this change on pension and pbop expense , prior to the capitalized portion and amounts deferred and recovered through rate reconciliation mechanisms , for the year ended december 31 , 2016 resulted in decreases to pension and pbop costs of $ 46 million and $ 10 million , respectively . pension and pbop expense charged to earnings is net of the amounts capitalized . mortality assumptions : assumptions as to mortality of the participants in our pension and pbop plans are a key estimate in measuring the expected payments a participant may receive over their lifetime and the corresponding plan liability we need to record . in 2016 , a revised scale for the mortality table was released having the effect of decreasing the estimate of benefits to be provided to plan participants . the impact of the adoption of the new mortality scale resulted in a decrease of approximately $ 32 million and $ 11 million for the pension and pbop plans ' liability , respectively , as of december 31 , 2016 . compensation/progression rate : this assumption reflects the expected long-term salary growth rate , including consideration of the levels of increases built into collective bargaining agreements , and impacts the estimated benefits that pension plan participants receive in the future . as of both december 31 , 2016 and 2015 , the compensation/progression rate used to determine the funded status was 3.5 percent . health care cost : in august 2016 , we amended the pbop plan to standardize benefit design and make benefit changes . as a result , the plan is no longer subject to health care cost trends . story_separator_special_tag tracked electric distribution segment revenues decreased as a result of decreases in energy supply costs ( $ 625.2 million ) , driven by decreased average retail rates and lower sales volumes , partially offset by an increase in retail electric transmission charges ( $ 84.6 million ) , an increase in federally mandated congestion charges ( $ 103.0 million ) , an increase in energy efficiency program revenues ( $ 51.7 million ) , an increase in stranded cost recovery charges ( $ 39.2 million ) and an increase in net metering for distributed generation revenues ( $ 34.0 million ) . in addition , as a result of a change to the amounts collected in the system benefits charge , cl & p 's calculated rate base increased , providing an increase to distribution revenues that positively impacted earnings by $ 23.2 million . in 2016 , tracked natural gas distribution segment revenues decreased as a result of decreases in natural gas supply costs ( $ 128.2 million ) driven by decreased average rates and lower sales volumes , and a decrease in energy efficiency program revenues ( $ 22.7 million ) . electric transmission revenues : the electric transmission segment revenues increased by $ 140.9 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure and the absence in 2016 of a $ 20 million reserve charge recorded in 2015 associated with the march 2015 ferc roe order . other : other revenues decreased due primarily to the sale of eversource 's unregulated contracting business on april 13 , 2015 ( $ 11.4 million ) . purchased power , fuel and transmission expense includes costs associated with purchasing electricity and natural gas on behalf of our customers . these energy supply costs are recovered from customers in rates through cost tracking mechanisms , which have no impact on earnings ( tracked costs ) . purchased power , fuel and transmission expense decreased in 2016 , as compared to 2015 , due primarily to the following : ( millions of dollars ) ( decrease ) /increase electric distribution $ ( 625.9 ) natural gas distribution ( 130.3 ) transmission 170.1 total purchased power , fuel and transmission $ ( 586.1 ) the decrease in purchased power expense at the electric distribution business was driven by lower prices associated with the procurement of energy supply , lower sales volumes , and a decrease in the amount of electricity generated by psnh facilities in 2016 , as compared to 2015. the decrease in purchased power expense at the natural gas distribution business was due to lower sales volumes and lower average natural gas prices . the increase in transmission costs was primarily the result of an increase in costs billed by iso-ne that support regional grid investment . 47 operations and maintenance expense includes tracked costs and costs that are part of base electric and natural gas distribution rates with changes impacting earnings ( non-tracked costs ) . operations and maintenance expense decreased in 2016 , as compared to 2015 , due primarily to the following : replace_table_token_34_th depreciation expense increased in 2016 , as compared to 2015 , due primarily to higher utility plant in service balances . amortization of regulatory assets , net expense includes the deferral of energy supply and energy-related costs included in certain regulatory-approved tracking mechanisms and the amortization of certain costs . the deferral adjusts expense to match the corresponding revenues . amortization of regulatory assets , net increased in 2016 , as compared to 2015 , due primarily to the deferral of energy supply and energy-related costs which can fluctuate from period to period based on the timing of costs incurred and the related rate changes to recover these costs . energy supply and energy-related costs at cl & p , nstar electric , psnh and wmeco , which are the primary drivers in amortization , are recovered from customers in rates and have no impact on earnings . the increase in amortization of regulatory assets , net for the year ended december 31 , 2016 also includes the absence in 2016 of the $ 11.7 million benefit recorded in 2015 at nstar electric in connection with the comprehensive settlement agreement . energy efficiency programs expense increased in 2016 , as compared to 2015 , due primarily to deferral adjustments at nstar electric , partially offset by deferral adjustments for the natural gas businesses , which reflect the actual costs of energy efficiency programs compared to the estimated amounts billed to customers , and the timing of the recovery of energy efficiency costs incurred in accordance with the three-year program guidelines established by the dpu . the deferrals adjust expense to match the energy efficiency programs revenue . the costs for various state energy policy initiatives and expanded energy efficiency programs are recovered from customers in rates and have no impact on earnings . taxes other than income taxes expense increased in 2016 , as compared to 2015 , due primarily to an increase in property taxes as a result of higher utility plant balances and an increase in gross earnings taxes . gross earnings taxes are recovered from customers in rates and have no impact on earnings . interest expense increased in 2016 , as compared to 2015 , due primarily to an increase in interest on long-term debt ( $ 33.8 million ) as a result of new debt issuances and an increase in interest on notes payable ( $ 2.2 million ) , partially offset by a decrease in regulatory deferrals which decreased interest expense ( $ 5.5 million ) . other income , net increased in 2016 , as compared to 2015 , due primarily to higher equity afudc amounts ( $ 7.4 million ) , higher gains related to the sales of unregulated businesses ( $ 9.4 million ) and an increase in interest income ( $ 4.1 million ) .

liquidity cash totaled $ 6.6 million as of december 31 , 2016 , compared with $ 1.1 million as of december 31 , 2015. eversource parent has a $ 1.45 billion commercial paper program allowing eversource parent to issue commercial paper as a form of short-term debt , with intercompany loans to certain subsidiaries , including cl & p . the weighted-average interest rate on the commercial paper borrowings as of december 31 , 2016 and 2015 was 0.88 percent and 0.72 percent , respectively . as of december 31 , 2016 and 2015 , there were intercompany loans from eversource parent to cl & p of $ 80.1 million and $ 277.4 million , respectively . eversource parent , and certain of its subsidiaries , including cl & p , are parties to a five -year $ 1.45 billion revolving credit facility . effective september 26 , 2016 , the revolving credit facility 's termination date was extended for one additional year to september 4 , 2021. there were no borrowings outstanding on the revolving credit facility as of december 31 , 2016 or 2015 . 55 in 2016 , cl & p had cash flows provided by operating activities of $ 811.5 million , compared with $ 298.3 million in 2015. the increase in operating cash flows was due primarily to the absence in 2016 of approximately $ 244.6 million in payments made in 2015 to fully satisfy the pre-1983 spent nuclear fuel obligation with the doe , and the favorable impact associated with the december 2015 legislation that extended tax bonus depreciation , which resulted in income tax refunds of $ 73.9 million received in 2016 , as compared to income tax payments of $ 55.2 million made in 2015. also contributing to the favorable impact was an increase in distribution rates due to higher rate base and the timing of collections and payments related to our working capital items , including accounts receivable and accounts payable . partially offsetting these impacts was the timing of regulatory recoveries primarily related to energy efficiency program costs .

see note 3 titled “ investment in real estate ” and note 4 titled “ dispositions ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning these transactions . merger with apple ten effective september 1 , 2016 , the company completed its merger with apple ten , and , as a result of the merger , acquired the business of apple ten , a reit which , immediately prior to the merger , owned 56 marriott and hilton branded primarily select-service and extended-stay hotels located in 17 states with an aggregate of 7,209 rooms , and assumed all of apple ten 's assets and liabilities at closing . for purpose of accounting for the transaction , the aggregate value of the merger consideration paid to apple ten shareholders was estimated to be approximately $ 1.0 billion , and was comprised of approximately $ 956.1 million for the issuance of approximately 48.7 million common shares of the company valued at $ 19.62 per share , which was the closing price of the company 's common shares on august 31 , 2016 ( the date that the merger was approved ) , and $ 93.6 million in cash , which was funded through borrowings on the company 's revolving credit facility . upon completion of the merger , the advisory and related party arrangements with respect to the company , apple ten and apple ten 's advisors were terminated . see note 2 titled “ merger with apple reit ten , inc. ” in part ii , item 8 , of the consolidated financial statements and 35 index notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning the merger with apple ten . hotel operations although hotel performance can be influenced by many factors including local competition , local and general economic conditions in the united states and the performance of individual managers assigned to each hotel , performance of the company 's hotels as compared to other hotels within their respective local markets , in general , has met the company 's expectations for the period owned . over the past several quarters , the lodging industry and the company have experienced low single digit revenue growth . moderate improvements in the general u.s. economy have been partially offset by increased supply in many markets . with modest revenue growth , the company has produced stable operating results during 2017 on a comparable basis ( as defined below ) with expense increases generally offsetting revenue growth . there is no way to predict future economic conditions , and there continue to be additional factors that could negatively affect the lodging industry and the company , including but not limited to , increased hotel supply in certain markets , labor uncertainty both for the economy as a whole and the lodging industry in particular , global volatility and government fiscal policies . the company , on a comparable basis , and industry are forecasting a low single digit percentage increase in revenue for 2018 as compared to 2017. the low growth is primarily due to inconsistent demand in certain markets and increased hotel supply meeting demand growth in others , limiting the company 's ability to increase rates . in evaluating financial condition and operating performance , the most important indicators on which the company focuses are revenue measurements , such as average occupancy , adr and revpar , and expenses , such as hotel operating expenses , general and administrative expenses and other expenses described below . the following is a summary of the results from operations of the company 's hotels for their respective periods of ownership by the company . replace_table_token_14_th 36 index comparable hotels operating results the following table reflects certain operating statistics for the company 's 239 hotels owned as of december 31 , 2017 ( “ comparable hotels ” ) . the company defines metrics from comparable hotels as results generated by the 239 hotels owned as of the end of the reporting period . for the hotels acquired during the reporting periods shown , the company has included , as applicable , results of those hotels for periods prior to the company 's ownership using information provided by the properties ' prior owners at the time of acquisition and not adjusted by the company . this information has not been audited , either for the periods owned or prior to ownership by the company . for dispositions , results have been excluded for the company 's period of ownership . replace_table_token_15_th same store operating results the following table reflects certain operating statistics for the 170 hotels owned by the company as of january 1 , 2015 and during the entirety of the reporting periods being compared ( “ same store hotels ” ) . this information has not been audited . replace_table_token_16_th as discussed above , hotel performance is impacted by many factors , including the economic conditions in the united states as well as each individual locality . economic indicators in the united states have generally been favorable , which has been partially offset by increased supply in many of the company 's markets . as a result , the company 's revenue and operating results for its comparable hotels and same store hotels experienced modest growth in 2017 as compared to 2016 and 2015. the company expects continued modest improvement in revenue and operating results for its comparable hotels in 2018 as compared to 2017. the company 's hotels in general have shown results consistent with industry and brand averages for the period of ownership . story_separator_special_tag the increase as a percent of revenue from 2015 is due primarily to the receipt in 2015 of approximately $ 1.8 million in settlement proceeds , net of costs , from the deepwater horizon economic and property damages settlement program related to damages suffered at several of the company 's hotels as a result of the gulf of mexico oil spill in 2010. for the company 's comparable hotels , real estate taxes increased in 2016 compared to 2015 , with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy , partially offset by decreases at other locations due to successful appeals of tax assessments . ground lease expense ground lease expense for the years ended december 31 , 2016 and 2015 was $ 10.4 million and $ 10.0 million , respectively . ground lease expense primarily represents the expense incurred by the company to lease land for 14 of its hotel properties , including four hotels acquired in the apple ten merger effective september 1 , 2016. general and administrative expense general and administrative expense for the years ended december 31 , 2016 and 2015 was $ 17.0 million and $ 19.6 million , respectively , or 1.6 % and 2.2 % of total revenue , respectively . the decrease in general and administrative expense for 2016 as compared to 2015 was due primarily to a decrease in compensation expense partially offset by the elimination of the advisory fee and reimbursement of costs received from apple ten effective september 1 , 2016 due to the acquisition of apple ten . based on the company 's performance in 2016 in relation to the operational performance and shareholder return metrics of the 2016 incentive plan , the amounts earned under the 2016 incentive plan were lower than the comparable compensation under the 2015 executive incentive plan ( “ 2015 incentive plan ” ) , resulting in a decrease in executive compensation expense for 2016 of approximately $ 5.6 million , as compared to 2015. however , the decrease in compensation expense was partially offset by the time-based vesting component to the 2015 incentive plan , with compensation recognized over a two year period and , as a result , 2016 executive compensation expense includes recognition of share based compensation from both the 2015 and 2016 executive compensation incentive plans . transaction and litigation costs ( reimbursements ) transaction and litigation costs ( reimbursements ) for the years ended december 31 , 2016 and 2015 were $ 35.0 million and $ 7.2 million , respectively . transaction and litigation costs ( reimbursements ) for 2016 consist primarily of ( i ) costs related to the apple ten merger totaling approximately $ 29.2 million , ( ii ) $ 5.5 million of costs incurred to settle the litigation related to apple seven 's and apple eight 's terminated dividend reinvestment plans discussed herein , and ( iii ) other acquisition related costs totaling approximately $ 0.4 million . transaction and litigation costs ( reimbursements ) for 2015 consist primarily of ( i ) costs related to the board of directors ' review and evaluation of strategic alternatives , including the listing , totaling approximately $ 5.8 million , ( ii ) costs related to the company 's merger with apple seven and apple eight on march 1 , 2014 ( “ a7 and a8 mergers ” ) totaling approximately $ 0.1 million , which consisted primarily of costs incurred to defend the a7 and a8 mergers class action lawsuit , dismissed in 2016 , net of reimbursements received from the company 's directors and officers insurance carriers related to these costs and ( iii ) acquisition related costs totaling approximately $ 1.2 million . loss on impairment of depreciable real estate assets loss on impairment of depreciable real estate assets was approximately $ 5.5 million and $ 45.0 million for the years ended december 31 , 2016 and 2015 , respectively , and consisted of impairment charges for ( a ) its chesapeake , virginia marriott hotel recorded during the third quarter of 2016 , resulting from a change in the anticipated hold period for this asset , which was later sold in december 2016 , and ( b ) its new york , new york renaissance hotel recorded in the fourth quarter of 2015 , as a result of declines in the hotel 's current and projected operations . see note 3 titled “ investment in real estate ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning these impairment losses . 41 index depreciation expense depreciation expense for the years ended december 31 , 2016 and 2015 was $ 148.2 million and $ 127.4 million , respectively . the increase was primarily due to the increase in the number of properties owned as a result of the apple ten merger effective september 1 , 2016 , the acquisition of one hotel on july 1 , 2016 and seven hotels in 2015 and renovations completed throughout 2016 and 2015. interest and other expense , net interest and other expense , net for the years ended december 31 , 2016 and 2015 was $ 40.0 million and $ 33.1 million , respectively , and is net of approximately $ 1.6 million and $ 1.5 million of interest capitalized associated with renovation and construction projects , respectively . the increase in interest expense was primarily due to an increase in the company 's average outstanding borrowings during 2016 as compared to 2015 which is primarily attributable to ( a ) mortgage debt assumed in the apple ten merger effective september 1 , 2016 and ( b ) borrowings to fund ( i ) the cash payment portion of the apple ten merger , ( ii ) the repayment of apple ten 's outstanding balance

liquidity cash totaled $ 6.6 million as of december 31 , 2016 , compared with $ 1.1 million as of december 31 , 2015. eversource parent has a $ 1.45 billion commercial paper program allowing eversource parent to issue commercial paper as a form of short-term debt , with intercompany loans to certain subsidiaries , including cl & p . the weighted-average interest rate on the commercial paper borrowings as of december 31 , 2016 and 2015 was 0.88 percent and 0.72 percent , respectively . as of december 31 , 2016 and 2015 , there were intercompany loans from eversource parent to cl & p of $ 80.1 million and $ 277.4 million , respectively . eversource parent , and certain of its subsidiaries , including cl & p , are parties to a five -year $ 1.45 billion revolving credit facility . effective september 26 , 2016 , the revolving credit facility 's termination date was extended for one additional year to september 4 , 2021. there were no borrowings outstanding on the revolving credit facility as of december 31 , 2016 or 2015 . 55 in 2016 , cl & p had cash flows provided by operating activities of $ 811.5 million , compared with $ 298.3 million in 2015. the increase in operating cash flows was due primarily to the absence in 2016 of approximately $ 244.6 million in payments made in 2015 to fully satisfy the pre-1983 spent nuclear fuel obligation with the doe , and the favorable impact associated with the december 2015 legislation that extended tax bonus depreciation , which resulted in income tax refunds of $ 73.9 million received in 2016 , as compared to income tax payments of $ 55.2 million made in 2015. also contributing to the favorable impact was an increase in distribution rates due to higher rate base and the timing of collections and payments related to our working capital items , including accounts receivable and accounts payable . partially offsetting these impacts was the timing of regulatory recoveries primarily related to energy efficiency program costs .

see note 3 titled “ investment in real estate ” and note 4 titled “ dispositions ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning these transactions . merger with apple ten effective september 1 , 2016 , the company completed its merger with apple ten , and , as a result of the merger , acquired the business of apple ten , a reit which , immediately prior to the merger , owned 56 marriott and hilton branded primarily select-service and extended-stay hotels located in 17 states with an aggregate of 7,209 rooms , and assumed all of apple ten 's assets and liabilities at closing . for purpose of accounting for the transaction , the aggregate value of the merger consideration paid to apple ten shareholders was estimated to be approximately $ 1.0 billion , and was comprised of approximately $ 956.1 million for the issuance of approximately 48.7 million common shares of the company valued at $ 19.62 per share , which was the closing price of the company 's common shares on august 31 , 2016 ( the date that the merger was approved ) , and $ 93.6 million in cash , which was funded through borrowings on the company 's revolving credit facility . upon completion of the merger , the advisory and related party arrangements with respect to the company , apple ten and apple ten 's advisors were terminated . see note 2 titled “ merger with apple reit ten , inc. ” in part ii , item 8 , of the consolidated financial statements and 35 index notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning the merger with apple ten . hotel operations although hotel performance can be influenced by many factors including local competition , local and general economic conditions in the united states and the performance of individual managers assigned to each hotel , performance of the company 's hotels as compared to other hotels within their respective local markets , in general , has met the company 's expectations for the period owned . over the past several quarters , the lodging industry and the company have experienced low single digit revenue growth . moderate improvements in the general u.s. economy have been partially offset by increased supply in many markets . with modest revenue growth , the company has produced stable operating results during 2017 on a comparable basis ( as defined below ) with expense increases generally offsetting revenue growth . there is no way to predict future economic conditions , and there continue to be additional factors that could negatively affect the lodging industry and the company , including but not limited to , increased hotel supply in certain markets , labor uncertainty both for the economy as a whole and the lodging industry in particular , global volatility and government fiscal policies . the company , on a comparable basis , and industry are forecasting a low single digit percentage increase in revenue for 2018 as compared to 2017. the low growth is primarily due to inconsistent demand in certain markets and increased hotel supply meeting demand growth in others , limiting the company 's ability to increase rates . in evaluating financial condition and operating performance , the most important indicators on which the company focuses are revenue measurements , such as average occupancy , adr and revpar , and expenses , such as hotel operating expenses , general and administrative expenses and other expenses described below . the following is a summary of the results from operations of the company 's hotels for their respective periods of ownership by the company . replace_table_token_14_th 36 index comparable hotels operating results the following table reflects certain operating statistics for the company 's 239 hotels owned as of december 31 , 2017 ( “ comparable hotels ” ) . the company defines metrics from comparable hotels as results generated by the 239 hotels owned as of the end of the reporting period . for the hotels acquired during the reporting periods shown , the company has included , as applicable , results of those hotels for periods prior to the company 's ownership using information provided by the properties ' prior owners at the time of acquisition and not adjusted by the company . this information has not been audited , either for the periods owned or prior to ownership by the company . for dispositions , results have been excluded for the company 's period of ownership . replace_table_token_15_th same store operating results the following table reflects certain operating statistics for the 170 hotels owned by the company as of january 1 , 2015 and during the entirety of the reporting periods being compared ( “ same store hotels ” ) . this information has not been audited . replace_table_token_16_th as discussed above , hotel performance is impacted by many factors , including the economic conditions in the united states as well as each individual locality . economic indicators in the united states have generally been favorable , which has been partially offset by increased supply in many of the company 's markets . as a result , the company 's revenue and operating results for its comparable hotels and same store hotels experienced modest growth in 2017 as compared to 2016 and 2015. the company expects continued modest improvement in revenue and operating results for its comparable hotels in 2018 as compared to 2017. the company 's hotels in general have shown results consistent with industry and brand averages for the period of ownership . story_separator_special_tag the increase as a percent of revenue from 2015 is due primarily to the receipt in 2015 of approximately $ 1.8 million in settlement proceeds , net of costs , from the deepwater horizon economic and property damages settlement program related to damages suffered at several of the company 's hotels as a result of the gulf of mexico oil spill in 2010. for the company 's comparable hotels , real estate taxes increased in 2016 compared to 2015 , with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy , partially offset by decreases at other locations due to successful appeals of tax assessments . ground lease expense ground lease expense for the years ended december 31 , 2016 and 2015 was $ 10.4 million and $ 10.0 million , respectively . ground lease expense primarily represents the expense incurred by the company to lease land for 14 of its hotel properties , including four hotels acquired in the apple ten merger effective september 1 , 2016. general and administrative expense general and administrative expense for the years ended december 31 , 2016 and 2015 was $ 17.0 million and $ 19.6 million , respectively , or 1.6 % and 2.2 % of total revenue , respectively . the decrease in general and administrative expense for 2016 as compared to 2015 was due primarily to a decrease in compensation expense partially offset by the elimination of the advisory fee and reimbursement of costs received from apple ten effective september 1 , 2016 due to the acquisition of apple ten . based on the company 's performance in 2016 in relation to the operational performance and shareholder return metrics of the 2016 incentive plan , the amounts earned under the 2016 incentive plan were lower than the comparable compensation under the 2015 executive incentive plan ( “ 2015 incentive plan ” ) , resulting in a decrease in executive compensation expense for 2016 of approximately $ 5.6 million , as compared to 2015. however , the decrease in compensation expense was partially offset by the time-based vesting component to the 2015 incentive plan , with compensation recognized over a two year period and , as a result , 2016 executive compensation expense includes recognition of share based compensation from both the 2015 and 2016 executive compensation incentive plans . transaction and litigation costs ( reimbursements ) transaction and litigation costs ( reimbursements ) for the years ended december 31 , 2016 and 2015 were $ 35.0 million and $ 7.2 million , respectively . transaction and litigation costs ( reimbursements ) for 2016 consist primarily of ( i ) costs related to the apple ten merger totaling approximately $ 29.2 million , ( ii ) $ 5.5 million of costs incurred to settle the litigation related to apple seven 's and apple eight 's terminated dividend reinvestment plans discussed herein , and ( iii ) other acquisition related costs totaling approximately $ 0.4 million . transaction and litigation costs ( reimbursements ) for 2015 consist primarily of ( i ) costs related to the board of directors ' review and evaluation of strategic alternatives , including the listing , totaling approximately $ 5.8 million , ( ii ) costs related to the company 's merger with apple seven and apple eight on march 1 , 2014 ( “ a7 and a8 mergers ” ) totaling approximately $ 0.1 million , which consisted primarily of costs incurred to defend the a7 and a8 mergers class action lawsuit , dismissed in 2016 , net of reimbursements received from the company 's directors and officers insurance carriers related to these costs and ( iii ) acquisition related costs totaling approximately $ 1.2 million . loss on impairment of depreciable real estate assets loss on impairment of depreciable real estate assets was approximately $ 5.5 million and $ 45.0 million for the years ended december 31 , 2016 and 2015 , respectively , and consisted of impairment charges for ( a ) its chesapeake , virginia marriott hotel recorded during the third quarter of 2016 , resulting from a change in the anticipated hold period for this asset , which was later sold in december 2016 , and ( b ) its new york , new york renaissance hotel recorded in the fourth quarter of 2015 , as a result of declines in the hotel 's current and projected operations . see note 3 titled “ investment in real estate ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning these impairment losses . 41 index depreciation expense depreciation expense for the years ended december 31 , 2016 and 2015 was $ 148.2 million and $ 127.4 million , respectively . the increase was primarily due to the increase in the number of properties owned as a result of the apple ten merger effective september 1 , 2016 , the acquisition of one hotel on july 1 , 2016 and seven hotels in 2015 and renovations completed throughout 2016 and 2015. interest and other expense , net interest and other expense , net for the years ended december 31 , 2016 and 2015 was $ 40.0 million and $ 33.1 million , respectively , and is net of approximately $ 1.6 million and $ 1.5 million of interest capitalized associated with renovation and construction projects , respectively . the increase in interest expense was primarily due to an increase in the company 's average outstanding borrowings during 2016 as compared to 2015 which is primarily attributable to ( a ) mortgage debt assumed in the apple ten merger effective september 1 , 2016 and ( b ) borrowings to fund ( i ) the cash payment portion of the apple ten merger , ( ii ) the repayment of apple ten 's outstanding balance

liquidity and capital resources contractual commitments the following is a summary of the company 's significant contractual obligations as of december 31 , 2017 ( in thousands ) : replace_table_token_21_th capital resources the company 's principal daily sources of liquidity are the operating cash flow generated from the company 's properties and availability under its revolving credit facility . periodically the company may receive proceeds from strategic additional secured and unsecured debt financing , dispositions of its hotel properties and offerings of the company 's common shares . the company 's revolving credit facility has an initial maturity of may 18 , 2019 and , subject to certain conditions and fees , may be extended one year . the revolving credit facility , which as of december 31 , 2017 had unused borrowing capacity of approximately $ 433.1 million , is available for acquisitions , hotel renovations and development , share repurchases , working capital and other general corporate funding purposes , including the payment of distributions to shareholders . as of december 31 , 2017 , the company 's revolving credit facility had an outstanding principal balance of approximately $ 106.9 million with an annual variable interest rate of approximately 3.11 % . the credit agreement governing the revolving credit facility contains mandatory prepayment requirements , customary affirmative covenants , negative covenants and events of default . the credit agreement requires that the company comply with various covenants , which include , among others , a minimum tangible net worth , maximum debt limits , minimum interest and fixed charge coverage ratios , limits on dividend payments and share repurchases and restrictions on certain investments .

the increase in gross profit as a percentage of net sales was primarily related to a decrease in material related costs partially offset by an increase in certain overhead costs . the level of gross margin is impacted by product mix , timing of the startup of new programs , facility utilization , pricing within the electronics industry and material costs , which can fluctuate significantly from quarter to quarter and year to year . operating income as a percentage of net sales for fiscal year 2017 was 2.0 percent compared to 2.1 percent for fiscal year 2016 . the decrease in operating income as a percentage of net sales was primarily due to an increase in selling , general and administrative expenses . this increase in sg & a expenses is primarily related to an increase in legal fees . net income for fiscal year 2017 was $ 5.6 million or $ 0.51 per diluted share , as compared to net income of $ 6.5 million or $ 0.58 per diluted share for fiscal year 2016 . the decrease in net income for fiscal year 2017 as compared to fiscal year 2016 was primarily driven by the decrease in net revenue as described above . 19 we maintain a strong balance sheet with a current ratio of 2.3 and a debt to equity ratio of 0.37 . total cash provided by operating activities as defined on our cash flow statement was $ 9.4 million during fiscal year 2017 . we maintain sufficient liquidity for our expected future operations . as of july 1 , 2017 , we had $ 18.3 million outstanding on our revolving line of credit with wells fargo bank , n.a . as a result , $ 26.3 million remained available to borrow as of july 1 , 2017 . we believe cash flow from operations , our borrowing capacity , our accounts receivable sale program , and equipment financing should provide adequate capital for planned growth over the long term . results of operations comparison of the fiscal year ended july 1 , 2017 with the fiscal year ended july 2 , 2016 the following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_5_th net sales the decrease in net sales of $ 17.2 million from prior year was primarily driven by a decrease in net sales from the former longstanding customer which has been discussed in prior quarters , partially offset by an increase in new program wins . the following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2017 and 2016 : replace_table_token_6_th we provide services to customers in a number of industries and produce a variety of products for our customers in each industry . key tronic does not target any particular industry , but rather seeks to find programs that strategically fit our vertical manufacturing capabilities . as we continue to diversify our customer base and win new customers , we will continue to see a change in the industry concentrations of our revenue . sales to foreign locations represented 22.6 percent and 28.3 percent of our total net sales in fiscal years 2017 and 2016 , respectively . 20 cost of sales total cost of sales as a percentage of net sales was 91.8 percent and 92.0 percent in fiscal years 2017 and 2016 , respectively . total cost of materials as a percentage of net sales was approximately 61.7 percent and 63.9 percent in fiscal years 2017 and 2016 , respectively . the change from year-to-year is primarily a result of improved pricing of certain raw materials as well as a more favorable product mix . production and support costs as a percentage of net sales were 30.1 percent and 28.1 percent in fiscal years 2017 and 2016 , respectively . the increase in fiscal year 2017 is primarily related absorption increasing as a percentage of sales during the fiscal year . we provide a reserve for obsolete and non-saleable inventories based on specific identification of inventory against current demand and recent usage . we also consider our customers ' ability to pay for inventory whether or not there is a lead-time assurance agreement for a specific program . the amounts charged to expense for these inventories were approximately $ 0.5 million and $ 0.8 million in fiscal years 2017 and 2016 , respectively . we provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns . warranty expense is related to workmanship claims on keyboards and ems products . the amounts charged to expense are determined based on an estimate of warranty exposure . the net warranty expense was approximately $ 68,000 and $ 95,000 in fiscal years 2017 and 2016 , respectively . gross profit gross profit as a percentage of net sales was 8.2 percent and 8.0 percent in fiscal years 2017 , and 2016 , respectively . the 0.2 percentage point increase in gross profit as a percentage of net sales during fiscal year 2017 as compared to fiscal year 2016 is primarily related to a 1.7 percentage point decrease in material related costs partially offset by a 1.5 percentage point increase in certain overhead costs . this reflects an increase in gross margin percentage year-over-year as the unprofitable manufacturing facility was closed and trimming non-profitable programs . story_separator_special_tag to determine the fair value of stock based awards on the date of grant we use the black-scholes option-pricing model . inherent in this model are assumptions related to expected stock price volatility , option life , risk-free interest rate and dividend yield . the risk-free interest rate is a less-subjective assumption as it is based on factual data derived from public sources . we use a dividend yield of zero as we have never paid cash dividends and have no intention to pay cash dividends in the foreseeable future . the expected stock price volatility and option life assumptions require a greater level of judgment . our expected stock-price volatility assumption is based upon the historical volatility of our stock which is obtained from public data sources . the expected life represents the weighted average period of time that share-based awards are expected to be outstanding , giving consideration to vesting schedules and historical exercise patterns . we determine the expected life assumption based upon the exercise and post-vesting behavior that has been exhibited historically , adjusted for specific factors that may influence future exercise patterns . if expected volatility or expected life were to increase , that would result in an increase in the fair value of our stock options which would result in higher compensation charges , while a decrease in volatility or the expected life would result in a lower fair value of our stock option awards resulting in lower compensation charges . we estimate forfeitures for all of our awards based upon historical experience of stock-based pre-vesting forfeitures . we believe that our estimates are based upon outcomes that are reasonably likely to occur . if actual forfeitures are higher than our estimates it would result in lower compensation expense and to the extent the actual forfeitures are lower than our estimate we would record higher compensation expense . impairment of long-lived assets long-lived assets , such as property , plant , and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . the recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated undiscounted future cash flows , an impairment charge would be recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . derivatives and hedging activity derivatives are recognized on the balance sheet at their estimated fair value . on the date a derivative contract is entered into , the company designates the derivative as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ( a “ cash flow ” hedge ) . the company does not enter into derivatives for speculative purposes . changes in the fair value of a derivative that qualifies as a cash flow hedge are recorded in “ accumulated other comprehensive income , ” until earnings are affected by the variability of cash flows . see note 11 of the company 's consolidated financial statements for additional information . long-term incentive compensation accrual long-term incentive compensation is recognized as expense ratably over the requisite service period of the award which is generally three years . the board of directors approve target performance measures for the three year period for each of the company 's officers and non-employee directors . performance measures are based on a combination of sales growth targets and return on invested capital targets . no cash awards will be made to participants if actual company performance does not exceed the minimum target performance measures . the calculation used to determine the necessary accrual uses a combination of actual results and projected results . we believe that our estimates are based upon outcomes that are reasonably likely to occur . these estimates and assumptions are based on historical results as well as future expectations . actual results could vary from our estimates and assumptions . 28 impairment of goodwill in accordance with asc 350 , goodwill and other intangible assets , goodwill is not amortized but is required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value . the company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value . if , after assessing the totality of events and circumstances , the company concludes that it is not more likely than not that the fair value of any reporting unit is less than its corresponding carrying value then the company is not required to take further action . however , if the company concludes otherwise , then it is required to perform a quantitative impairment test , including computing the fair value of the reporting unit and comparing that value to its carrying value . the company utilizes a weighting of the income approach and a market approach in the impairment test . we also consider valuation factors including the company 's market capitalization , future discounted cash flows and an estimated control premium based upon a review of comparable market transactions . our consideration of discounted future cashflows included assumptions regarding growth rates and margins based on our historical trends . in addition , we applied a market discount rate calculated based upon an analysis of companies similar in size . if our future cash flows do not meet our projections or there is an event that impacts our market capitalization , the assumptions used in our goodwill analysis could be negatively impacted . the estimated

liquidity and capital resources contractual commitments the following is a summary of the company 's significant contractual obligations as of december 31 , 2017 ( in thousands ) : replace_table_token_21_th capital resources the company 's principal daily sources of liquidity are the operating cash flow generated from the company 's properties and availability under its revolving credit facility . periodically the company may receive proceeds from strategic additional secured and unsecured debt financing , dispositions of its hotel properties and offerings of the company 's common shares . the company 's revolving credit facility has an initial maturity of may 18 , 2019 and , subject to certain conditions and fees , may be extended one year . the revolving credit facility , which as of december 31 , 2017 had unused borrowing capacity of approximately $ 433.1 million , is available for acquisitions , hotel renovations and development , share repurchases , working capital and other general corporate funding purposes , including the payment of distributions to shareholders . as of december 31 , 2017 , the company 's revolving credit facility had an outstanding principal balance of approximately $ 106.9 million with an annual variable interest rate of approximately 3.11 % . the credit agreement governing the revolving credit facility contains mandatory prepayment requirements , customary affirmative covenants , negative covenants and events of default . the credit agreement requires that the company comply with various covenants , which include , among others , a minimum tangible net worth , maximum debt limits , minimum interest and fixed charge coverage ratios , limits on dividend payments and share repurchases and restrictions on certain investments .

the increase in gross profit as a percentage of net sales was primarily related to a decrease in material related costs partially offset by an increase in certain overhead costs . the level of gross margin is impacted by product mix , timing of the startup of new programs , facility utilization , pricing within the electronics industry and material costs , which can fluctuate significantly from quarter to quarter and year to year . operating income as a percentage of net sales for fiscal year 2017 was 2.0 percent compared to 2.1 percent for fiscal year 2016 . the decrease in operating income as a percentage of net sales was primarily due to an increase in selling , general and administrative expenses . this increase in sg & a expenses is primarily related to an increase in legal fees . net income for fiscal year 2017 was $ 5.6 million or $ 0.51 per diluted share , as compared to net income of $ 6.5 million or $ 0.58 per diluted share for fiscal year 2016 . the decrease in net income for fiscal year 2017 as compared to fiscal year 2016 was primarily driven by the decrease in net revenue as described above . 19 we maintain a strong balance sheet with a current ratio of 2.3 and a debt to equity ratio of 0.37 . total cash provided by operating activities as defined on our cash flow statement was $ 9.4 million during fiscal year 2017 . we maintain sufficient liquidity for our expected future operations . as of july 1 , 2017 , we had $ 18.3 million outstanding on our revolving line of credit with wells fargo bank , n.a . as a result , $ 26.3 million remained available to borrow as of july 1 , 2017 . we believe cash flow from operations , our borrowing capacity , our accounts receivable sale program , and equipment financing should provide adequate capital for planned growth over the long term . results of operations comparison of the fiscal year ended july 1 , 2017 with the fiscal year ended july 2 , 2016 the following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_5_th net sales the decrease in net sales of $ 17.2 million from prior year was primarily driven by a decrease in net sales from the former longstanding customer which has been discussed in prior quarters , partially offset by an increase in new program wins . the following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2017 and 2016 : replace_table_token_6_th we provide services to customers in a number of industries and produce a variety of products for our customers in each industry . key tronic does not target any particular industry , but rather seeks to find programs that strategically fit our vertical manufacturing capabilities . as we continue to diversify our customer base and win new customers , we will continue to see a change in the industry concentrations of our revenue . sales to foreign locations represented 22.6 percent and 28.3 percent of our total net sales in fiscal years 2017 and 2016 , respectively . 20 cost of sales total cost of sales as a percentage of net sales was 91.8 percent and 92.0 percent in fiscal years 2017 and 2016 , respectively . total cost of materials as a percentage of net sales was approximately 61.7 percent and 63.9 percent in fiscal years 2017 and 2016 , respectively . the change from year-to-year is primarily a result of improved pricing of certain raw materials as well as a more favorable product mix . production and support costs as a percentage of net sales were 30.1 percent and 28.1 percent in fiscal years 2017 and 2016 , respectively . the increase in fiscal year 2017 is primarily related absorption increasing as a percentage of sales during the fiscal year . we provide a reserve for obsolete and non-saleable inventories based on specific identification of inventory against current demand and recent usage . we also consider our customers ' ability to pay for inventory whether or not there is a lead-time assurance agreement for a specific program . the amounts charged to expense for these inventories were approximately $ 0.5 million and $ 0.8 million in fiscal years 2017 and 2016 , respectively . we provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns . warranty expense is related to workmanship claims on keyboards and ems products . the amounts charged to expense are determined based on an estimate of warranty exposure . the net warranty expense was approximately $ 68,000 and $ 95,000 in fiscal years 2017 and 2016 , respectively . gross profit gross profit as a percentage of net sales was 8.2 percent and 8.0 percent in fiscal years 2017 , and 2016 , respectively . the 0.2 percentage point increase in gross profit as a percentage of net sales during fiscal year 2017 as compared to fiscal year 2016 is primarily related to a 1.7 percentage point decrease in material related costs partially offset by a 1.5 percentage point increase in certain overhead costs . this reflects an increase in gross margin percentage year-over-year as the unprofitable manufacturing facility was closed and trimming non-profitable programs . story_separator_special_tag to determine the fair value of stock based awards on the date of grant we use the black-scholes option-pricing model . inherent in this model are assumptions related to expected stock price volatility , option life , risk-free interest rate and dividend yield . the risk-free interest rate is a less-subjective assumption as it is based on factual data derived from public sources . we use a dividend yield of zero as we have never paid cash dividends and have no intention to pay cash dividends in the foreseeable future . the expected stock price volatility and option life assumptions require a greater level of judgment . our expected stock-price volatility assumption is based upon the historical volatility of our stock which is obtained from public data sources . the expected life represents the weighted average period of time that share-based awards are expected to be outstanding , giving consideration to vesting schedules and historical exercise patterns . we determine the expected life assumption based upon the exercise and post-vesting behavior that has been exhibited historically , adjusted for specific factors that may influence future exercise patterns . if expected volatility or expected life were to increase , that would result in an increase in the fair value of our stock options which would result in higher compensation charges , while a decrease in volatility or the expected life would result in a lower fair value of our stock option awards resulting in lower compensation charges . we estimate forfeitures for all of our awards based upon historical experience of stock-based pre-vesting forfeitures . we believe that our estimates are based upon outcomes that are reasonably likely to occur . if actual forfeitures are higher than our estimates it would result in lower compensation expense and to the extent the actual forfeitures are lower than our estimate we would record higher compensation expense . impairment of long-lived assets long-lived assets , such as property , plant , and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . the recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated undiscounted future cash flows , an impairment charge would be recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . derivatives and hedging activity derivatives are recognized on the balance sheet at their estimated fair value . on the date a derivative contract is entered into , the company designates the derivative as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ( a “ cash flow ” hedge ) . the company does not enter into derivatives for speculative purposes . changes in the fair value of a derivative that qualifies as a cash flow hedge are recorded in “ accumulated other comprehensive income , ” until earnings are affected by the variability of cash flows . see note 11 of the company 's consolidated financial statements for additional information . long-term incentive compensation accrual long-term incentive compensation is recognized as expense ratably over the requisite service period of the award which is generally three years . the board of directors approve target performance measures for the three year period for each of the company 's officers and non-employee directors . performance measures are based on a combination of sales growth targets and return on invested capital targets . no cash awards will be made to participants if actual company performance does not exceed the minimum target performance measures . the calculation used to determine the necessary accrual uses a combination of actual results and projected results . we believe that our estimates are based upon outcomes that are reasonably likely to occur . these estimates and assumptions are based on historical results as well as future expectations . actual results could vary from our estimates and assumptions . 28 impairment of goodwill in accordance with asc 350 , goodwill and other intangible assets , goodwill is not amortized but is required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value . the company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value . if , after assessing the totality of events and circumstances , the company concludes that it is not more likely than not that the fair value of any reporting unit is less than its corresponding carrying value then the company is not required to take further action . however , if the company concludes otherwise , then it is required to perform a quantitative impairment test , including computing the fair value of the reporting unit and comparing that value to its carrying value . the company utilizes a weighting of the income approach and a market approach in the impairment test . we also consider valuation factors including the company 's market capitalization , future discounted cash flows and an estimated control premium based upon a review of comparable market transactions . our consideration of discounted future cashflows included assumptions regarding growth rates and margins based on our historical trends . in addition , we applied a market discount rate calculated based upon an analysis of companies similar in size . if our future cash flows do not meet our projections or there is an event that impacts our market capitalization , the assumptions used in our goodwill analysis could be negatively impacted . the estimated

capital resources and liquidity operating cash flow net cash provided by operating activities for fiscal year 2017 was $ 9.4 million compared to net cash provided by operating activities of $ 4.6 million and $ 7.7 million in fiscal years 2016 and 2015 , respectively . the $ 9.4 million of net cash provided by operating activities during fiscal year 2017 is primarily related to $ 5.6 million of net income , $ 7.2 million of depreciation and amortization and a $ 4.9 million decrease in inventory , partially offset by a $ 3.5 million increase in accounts receivable and a $ 5.9 million decrease in accounts payable . the $ 4.6 million of net cash provided by operating activities during fiscal year 2016 was primarily due to $ 6.5 million of net income , $ 6.2 million of depreciation and amortization and an $ 11.1 million decrease in accounts receivable offset by a $ 16.2 million increase in inventory and a $ 2.6 million decrease in accounts payable . the $ 7.7 million of cash provided by operating activities during fiscal year 2015 was primarily due to $ 4.3 million of net income , $ 5.9 million of depreciation and amortization and an $ 18.0 million increase in accounts payable partially offset by a $ 14.7 million increase in inventory , a $ 2.1 million increase in accounts receivable and a $ 4.2 million increase in other assets . accounts receivable fluctuates based on the timing of shipments , terms offered and collections . in addition , accounts receivable will fluctuate based upon the amount of accounts receivable sold under our trade accounts receivable purchase program . during fiscal years 2017 , 2016 and 2015 , we factored receivables of $ 86.5 million , $ 78.0 million and $ 12.1 million , respectively , from accounts receivable sold to financial institutions , which are not included on our consolidated balance sheets . we purchase inventory based on customer forecasts and orders , and when those forecasts and orders change , the amount of inventory may also fluctuate .

christiana trust , with $ 8.9 billion in assets under administration , provides fiduciary and investment services to personal trust clients , and trustee , agency , custodial and commercial domicile services to corporate and institutional clients . wsfs private banking serves high net worth clients by delivering credit and 40 deposit products and partnering with cypress , christiana trust and wsfs investment group to deliver investment management and fiduciary products and services . we have two consolidated subsidiaries , wsfs bank and montchanin capital management , inc. , or montchanin . we also have one unconsolidated affiliate , wsfs capital trust iii , or the trust . wsfs bank has two wholly-owned subsidiaries , wsfs investment group , inc. and monarch entity services llc , or monarch . montchanin has one wholly-owned subsidiary , cypress . in addition to the subsidiaries listed above , we also have one consolidated variable interest entity ( “vie” ) , sasco 2002-rm1 ( “sasco” ) , which is a reverse mortgage securitization trust . results of operations we recorded net income of $ 46.9 million for the year ended december 31 , 2013 , a $ 15.6 million or 50 % increase compared to $ 31.3 million for the year ended december 31 , 2012 , and a $ 24.2 million increase from $ 22.7 million for the year ended december 31 , 2011. income allocable to common stockholders ( after preferred stock dividends ) was $ 45.2 million , or $ 5.06 per diluted common share for the year ended december 31 , 2013 , compared to income allocable to common shareholders of $ 28.5 million , or $ 3.25 per diluted common share ( a 55 % increase in diluted eps ) , and income of $ 19.9 million , or $ 2.28 per common share , for the years ended december 31 , 2012 and 2011 , respectively . earnings for 2013 were impacted by a lower provision for loan losses which decreased $ 24.9 million to $ 7.2 million partially offset by securities gains which decreased by $ 17.9 million to $ 3.5 million . net interest income increased during the year due to continued franchise loan growth and prudent balance sheet management . additionally , we continue to have significant increases in wealth management income , credit/debit card and atm income and mortgage banking activities . noninterest expense decreased $ 416,000 when compared to december 31 , 2012 due to management 's continued careful monitoring of operating expenses despite the growth in core revenue and corporate development costs . salaries and benefits increased due to additional performance-driven incentive compensation costs , while loan workout and other real estate owned expenses continued to decrease due to our improved performance and the continued improvement in nonperforming assets and fdic expenses from prior year levels . net interest income . net interest income increased $ 4.6 million , or 4 % , to $ 131.6 million in 2013 from $ 127.0 million in 2012 , while net interest margin increased 10 basis points to 3.56 % in 2013 compared to 3.46 % in 2012. the increase in net interest income was due to lending growth during 2013 and improvement in our balance sheet mix , combined with effective management of funding costs , such as the continued intentional reduction in higher-cost cds and the prepayment of higher rate federal home loan bank ( “fhlb” ) borrowings in late 2012. in addition , net interest income and net interest margin have been favorably impacted by the consolidation of sasco , a reverse mortgage securitization trust , in late 2013. partially offsetting these increases in net interest income and net interest margin were the year-over-year reduced rates in our mortgage-backed securities ( “mbs” ) portfolio . net interest income increased $ 962,000 , or 1 % , to $ 127.0 million in 2012 from $ 126.0 million in 2011 , while net interest margin decreased 14 basis points to 3.46 % in 2012 compared to 3.60 % in 2011. the increase in net interest income reflects lending growth during 2012 and was earned despite the impact of the successful completion of our asset strategies during the second quarter of 2012. also favorably impacting net interest income was an improvement in our mix of loans combined with effective management of funding costs , both in deposit pricing and wholesale funding rates . the decrease in net interest margin was mainly due to significantly reduced rates in the mbs portfolio resulting from substantial sales and paydowns , with subsequent reinvestment at much lower market rates during 2012. during 2012 we completed our issuance of $ 55 million in aggregate principal amount of 6.25 % senior notes due 2019 which also unfavorably impacted our net interest margin . the following table provides certain information regarding changes in net interest income attributable to changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is 41 provided on the changes that are attributable to : ( i ) changes in volume ( change in volume multiplied by prior year rate ) ; ( ii ) changes in rates ( change in rate multiplied by prior year volume on each category ) ; and ( iii ) net change ( the sum of the change in volume and the change in rate ) . changes due to the combination of rate and volume changes ( changes in volume multiplied by changes in rate ) are allocated proportionately between changes in rate and changes in volume . replace_table_token_13_th ( 1 ) the tax-equivalent income adjustment is related to commercial loans . ( 2 ) the tax-equivalent income adjustment is related to municipal securities . story_separator_special_tag the following table shows our nonperforming assets and past due loans at the dates indicated : replace_table_token_21_th ( 1 ) prior to 2012 , owner-occupied commercial loans were included in commercial loans . ( 2 ) accruing loans only ; nonaccruing tdr 's are included in their respective categories of nonaccruing loans . ( 3 ) total loans exclude loans held-for-sale . nonperforming assets decreased $ 14.7 million between december 31 , 2012 and december 31 , 2013. as a result , nonperforming assets as a percentage of total assets decreased from 1.43 % at december 31 , 2012 to 1.06 % at december 31 , 2013. nonperforming loans improved from 1.73 % of total loans to 1.05 % as new migration continues to be outweighed by pay downs , charge-offs and migration of assets to other real estate owned ( oreo ) . 50 the following table provides an analysis of the change in the balance of nonperforming assets during the last three years : replace_table_token_22_th the timely identification of problem loans is a key element in our strategy to manage our loan portfolio . timely identification enables us to take appropriate action and , accordingly , minimize losses . an asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets . in general , this system utilizes guidelines established by federal regulation . at december 31 , 2013 , we did not have a material amount of loans which had not been classified as non-accrual , 90 days past due or restructured but where known information about possible credit problems of borrowers caused us to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may result in disclosure as non-accrual , 90 days past due or restructured . as of december 31 , 2013 , we had $ 113.2 million of loans which , although performing at that date , required increased supervision and review . they may , depending on the economic environment and other factors , become nonperforming assets in future periods . the amount of such loans at december 31 , 2012 was $ 120.0 million . the majority of these loans are secured by commercial real estate , with others being secured by residential real estate , inventory and receivables . allowance for loan losses . we maintain an allowance for loan losses and charge losses to this allowance when such losses are realized . we established our loan loss allowance in accordance with guidance provided in the securities and exchange commission 's staff accounting bulletin 102 ( “sab 102” ) . the determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified impaired loans as well as probable loan losses in the remaining loan portfolio . our evaluation is based upon a continuing review of these portfolios . for additional information regarding the allowance for loan losses , see note 5 to the consolidated financial statements . the allowance for loan losses of $ 41.2 million at december 31 , 2013 decreased $ 2.7 million from $ 43.9 million at december 31 , 2012. in addition , the ratio of allowance for loan losses to total gross loans was 1.40 % at december 31 , 2013 , compared to 1.58 % at december 31 , 2012. these decreases reflect the following items : a decrease in problem loans ( all criticized , classified and nonperforming loans ) total problem loans improved to 33.6 % of tier 1 capital plus the allowance for loan losses at december 31 , 2013 , compared to 52.5 % at december 31 , 2012 , reflecting : favorable risk-rating migration , problem asset disposition efforts , and prudent credit management . improved credit metrics of the loan portfolio : nonperforming loans decreased from $ 45.7 million at december 31 , 2012 to $ 31.0 million at december 31 , 2013 , 51 total loan delinquency decreased from $ 45.0 million , or 1.62 % of total loans at december 31 , 2012 , to $ 22.4 million , or 0.76 % of total loans at december 31 , 2013 , with performing loan delinquency a very low 0.28 % of total loans at december 31 , 2013 compared to 0.40 % of total loans at december 31 , 2012 , and our construction loan portfolio , a portfolio that experienced significant losses over the last five years and typically has a higher loss content , continued to trend favorably : nonperforming construction loans improved from $ 1.5 million at december 31 , 2012 to only $ 1.2 million at december 31 , 2013 and delinquent construction loans went from $ 825,000 at december 31 , 2012 to $ 1.2 million at december 31 , 2013. the $ 1.2 million is one loan and no performing loan delinquency occurs . during 2013 , net charge-offs were $ 9.9 million or 0.33 % , of average loans . this compares to net charge-offs for the year ended december 31 , 2012 of $ 41.2 million or 1.49 % of average loans . the table below represents a summary of changes in the allowance for loan losses during the periods indicated : replace_table_token_23_th ( 1 ) prior to 2012 , owner-occupied loans were included in commercial loan balances . ( 2 ) total charge-offs for 2012 include $ 16.4 million related to our asset strategies completed during 2012 . 52 the allowance for loan losses is allocated by major portfolio type . as these portfolios have seasoned , they have become a source of historical data in projecting delinquencies and loss exposure . however , such allocations are not a guarantee of when future losses may occur and or the actual amount of losses . while we have allocated the allowance for loan losses by portfolio type in

capital resources and liquidity operating cash flow net cash provided by operating activities for fiscal year 2017 was $ 9.4 million compared to net cash provided by operating activities of $ 4.6 million and $ 7.7 million in fiscal years 2016 and 2015 , respectively . the $ 9.4 million of net cash provided by operating activities during fiscal year 2017 is primarily related to $ 5.6 million of net income , $ 7.2 million of depreciation and amortization and a $ 4.9 million decrease in inventory , partially offset by a $ 3.5 million increase in accounts receivable and a $ 5.9 million decrease in accounts payable . the $ 4.6 million of net cash provided by operating activities during fiscal year 2016 was primarily due to $ 6.5 million of net income , $ 6.2 million of depreciation and amortization and an $ 11.1 million decrease in accounts receivable offset by a $ 16.2 million increase in inventory and a $ 2.6 million decrease in accounts payable . the $ 7.7 million of cash provided by operating activities during fiscal year 2015 was primarily due to $ 4.3 million of net income , $ 5.9 million of depreciation and amortization and an $ 18.0 million increase in accounts payable partially offset by a $ 14.7 million increase in inventory , a $ 2.1 million increase in accounts receivable and a $ 4.2 million increase in other assets . accounts receivable fluctuates based on the timing of shipments , terms offered and collections . in addition , accounts receivable will fluctuate based upon the amount of accounts receivable sold under our trade accounts receivable purchase program . during fiscal years 2017 , 2016 and 2015 , we factored receivables of $ 86.5 million , $ 78.0 million and $ 12.1 million , respectively , from accounts receivable sold to financial institutions , which are not included on our consolidated balance sheets . we purchase inventory based on customer forecasts and orders , and when those forecasts and orders change , the amount of inventory may also fluctuate .

christiana trust , with $ 8.9 billion in assets under administration , provides fiduciary and investment services to personal trust clients , and trustee , agency , custodial and commercial domicile services to corporate and institutional clients . wsfs private banking serves high net worth clients by delivering credit and 40 deposit products and partnering with cypress , christiana trust and wsfs investment group to deliver investment management and fiduciary products and services . we have two consolidated subsidiaries , wsfs bank and montchanin capital management , inc. , or montchanin . we also have one unconsolidated affiliate , wsfs capital trust iii , or the trust . wsfs bank has two wholly-owned subsidiaries , wsfs investment group , inc. and monarch entity services llc , or monarch . montchanin has one wholly-owned subsidiary , cypress . in addition to the subsidiaries listed above , we also have one consolidated variable interest entity ( “vie” ) , sasco 2002-rm1 ( “sasco” ) , which is a reverse mortgage securitization trust . results of operations we recorded net income of $ 46.9 million for the year ended december 31 , 2013 , a $ 15.6 million or 50 % increase compared to $ 31.3 million for the year ended december 31 , 2012 , and a $ 24.2 million increase from $ 22.7 million for the year ended december 31 , 2011. income allocable to common stockholders ( after preferred stock dividends ) was $ 45.2 million , or $ 5.06 per diluted common share for the year ended december 31 , 2013 , compared to income allocable to common shareholders of $ 28.5 million , or $ 3.25 per diluted common share ( a 55 % increase in diluted eps ) , and income of $ 19.9 million , or $ 2.28 per common share , for the years ended december 31 , 2012 and 2011 , respectively . earnings for 2013 were impacted by a lower provision for loan losses which decreased $ 24.9 million to $ 7.2 million partially offset by securities gains which decreased by $ 17.9 million to $ 3.5 million . net interest income increased during the year due to continued franchise loan growth and prudent balance sheet management . additionally , we continue to have significant increases in wealth management income , credit/debit card and atm income and mortgage banking activities . noninterest expense decreased $ 416,000 when compared to december 31 , 2012 due to management 's continued careful monitoring of operating expenses despite the growth in core revenue and corporate development costs . salaries and benefits increased due to additional performance-driven incentive compensation costs , while loan workout and other real estate owned expenses continued to decrease due to our improved performance and the continued improvement in nonperforming assets and fdic expenses from prior year levels . net interest income . net interest income increased $ 4.6 million , or 4 % , to $ 131.6 million in 2013 from $ 127.0 million in 2012 , while net interest margin increased 10 basis points to 3.56 % in 2013 compared to 3.46 % in 2012. the increase in net interest income was due to lending growth during 2013 and improvement in our balance sheet mix , combined with effective management of funding costs , such as the continued intentional reduction in higher-cost cds and the prepayment of higher rate federal home loan bank ( “fhlb” ) borrowings in late 2012. in addition , net interest income and net interest margin have been favorably impacted by the consolidation of sasco , a reverse mortgage securitization trust , in late 2013. partially offsetting these increases in net interest income and net interest margin were the year-over-year reduced rates in our mortgage-backed securities ( “mbs” ) portfolio . net interest income increased $ 962,000 , or 1 % , to $ 127.0 million in 2012 from $ 126.0 million in 2011 , while net interest margin decreased 14 basis points to 3.46 % in 2012 compared to 3.60 % in 2011. the increase in net interest income reflects lending growth during 2012 and was earned despite the impact of the successful completion of our asset strategies during the second quarter of 2012. also favorably impacting net interest income was an improvement in our mix of loans combined with effective management of funding costs , both in deposit pricing and wholesale funding rates . the decrease in net interest margin was mainly due to significantly reduced rates in the mbs portfolio resulting from substantial sales and paydowns , with subsequent reinvestment at much lower market rates during 2012. during 2012 we completed our issuance of $ 55 million in aggregate principal amount of 6.25 % senior notes due 2019 which also unfavorably impacted our net interest margin . the following table provides certain information regarding changes in net interest income attributable to changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is 41 provided on the changes that are attributable to : ( i ) changes in volume ( change in volume multiplied by prior year rate ) ; ( ii ) changes in rates ( change in rate multiplied by prior year volume on each category ) ; and ( iii ) net change ( the sum of the change in volume and the change in rate ) . changes due to the combination of rate and volume changes ( changes in volume multiplied by changes in rate ) are allocated proportionately between changes in rate and changes in volume . replace_table_token_13_th ( 1 ) the tax-equivalent income adjustment is related to commercial loans . ( 2 ) the tax-equivalent income adjustment is related to municipal securities . story_separator_special_tag the following table shows our nonperforming assets and past due loans at the dates indicated : replace_table_token_21_th ( 1 ) prior to 2012 , owner-occupied commercial loans were included in commercial loans . ( 2 ) accruing loans only ; nonaccruing tdr 's are included in their respective categories of nonaccruing loans . ( 3 ) total loans exclude loans held-for-sale . nonperforming assets decreased $ 14.7 million between december 31 , 2012 and december 31 , 2013. as a result , nonperforming assets as a percentage of total assets decreased from 1.43 % at december 31 , 2012 to 1.06 % at december 31 , 2013. nonperforming loans improved from 1.73 % of total loans to 1.05 % as new migration continues to be outweighed by pay downs , charge-offs and migration of assets to other real estate owned ( oreo ) . 50 the following table provides an analysis of the change in the balance of nonperforming assets during the last three years : replace_table_token_22_th the timely identification of problem loans is a key element in our strategy to manage our loan portfolio . timely identification enables us to take appropriate action and , accordingly , minimize losses . an asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets . in general , this system utilizes guidelines established by federal regulation . at december 31 , 2013 , we did not have a material amount of loans which had not been classified as non-accrual , 90 days past due or restructured but where known information about possible credit problems of borrowers caused us to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may result in disclosure as non-accrual , 90 days past due or restructured . as of december 31 , 2013 , we had $ 113.2 million of loans which , although performing at that date , required increased supervision and review . they may , depending on the economic environment and other factors , become nonperforming assets in future periods . the amount of such loans at december 31 , 2012 was $ 120.0 million . the majority of these loans are secured by commercial real estate , with others being secured by residential real estate , inventory and receivables . allowance for loan losses . we maintain an allowance for loan losses and charge losses to this allowance when such losses are realized . we established our loan loss allowance in accordance with guidance provided in the securities and exchange commission 's staff accounting bulletin 102 ( “sab 102” ) . the determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified impaired loans as well as probable loan losses in the remaining loan portfolio . our evaluation is based upon a continuing review of these portfolios . for additional information regarding the allowance for loan losses , see note 5 to the consolidated financial statements . the allowance for loan losses of $ 41.2 million at december 31 , 2013 decreased $ 2.7 million from $ 43.9 million at december 31 , 2012. in addition , the ratio of allowance for loan losses to total gross loans was 1.40 % at december 31 , 2013 , compared to 1.58 % at december 31 , 2012. these decreases reflect the following items : a decrease in problem loans ( all criticized , classified and nonperforming loans ) total problem loans improved to 33.6 % of tier 1 capital plus the allowance for loan losses at december 31 , 2013 , compared to 52.5 % at december 31 , 2012 , reflecting : favorable risk-rating migration , problem asset disposition efforts , and prudent credit management . improved credit metrics of the loan portfolio : nonperforming loans decreased from $ 45.7 million at december 31 , 2012 to $ 31.0 million at december 31 , 2013 , 51 total loan delinquency decreased from $ 45.0 million , or 1.62 % of total loans at december 31 , 2012 , to $ 22.4 million , or 0.76 % of total loans at december 31 , 2013 , with performing loan delinquency a very low 0.28 % of total loans at december 31 , 2013 compared to 0.40 % of total loans at december 31 , 2012 , and our construction loan portfolio , a portfolio that experienced significant losses over the last five years and typically has a higher loss content , continued to trend favorably : nonperforming construction loans improved from $ 1.5 million at december 31 , 2012 to only $ 1.2 million at december 31 , 2013 and delinquent construction loans went from $ 825,000 at december 31 , 2012 to $ 1.2 million at december 31 , 2013. the $ 1.2 million is one loan and no performing loan delinquency occurs . during 2013 , net charge-offs were $ 9.9 million or 0.33 % , of average loans . this compares to net charge-offs for the year ended december 31 , 2012 of $ 41.2 million or 1.49 % of average loans . the table below represents a summary of changes in the allowance for loan losses during the periods indicated : replace_table_token_23_th ( 1 ) prior to 2012 , owner-occupied loans were included in commercial loan balances . ( 2 ) total charge-offs for 2012 include $ 16.4 million related to our asset strategies completed during 2012 . 52 the allowance for loan losses is allocated by major portfolio type . as these portfolios have seasoned , they have become a source of historical data in projecting delinquencies and loss exposure . however , such allocations are not a guarantee of when future losses may occur and or the actual amount of losses . while we have allocated the allowance for loan losses by portfolio type in

capital resources under guidelines issued by banking regulators , savings institutions such as the bank must maintain “tangible” capital equal to 1.5 % of adjusted total assets , “core” capital equal to 4.0 % of adjusted total assets , “tier 1” capital equal to 4.0 % of risk weighted assets and “total” or “risk-based” capital ( a combination of core and “supplementary” capital ) equal to 8.0 % of risk-weighted assets . failure to meet minimum capital requirements can initiate certain mandatory actions and possibly additional discretionary actions by regulators that , if undertaken , could have a direct material effect on our financial statements . we hold a capital cushion well in excess of these limits . the federal deposit insurance corporation improvement act ( fdicia ) , as well as other requirements , established five capital tiers : well-capitalized , adequately-capitalized , under-capitalized , significantly under-capitalized , and critically under-capitalized . a depository institution 's capital tier depends upon its capital levels in relation to various relevant capital measures , which include leverage and risk-based capital measures and certain other factors . depository institutions that are not classified as well-capitalized are subject to various restrictions regarding capital distributions , payment of management fees , acceptance of brokered deposits and other operating activities . at december 31 , 2013 , we were classified as well-capitalized , the highest regulatory defined level , and in compliance with all regulatory capital requirements . additional information concerning our regulatory capital compliance is included in note 9 to the consolidated financial statements . since 1996 , the board of directors has approved several stock repurchase programs to acquire common stock outstanding . we did not acquire any shares in 2013 or 2012. at december 31 , 2013 , we held 9.6 million shares of our common stock as treasury shares . at december 31 , 2013 , we had 506,000 shares remaining under our current share repurchase authorization .

this transaction resulted in net proceeds of $ 189.0 million , after deducting underwriting discounts and commissions and offering expenses . during the first and second quarters of 2019 , we entered into separate , privately negotiated exchange agreements ( the `` exchange agreements `` ) with a limited number of holders ( the `` holders `` ) of the unsecured convertible senior notes due in 2023 ( `` convertible notes `` ) . under the terms of the exchange agreements , the holders agreed to exchange an aggregate principal amount of $ 247.2 million of convertible notes held by them in exchange for an aggregate of approximately 44.0 million shares of our common stock , par value $ 0.01 per share . additionally , we terminated the capped call confirmations related to the exchange of the convertible notes for cash proceeds of $ 19.9 million . - 70 - consolidated results of operations the following section generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. year ended december 31 , 2019 compared to year ended december 31 , 2018 the following table provides selected financial information for the company : replace_table_token_5_th net product sales . net product sales increased $ 91.0 million during the year ended december 31 , 2019 compared to the same period in the prior year . the increase was primarily due to galafold ® being approved for sale in the u.s. and japan in the third and second quarters of 2018 , respectively , as well as continued growth in the european market . cost of goods sold . cost of goods sold includes manufacturing costs as well as royalties associated with sales of our product . cost of goods sold as a percentage of net product sales was 12.1 % during the year ended december 31 , 2019 compared to 15.8 % during the same period in the prior year primarily due to the proportion of sales in countries subject to a higher royalty burden . - 71 - research and development expense . the following table summarizes our principal product development programs for each product candidate in development , and the out-of-pocket , third-party expenses incurred with respect to each product candidate : replace_table_token_6_th the $ 15.5 million increase in research and development costs was primarily due to increases in clinical research and manufacturing costs with the advancement and enrollment of clinical studies in the pompe program , an increase in gene therapy programs driven by the pipeline growth , as well as support for ongoing regulatory requirements , approval in new geographies , and pediatric and other studies to support label expansion of galafold ® . there were also increases in personnel and other costs associated with the advancement and enrollment of clinical studies and investments in manufacturing . this was primarily offset by $ 100 million in expenses associated with the acquisition of ten gene therapy assets with the celenex transaction and the $ 7 million license upfront payment related to the collaboration agreement with penn in 2018. selling , general , and administrative expense . selling , general , and administrative increased $ 42.7 million primarily due to the expanded geographic scope of the ongoing commercial launch of galafold ® and related operational costs of our global business , including establishing commercial organizations and related teams in the u.s. and japan . loss on exchange of convertible notes . during the first and second quarters of 2019 , the company entered into separate , privately negotiated exchange agreements with a limited number of holders of the convertible notes . as a result of this exchange , the company recognized a loss on exchange of debt of $ 40.6 million in the consolidated statements of operations , and $ 215.0 million in additional paid-in-capital and common stock of $ 0.4 million in the consolidated balance sheets for the year ended december 31 , 2019 . income tax ( expense ) benefit . the income tax expense for the year ended december 31 , 2019 was $ 0.5 million . we are subject to income taxes in various jurisdictions . our tax liabilities are largely dependent on the distributions of pre-tax earnings among the many jurisdictions in which we operate . the income tax benefit for the year ended december 31 , 2018 of $ 0.1 million was primarily related to provision to return variances . - 72 - critical accounting policies and significant judgments and estimates the discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles ( `` u.s. gaap `` ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag story_separator_special_tag style= `` font-family : inherit ; font-size:10pt ; `` > ® ; our ability to satisfy post-marketing commitments or requirements for continued regulatory approval of galafold ® ; our ability to obtain market acceptance of galafold ® ; the costs of preparing , filing , and prosecuting patent applications and maintaining , enforcing , and defending intellectual property-related claims ; the extent to which we acquire or invest in businesses , products , and technologies ; our ability to successfully integrate our acquired products and technologies into our business , including the possibility that the expected benefits of the transactions will not be fully realized by us or may take longer to realize than expected ; our ability to establish collaborations , partnerships or other similar arrangements and to obtain milestone , royalty , or other payments from any such collaborators ; our ability to adjust to changes in the european and u.k. markets in the wake of the u.k. leaving the e.u . ; the extent to which our business could be adversely impacted by the effects of the covid-19 “ coronavirus ” outbreak or by other health epidemics or pandemics ; fluctuations in foreign currency exchange rates ; and changes in accounting standards . while we continue to generate revenue from product sales , in the absence of additional funding , we expect our continuing operating losses to result in increases in our cash used in operations over the next several quarters and years . we may seek additional funding through public or private financings of debt or equity . we believe that our current cash position , including expected galafold ® revenues , is sufficient to fund ongoing fabry , pompe , and gene therapy program operations into the first half of 2022. potential future business development collaborations , pipeline expansion , and investment in manufacturing capabilities could impact our future capital requirements . - 79 - financial uncertainties related to potential future payments milestone payments / royalties celenex - with our acquisition of celenex in 2018 , we agreed to pay up to an additional $ 15 million in connection with the achievement of certain development milestones , $ 262 million in connection with the achievement of certain regulatory approval milestones across multiple programs and up to $ 75 million in tiered sales milestone payments . nch - celenex has an exclusive license agreement with nch . under this license agreement , nch is eligible to receive development and sales-based milestones of up to $ 7.8 million from us for each product . penn - under our expanded collaboration agreement with penn , penn is eligible to receive certain milestone , royalty , and discovery research payments with respect to licensed products for each indication . milestone payments are payable following the achievement of certain development and commercial milestone events in each indication , up to an aggregate of $ 86.5 million per indication . royalty payments are based on net sales of licensed products on a licensed product-by-licensed product and country-by-country basis . we will provide $ 10.0 million each year during the five-year agreement to fund the discovery research program . glaxosmithkline - in november 2013 , we entered into the revised agreement ( the `` revised agreement `` ) with glaxosmithkline ( `` gsk `` ) , pursuant to which we have obtained global rights to develop and commercialize migalastat as a monotherapy and in combination with ert for fabry disease . the revised agreement amends and replaces in its entirety the earlier agreement entered into between us and gsk in july 2012 ( the `` original collaboration agreement `` ) . under the terms of the revised agreement , there was no upfront payment from us to gsk . for migalastat monotherapy , gsk is eligible to receive post-approval and sales-based milestones up to $ 40 million , as well as tiered royalties in the mid-teens in eight major markets outside the u.s. in addition , because we reacquired worldwide rights to migalastat , we are no longer eligible to receive any milestones or royalties we would have been eligible to receive under the original collaboration agreement . contractual obligations the following table summarizes our significant contractual obligations and commercial commitments at december 31 , 2019 and the effects such obligations are expected to have on our liquidity and cash flows in future periods : replace_table_token_7_th ( 1 ) this table does not include ( a ) any milestone payments which may become payable to third parties under license agreements as the timing and likelihood of such payments are not known , ( b ) any royalty payments to third parties as the amounts of such payments , timing , and or the likelihood of such payments are not known , ( c ) amounts , if any , that may be committed in the future to construct additional facilities , ( d ) agreements with clinical research organizations and other outside contractors who are partially responsible for conducting and monitoring our clinical trials for our drug candidates including galafold ® . these contractual obligations are not reflected in the table above because we may terminate them without penalty , and ( e ) contracts that are entered into in the ordinary course of business which are not material in the aggregate in any period presented above . ( 2 ) represents the future payments on operating leases for properties , equipment , and vehicles . for more details , refer to `` — note 13. leases , `` in our notes to consolidated financial statements . ( 3 ) represents the future payments of principal and interest to be made on our $ 2.8 million 3 % unsecured convertible notes due 2023 ( the `` convertible notes `` ) and our $ 150 million secured senior term loan due 2023 ( `` senior secured term loan `` ) . the convertible notes bear interest at a fixed rate of 3.00

capital resources under guidelines issued by banking regulators , savings institutions such as the bank must maintain “tangible” capital equal to 1.5 % of adjusted total assets , “core” capital equal to 4.0 % of adjusted total assets , “tier 1” capital equal to 4.0 % of risk weighted assets and “total” or “risk-based” capital ( a combination of core and “supplementary” capital ) equal to 8.0 % of risk-weighted assets . failure to meet minimum capital requirements can initiate certain mandatory actions and possibly additional discretionary actions by regulators that , if undertaken , could have a direct material effect on our financial statements . we hold a capital cushion well in excess of these limits . the federal deposit insurance corporation improvement act ( fdicia ) , as well as other requirements , established five capital tiers : well-capitalized , adequately-capitalized , under-capitalized , significantly under-capitalized , and critically under-capitalized . a depository institution 's capital tier depends upon its capital levels in relation to various relevant capital measures , which include leverage and risk-based capital measures and certain other factors . depository institutions that are not classified as well-capitalized are subject to various restrictions regarding capital distributions , payment of management fees , acceptance of brokered deposits and other operating activities . at december 31 , 2013 , we were classified as well-capitalized , the highest regulatory defined level , and in compliance with all regulatory capital requirements . additional information concerning our regulatory capital compliance is included in note 9 to the consolidated financial statements . since 1996 , the board of directors has approved several stock repurchase programs to acquire common stock outstanding . we did not acquire any shares in 2013 or 2012. at december 31 , 2013 , we held 9.6 million shares of our common stock as treasury shares . at december 31 , 2013 , we had 506,000 shares remaining under our current share repurchase authorization .

this transaction resulted in net proceeds of $ 189.0 million , after deducting underwriting discounts and commissions and offering expenses . during the first and second quarters of 2019 , we entered into separate , privately negotiated exchange agreements ( the `` exchange agreements `` ) with a limited number of holders ( the `` holders `` ) of the unsecured convertible senior notes due in 2023 ( `` convertible notes `` ) . under the terms of the exchange agreements , the holders agreed to exchange an aggregate principal amount of $ 247.2 million of convertible notes held by them in exchange for an aggregate of approximately 44.0 million shares of our common stock , par value $ 0.01 per share . additionally , we terminated the capped call confirmations related to the exchange of the convertible notes for cash proceeds of $ 19.9 million . - 70 - consolidated results of operations the following section generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. year ended december 31 , 2019 compared to year ended december 31 , 2018 the following table provides selected financial information for the company : replace_table_token_5_th net product sales . net product sales increased $ 91.0 million during the year ended december 31 , 2019 compared to the same period in the prior year . the increase was primarily due to galafold ® being approved for sale in the u.s. and japan in the third and second quarters of 2018 , respectively , as well as continued growth in the european market . cost of goods sold . cost of goods sold includes manufacturing costs as well as royalties associated with sales of our product . cost of goods sold as a percentage of net product sales was 12.1 % during the year ended december 31 , 2019 compared to 15.8 % during the same period in the prior year primarily due to the proportion of sales in countries subject to a higher royalty burden . - 71 - research and development expense . the following table summarizes our principal product development programs for each product candidate in development , and the out-of-pocket , third-party expenses incurred with respect to each product candidate : replace_table_token_6_th the $ 15.5 million increase in research and development costs was primarily due to increases in clinical research and manufacturing costs with the advancement and enrollment of clinical studies in the pompe program , an increase in gene therapy programs driven by the pipeline growth , as well as support for ongoing regulatory requirements , approval in new geographies , and pediatric and other studies to support label expansion of galafold ® . there were also increases in personnel and other costs associated with the advancement and enrollment of clinical studies and investments in manufacturing . this was primarily offset by $ 100 million in expenses associated with the acquisition of ten gene therapy assets with the celenex transaction and the $ 7 million license upfront payment related to the collaboration agreement with penn in 2018. selling , general , and administrative expense . selling , general , and administrative increased $ 42.7 million primarily due to the expanded geographic scope of the ongoing commercial launch of galafold ® and related operational costs of our global business , including establishing commercial organizations and related teams in the u.s. and japan . loss on exchange of convertible notes . during the first and second quarters of 2019 , the company entered into separate , privately negotiated exchange agreements with a limited number of holders of the convertible notes . as a result of this exchange , the company recognized a loss on exchange of debt of $ 40.6 million in the consolidated statements of operations , and $ 215.0 million in additional paid-in-capital and common stock of $ 0.4 million in the consolidated balance sheets for the year ended december 31 , 2019 . income tax ( expense ) benefit . the income tax expense for the year ended december 31 , 2019 was $ 0.5 million . we are subject to income taxes in various jurisdictions . our tax liabilities are largely dependent on the distributions of pre-tax earnings among the many jurisdictions in which we operate . the income tax benefit for the year ended december 31 , 2018 of $ 0.1 million was primarily related to provision to return variances . - 72 - critical accounting policies and significant judgments and estimates the discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles ( `` u.s. gaap `` ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag story_separator_special_tag style= `` font-family : inherit ; font-size:10pt ; `` > ® ; our ability to satisfy post-marketing commitments or requirements for continued regulatory approval of galafold ® ; our ability to obtain market acceptance of galafold ® ; the costs of preparing , filing , and prosecuting patent applications and maintaining , enforcing , and defending intellectual property-related claims ; the extent to which we acquire or invest in businesses , products , and technologies ; our ability to successfully integrate our acquired products and technologies into our business , including the possibility that the expected benefits of the transactions will not be fully realized by us or may take longer to realize than expected ; our ability to establish collaborations , partnerships or other similar arrangements and to obtain milestone , royalty , or other payments from any such collaborators ; our ability to adjust to changes in the european and u.k. markets in the wake of the u.k. leaving the e.u . ; the extent to which our business could be adversely impacted by the effects of the covid-19 “ coronavirus ” outbreak or by other health epidemics or pandemics ; fluctuations in foreign currency exchange rates ; and changes in accounting standards . while we continue to generate revenue from product sales , in the absence of additional funding , we expect our continuing operating losses to result in increases in our cash used in operations over the next several quarters and years . we may seek additional funding through public or private financings of debt or equity . we believe that our current cash position , including expected galafold ® revenues , is sufficient to fund ongoing fabry , pompe , and gene therapy program operations into the first half of 2022. potential future business development collaborations , pipeline expansion , and investment in manufacturing capabilities could impact our future capital requirements . - 79 - financial uncertainties related to potential future payments milestone payments / royalties celenex - with our acquisition of celenex in 2018 , we agreed to pay up to an additional $ 15 million in connection with the achievement of certain development milestones , $ 262 million in connection with the achievement of certain regulatory approval milestones across multiple programs and up to $ 75 million in tiered sales milestone payments . nch - celenex has an exclusive license agreement with nch . under this license agreement , nch is eligible to receive development and sales-based milestones of up to $ 7.8 million from us for each product . penn - under our expanded collaboration agreement with penn , penn is eligible to receive certain milestone , royalty , and discovery research payments with respect to licensed products for each indication . milestone payments are payable following the achievement of certain development and commercial milestone events in each indication , up to an aggregate of $ 86.5 million per indication . royalty payments are based on net sales of licensed products on a licensed product-by-licensed product and country-by-country basis . we will provide $ 10.0 million each year during the five-year agreement to fund the discovery research program . glaxosmithkline - in november 2013 , we entered into the revised agreement ( the `` revised agreement `` ) with glaxosmithkline ( `` gsk `` ) , pursuant to which we have obtained global rights to develop and commercialize migalastat as a monotherapy and in combination with ert for fabry disease . the revised agreement amends and replaces in its entirety the earlier agreement entered into between us and gsk in july 2012 ( the `` original collaboration agreement `` ) . under the terms of the revised agreement , there was no upfront payment from us to gsk . for migalastat monotherapy , gsk is eligible to receive post-approval and sales-based milestones up to $ 40 million , as well as tiered royalties in the mid-teens in eight major markets outside the u.s. in addition , because we reacquired worldwide rights to migalastat , we are no longer eligible to receive any milestones or royalties we would have been eligible to receive under the original collaboration agreement . contractual obligations the following table summarizes our significant contractual obligations and commercial commitments at december 31 , 2019 and the effects such obligations are expected to have on our liquidity and cash flows in future periods : replace_table_token_7_th ( 1 ) this table does not include ( a ) any milestone payments which may become payable to third parties under license agreements as the timing and likelihood of such payments are not known , ( b ) any royalty payments to third parties as the amounts of such payments , timing , and or the likelihood of such payments are not known , ( c ) amounts , if any , that may be committed in the future to construct additional facilities , ( d ) agreements with clinical research organizations and other outside contractors who are partially responsible for conducting and monitoring our clinical trials for our drug candidates including galafold ® . these contractual obligations are not reflected in the table above because we may terminate them without penalty , and ( e ) contracts that are entered into in the ordinary course of business which are not material in the aggregate in any period presented above . ( 2 ) represents the future payments on operating leases for properties , equipment , and vehicles . for more details , refer to `` — note 13. leases , `` in our notes to consolidated financial statements . ( 3 ) represents the future payments of principal and interest to be made on our $ 2.8 million 3 % unsecured convertible notes due 2023 ( the `` convertible notes `` ) and our $ 150 million secured senior term loan due 2023 ( `` senior secured term loan `` ) . the convertible notes bear interest at a fixed rate of 3.00

net cash used in operating activities net cash used in operations for the year ended december 31 , 2019 was $ 250.4 million . the components of net cash used in operations included the net loss for the year ended december 31 , 2019 of $ 356.4 million and the net change in operating assets and liabilities of $ 11.6 million . the change in operating assets was primarily due to increases in accounts receivable by $ 11.1 million due to increased commercial sales of galafold ® , an increase in prepaid and other current assets of $ 3.3 million to support commercial activities for galafold ® launch , and an increase in inventory of $ 5.1 million . the net cash used in operations was also impacted by an increase in accounts payable and accrued expenses of $ 46.7 million , mainly related to program expenses and support for the commercial launch of galafold ® . this was partially offset by a decrease in deferred reimbursement of $ 5.5 million . - 77 - net cash used in operations for the year ended december 31 , 2018 was $ 300.0 million . the components of net cash used in operations included the net loss for the year ended december 31 , 2018 of $ 349.0 million , and the net increase in operating assets of $ 16.1 million . the change in operating assets was primarily due to increases in accounts receivable by $ 13.3 million and inventory of $ 4.2 million due to commercial sales of galafold ® , partially offset by a decrease in prepaid and other current assets of $ 2.5 million for spending to support commercial activities for galafold ® launch .

similar to other companies in our industry , we experience a high level of turnover among our distributors . as a result , it is important that we regularly introduce innovative and compelling products and initiatives in order to maintain a compelling business opportunity that will attract new distributors . we have also developed , and continue to promote in many of our markets , product subscription and loyalty programs that provide incentives for customers to commit to purchase a specific amount of products on a monthly basis . we believe these subscription programs have improved customer retention , have had a stabilizing impact on revenue , and have helped generate recurring sales for our distributors . subscription orders represented 56 % of our revenue in 2011. despite difficult economic conditions , we experienced healthy growth in 2011. we believe we have benefited from the nature of our distribution model and strong execution around a demonstrative product/opportunity initiative , which has helped offset to some degree the impact of weaker consumer spending . as a direct selling company , we offer a direct selling opportunity that allows an individual to supplement his/her income by selling our products and building a sales organization to market and sell our products . as the economy and the labor market decline , we find that there can be an increase in the number of people interested in becoming distributors in order to supplement their income . we believe that this increase in interest in our direct selling opportunity coupled with the strong marketing position of our new ageloc anti-aging products and our other products and tools have helped us to continue growing our business in these difficult economic conditions . however , if the economic problems are prolonged or worsen , we expect that we could see a negative impact on our business as distributors may have a more difficult time selling products and finding new customers . our business is subject to various laws and regulations globally , particularly with respect to network marketing activities , cosmetics , and nutritional supplements . accordingly , we face certain risks , including any improper claims or activities of our distributors or any inability to obtain or maintain necessary product registrations . for example , we continue to experience heightened regulatory and media scrutiny of the direct selling industry in japan . several direct sellers in japan have been penalized for actions of distributors that violated applicable regulations . we could face similar penalties if we are unable to effectively manage the activities of our distributors . - 49 - income statement presentation we report revenue in five geographic regions and we translate revenue from each market 's local currency into u.s. dollars using weighted-average exchange rates . the following table sets forth revenue information by region for the periods indicated . this table should be reviewed in connection with the tables presented under “ results of operations , ” which disclose selling expenses and other costs associated with generating the aggregate revenue presented . revenue by region replace_table_token_12_th cost of sales primarily consists of : cost of products purchased from third-party vendors , generally in u.s. dollars ; costs of self-manufactured products ; cost of sales materials which we sell to distributors at or near cost ; amortization expenses associated with certain products and services such as the pharmanex biophotonic scanners that are leased to distributors ; freight cost of shipping products to distributors and import duties for the products ; and royalties and related expenses for licensed technologies . we source the majority of our products from third-party manufacturers located in the united states . due to chinese government restrictions on the importation of finished goods applicable to the current scope of our business in china , we are required to manufacture the bulk of our own products for distribution in china . cost of sales and gross profit may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party suppliers . in addition , because we purchase a significant majority of our goods in u.s. dollars and recognize revenue in local currencies , we are subject to exchange rate risks in our gross margins . because our gross margins vary from product to product and are higher in some markets such as japan , changes in product mix and geographic revenue mix can impact our gross margins . selling expenses are our most significant expense and are classified as operating expenses . selling expenses include distributor commissions , costs for incentive trips and other rewards , as well as wages , benefits , bonuses and other labor and unemployment expenses we pay to our sales force in china . our global compensation plan , which we employ in all of our markets except china , is an important factor in our ability to attract and retain distributors . we pay monthly commissions to several levels of distributors on each product sale based upon a distributor 's personal and group product volumes , as well as the group product volumes of up to six levels of executive distributors in such distributor 's downline sales organization . we do not pay commissions on sales materials , which are sold to distributors at or near cost . small fluctuations occur in the amount of commissions paid as the network of distributors actively purchasing products changes from month to month . however , due to the size of our distributor force of more than 850,000 active distributors , the fluctuation in the overall payout is relatively small . the overall compensation has typically averaged between 41 % and 44 % of global product sales . from time to time , we make modifications and enhancements to our global compensation plan in an effort to help motivate distributors and develop leadership characteristics , which can have an impact on selling expenses . story_separator_special_tag the following table sets forth revenue for the south asia/pacific region ( u.s. dollars in millions ) : replace_table_token_17_th foreign currency exchange rate fluctuations positively impacted revenue in south asia/pacific by 7 % in 2011 compared to the same prior-year period . excluding the impact of foreign currency fluctuations , revenue growth of 22 % in this region was driven primarily by robust distributor growth and activity , along with continued interest in our strong product portfolio , including our ageloc and tra weight management products . the region was positively impacted by the introduction of our ageloc r 2 and our ageloc galvanic body spa and related products in connection with our global convention in the fourth quarter of 2011. in january 2012 , we launched our ageloc galvanic body spa and associated products in the pacific . we currently plan to launch our ageloc r 2 and ageloc galvanic body spa and associated products throughout the region in 2012. executive distributors in the region increased 43 % while active distributors increased 18 % compared to the prior year . we currently anticipate that extensive flooding in thailand during the fourth quarter of 2011 may continue to negatively impact sales and distributor activities in that market through the first half of 2012. europe . the following table sets forth revenue for the europe region ( u.s. dollars in millions ) : replace_table_token_18_th foreign currency exchange rate fluctuations positively impacted revenue in europe by 5 % in 2011 compared to the prior year . on a local currency basis , revenue in europe grew by 4 % in 2011 compared to 2010. however , local currency revenue in europe decreased 6 % year-over-year in the fourth quarter , primarily due to softness in our distributor numbers and difficulty obtaining regulatory approvals to introduce our ageloc products in each of the markets in this region . we introduced our ageloc galvanic body spa and related products in europe in the first quarter of 2012 , and currently plan to launch these products during the second quarter of 2012. we currently plan to introduce our ageloc r 2 in the majority of our markets in the region in the fourth quarter of 2012 , followed by a second quarter 2013 launch . our active distributor count in our europe region increased by 2 % and our executive distributor count remained level when compared to 2010. gross profit gross profit as a percentage of revenue in 2011 decreased to 81.5 % compared to 82.3 % in 2010. in march 2011 , the tokyo district court upheld a disputed $ 32.8 million customs assessment on certain of our products imported into japan . as a result of this decision , we recorded an expense within cost of sales for the full amount of the disputed assessments in the first quarter of 2011. the charge is a non-cash item , as we were previously required to pay the assessments . we have appealed this decision and expect a decision on the appeal in 2012. excluding this $ 32.8 million non-cash charge , gross profit as a percentage of revenue for 2011 was 83.4 % , reflecting supply chain improvements and foreign currency benefits . gross profit excluding japan customs expense is a non-gaap financial measure . see “ non-gaap financial measures ” below . we anticipate that our gross profit as a percentage of revenue will be approximately 83.5 % in 2012 . - 57 - selling expenses selling expenses increased as a percentage of revenue at 43.1 % in 2011 compared to 42.1 % in 2010. this increase reflects growth in the number of independent distributors qualifying for various promotional sales incentives and trips . general and administrative expenses general and administrative expenses decreased as a percentage of revenue to 25.0 % in 2011 from 26.1 % in 2010 , primarily as a result of increased revenue and controlled expenses . other income ( expense ) , net other income ( expense ) , net was $ 7.0 million of expense in 2011 compared to $ 9.4 million of expense in 2010. the decrease in expense is due primarily to the impact of changes in foreign currency exchange rates . because it is impossible to predict foreign currency fluctuations , we can not estimate the degree to which our other income expense will be impacted in the future . other income ( expense ) , net also includes approximately $ 4.8 million and $ 5.8 million in interest expense during 2011 and 2010 , respectively . provision for income taxes provision for income taxes increased to $ 73.4 million in 2011 from $ 71.6 million in 2010. the effective tax rate decreased to 32.4 % in 2011 from 34.5 % of pre-tax income in 2010. the lower income tax rate was primarily attributable to a one-time discrete tax benefit of $ 7.7 million associated with the effective settlement of an irs audit for tax years 2005 – 2008. during the third quarter , we entered into a closing agreement with the irs on the extraterritorial income exclusion for the exportation of products outside the united states . we anticipate our tax rate will be approximately 35.5 % to 36 % in 2012. net income as a result of the foregoing factors , net income increased to $ 153.3 million in 2011 , or $ 173.8 million excluding $ 32.8 million ( approximately $ 20.5 million , net of tax ) in japan customs expense , compared to $ 136.1 million in 2010. net income excluding japan customs expense is a non-gaap financial measure . see “ non-gaap financial measures ” below . 2010 compared to 2009 overview revenue in 2010 increased 15 % to $ 1.54 billion from $ 1.33 billion in 2009. our revenue growth in 2010 was driven by the global launch of our ageloc anti-aging products , including our ageloc transformation skin care system . we also introduced ageloc vitality ,

net cash used in operating activities net cash used in operations for the year ended december 31 , 2019 was $ 250.4 million . the components of net cash used in operations included the net loss for the year ended december 31 , 2019 of $ 356.4 million and the net change in operating assets and liabilities of $ 11.6 million . the change in operating assets was primarily due to increases in accounts receivable by $ 11.1 million due to increased commercial sales of galafold ® , an increase in prepaid and other current assets of $ 3.3 million to support commercial activities for galafold ® launch , and an increase in inventory of $ 5.1 million . the net cash used in operations was also impacted by an increase in accounts payable and accrued expenses of $ 46.7 million , mainly related to program expenses and support for the commercial launch of galafold ® . this was partially offset by a decrease in deferred reimbursement of $ 5.5 million . - 77 - net cash used in operations for the year ended december 31 , 2018 was $ 300.0 million . the components of net cash used in operations included the net loss for the year ended december 31 , 2018 of $ 349.0 million , and the net increase in operating assets of $ 16.1 million . the change in operating assets was primarily due to increases in accounts receivable by $ 13.3 million and inventory of $ 4.2 million due to commercial sales of galafold ® , partially offset by a decrease in prepaid and other current assets of $ 2.5 million for spending to support commercial activities for galafold ® launch .

similar to other companies in our industry , we experience a high level of turnover among our distributors . as a result , it is important that we regularly introduce innovative and compelling products and initiatives in order to maintain a compelling business opportunity that will attract new distributors . we have also developed , and continue to promote in many of our markets , product subscription and loyalty programs that provide incentives for customers to commit to purchase a specific amount of products on a monthly basis . we believe these subscription programs have improved customer retention , have had a stabilizing impact on revenue , and have helped generate recurring sales for our distributors . subscription orders represented 56 % of our revenue in 2011. despite difficult economic conditions , we experienced healthy growth in 2011. we believe we have benefited from the nature of our distribution model and strong execution around a demonstrative product/opportunity initiative , which has helped offset to some degree the impact of weaker consumer spending . as a direct selling company , we offer a direct selling opportunity that allows an individual to supplement his/her income by selling our products and building a sales organization to market and sell our products . as the economy and the labor market decline , we find that there can be an increase in the number of people interested in becoming distributors in order to supplement their income . we believe that this increase in interest in our direct selling opportunity coupled with the strong marketing position of our new ageloc anti-aging products and our other products and tools have helped us to continue growing our business in these difficult economic conditions . however , if the economic problems are prolonged or worsen , we expect that we could see a negative impact on our business as distributors may have a more difficult time selling products and finding new customers . our business is subject to various laws and regulations globally , particularly with respect to network marketing activities , cosmetics , and nutritional supplements . accordingly , we face certain risks , including any improper claims or activities of our distributors or any inability to obtain or maintain necessary product registrations . for example , we continue to experience heightened regulatory and media scrutiny of the direct selling industry in japan . several direct sellers in japan have been penalized for actions of distributors that violated applicable regulations . we could face similar penalties if we are unable to effectively manage the activities of our distributors . - 49 - income statement presentation we report revenue in five geographic regions and we translate revenue from each market 's local currency into u.s. dollars using weighted-average exchange rates . the following table sets forth revenue information by region for the periods indicated . this table should be reviewed in connection with the tables presented under “ results of operations , ” which disclose selling expenses and other costs associated with generating the aggregate revenue presented . revenue by region replace_table_token_12_th cost of sales primarily consists of : cost of products purchased from third-party vendors , generally in u.s. dollars ; costs of self-manufactured products ; cost of sales materials which we sell to distributors at or near cost ; amortization expenses associated with certain products and services such as the pharmanex biophotonic scanners that are leased to distributors ; freight cost of shipping products to distributors and import duties for the products ; and royalties and related expenses for licensed technologies . we source the majority of our products from third-party manufacturers located in the united states . due to chinese government restrictions on the importation of finished goods applicable to the current scope of our business in china , we are required to manufacture the bulk of our own products for distribution in china . cost of sales and gross profit may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party suppliers . in addition , because we purchase a significant majority of our goods in u.s. dollars and recognize revenue in local currencies , we are subject to exchange rate risks in our gross margins . because our gross margins vary from product to product and are higher in some markets such as japan , changes in product mix and geographic revenue mix can impact our gross margins . selling expenses are our most significant expense and are classified as operating expenses . selling expenses include distributor commissions , costs for incentive trips and other rewards , as well as wages , benefits , bonuses and other labor and unemployment expenses we pay to our sales force in china . our global compensation plan , which we employ in all of our markets except china , is an important factor in our ability to attract and retain distributors . we pay monthly commissions to several levels of distributors on each product sale based upon a distributor 's personal and group product volumes , as well as the group product volumes of up to six levels of executive distributors in such distributor 's downline sales organization . we do not pay commissions on sales materials , which are sold to distributors at or near cost . small fluctuations occur in the amount of commissions paid as the network of distributors actively purchasing products changes from month to month . however , due to the size of our distributor force of more than 850,000 active distributors , the fluctuation in the overall payout is relatively small . the overall compensation has typically averaged between 41 % and 44 % of global product sales . from time to time , we make modifications and enhancements to our global compensation plan in an effort to help motivate distributors and develop leadership characteristics , which can have an impact on selling expenses . story_separator_special_tag the following table sets forth revenue for the south asia/pacific region ( u.s. dollars in millions ) : replace_table_token_17_th foreign currency exchange rate fluctuations positively impacted revenue in south asia/pacific by 7 % in 2011 compared to the same prior-year period . excluding the impact of foreign currency fluctuations , revenue growth of 22 % in this region was driven primarily by robust distributor growth and activity , along with continued interest in our strong product portfolio , including our ageloc and tra weight management products . the region was positively impacted by the introduction of our ageloc r 2 and our ageloc galvanic body spa and related products in connection with our global convention in the fourth quarter of 2011. in january 2012 , we launched our ageloc galvanic body spa and associated products in the pacific . we currently plan to launch our ageloc r 2 and ageloc galvanic body spa and associated products throughout the region in 2012. executive distributors in the region increased 43 % while active distributors increased 18 % compared to the prior year . we currently anticipate that extensive flooding in thailand during the fourth quarter of 2011 may continue to negatively impact sales and distributor activities in that market through the first half of 2012. europe . the following table sets forth revenue for the europe region ( u.s. dollars in millions ) : replace_table_token_18_th foreign currency exchange rate fluctuations positively impacted revenue in europe by 5 % in 2011 compared to the prior year . on a local currency basis , revenue in europe grew by 4 % in 2011 compared to 2010. however , local currency revenue in europe decreased 6 % year-over-year in the fourth quarter , primarily due to softness in our distributor numbers and difficulty obtaining regulatory approvals to introduce our ageloc products in each of the markets in this region . we introduced our ageloc galvanic body spa and related products in europe in the first quarter of 2012 , and currently plan to launch these products during the second quarter of 2012. we currently plan to introduce our ageloc r 2 in the majority of our markets in the region in the fourth quarter of 2012 , followed by a second quarter 2013 launch . our active distributor count in our europe region increased by 2 % and our executive distributor count remained level when compared to 2010. gross profit gross profit as a percentage of revenue in 2011 decreased to 81.5 % compared to 82.3 % in 2010. in march 2011 , the tokyo district court upheld a disputed $ 32.8 million customs assessment on certain of our products imported into japan . as a result of this decision , we recorded an expense within cost of sales for the full amount of the disputed assessments in the first quarter of 2011. the charge is a non-cash item , as we were previously required to pay the assessments . we have appealed this decision and expect a decision on the appeal in 2012. excluding this $ 32.8 million non-cash charge , gross profit as a percentage of revenue for 2011 was 83.4 % , reflecting supply chain improvements and foreign currency benefits . gross profit excluding japan customs expense is a non-gaap financial measure . see “ non-gaap financial measures ” below . we anticipate that our gross profit as a percentage of revenue will be approximately 83.5 % in 2012 . - 57 - selling expenses selling expenses increased as a percentage of revenue at 43.1 % in 2011 compared to 42.1 % in 2010. this increase reflects growth in the number of independent distributors qualifying for various promotional sales incentives and trips . general and administrative expenses general and administrative expenses decreased as a percentage of revenue to 25.0 % in 2011 from 26.1 % in 2010 , primarily as a result of increased revenue and controlled expenses . other income ( expense ) , net other income ( expense ) , net was $ 7.0 million of expense in 2011 compared to $ 9.4 million of expense in 2010. the decrease in expense is due primarily to the impact of changes in foreign currency exchange rates . because it is impossible to predict foreign currency fluctuations , we can not estimate the degree to which our other income expense will be impacted in the future . other income ( expense ) , net also includes approximately $ 4.8 million and $ 5.8 million in interest expense during 2011 and 2010 , respectively . provision for income taxes provision for income taxes increased to $ 73.4 million in 2011 from $ 71.6 million in 2010. the effective tax rate decreased to 32.4 % in 2011 from 34.5 % of pre-tax income in 2010. the lower income tax rate was primarily attributable to a one-time discrete tax benefit of $ 7.7 million associated with the effective settlement of an irs audit for tax years 2005 – 2008. during the third quarter , we entered into a closing agreement with the irs on the extraterritorial income exclusion for the exportation of products outside the united states . we anticipate our tax rate will be approximately 35.5 % to 36 % in 2012. net income as a result of the foregoing factors , net income increased to $ 153.3 million in 2011 , or $ 173.8 million excluding $ 32.8 million ( approximately $ 20.5 million , net of tax ) in japan customs expense , compared to $ 136.1 million in 2010. net income excluding japan customs expense is a non-gaap financial measure . see “ non-gaap financial measures ” below . 2010 compared to 2009 overview revenue in 2010 increased 15 % to $ 1.54 billion from $ 1.33 billion in 2009. our revenue growth in 2010 was driven by the global launch of our ageloc anti-aging products , including our ageloc transformation skin care system . we also introduced ageloc vitality ,

liquidity and capital resources historically , our principal uses of cash have included operating expenses , particularly selling expenses , and working capital ( principally inventory purchases ) , as well as capital expenditures , stock repurchases , dividends , debt repayment , and the development of operations in new markets . we have generally relied on cash flow from operations to fund operating activities , and we have at times incurred long-term debt in order to fund strategic transactions and stock repurchases . we typically generate positive cash flow from operations due to favorable margins . we generated $ 224.3 million in cash from operations in 2011 compared to $ 187.9 million in 2010. this increase in cash generated from operations is primarily due to the increase in revenue in 2011 as well as increased profitability from our restructuring efforts . as of december 31 , 2011 , working capital was $ 288.9 million compared to $ 206.1 million as of december 31 , 2010. our working capital increased primarily due to an increase in cash and cash equivalents . cash and cash equivalents , including current investments , at december 31 , 2011 were $ 290.7 million compared to $ 230.3 million at december 31 , 2010. the increase in cash was primarily the result of the increase in our cash generated from operations in 2011. capital expenditures in 2011 totaled $ 41.8 million , and we anticipate capital expenditures of approximately $ 100.0 million for 2012. this year-over-year increase reflects significant construction projects as noted below , which we currently anticipate will be completed in 2013.the capital expenditures in 2012 are primarily related to : planning and construction of a new innovation center on our provo campus and a new greater china regional headquarters in shanghai , china , and related real estate acquisitions ; the build-out and upgrade of leasehold improvements in our various markets , including retail stores in china ; and purchases of computer systems and software , including equipment and development costs . - 62 - we currently have debt pursuant to various credit facilities and other borrowings .

`` we and celgene are planning regulatory application submissions for luspatercept in both mds and beta-thalassemia in the united states in april 2019 and in europe in the first half of 2019. in addition to the medalist and believe phase 3 clinical trials with luspatercept , celgene is currently conducting a phase 2 clinical trial in non-transfusion-dependent beta-thalassemia patients , referred to as the beyond trial , with preliminary top-line results currently expected in 2020. celgene has also initiated a phase 3 clinical trial , the commands trial , in first-line , lower-risk mds patients and enrollment is ongoing . enrollment is also currently ongoing in a phase 2 clinical trial being conducted by celgene for the treatment of patients with myelofibrosis , a rare bone marrow disorder , with preliminary top-line results currently expected in the second half of 2019. if luspatercept were to receive regulatory approval for each of these indications in the united states and europe , we believe that there is an annual peak sales opportunity for luspatercept in excess of $ 2 billion across the indications in the beyond trial and the luspatercept phase 3 clinical trials , and an annual peak sales opportunity for luspatercept in excess of $ 1 billion in myelofibrosis . we and celgene are also evaluating further research of luspatercept for the treatment of anemia in potential new indications that could provide additional sales opportunities . for sotatercept , we have the rights to fund , develop , and lead the global commercialization of sotatercept in pulmonary hypertension , which we refer to as the ph field , including pulmonary arterial hypertension , or pah . pah is a rare and chronic , rapidly progressing disorder characterized by the constriction of small pulmonary arteries , resulting in abnormally high blood pressure in the pulmonary arteries . we are currently enrolling the pulsar phase 2 clinical trial of sotatercept for the treatment of patients with pah with preliminary results expected in the first half of 2020 , and we recently initiated an exploratory study , called spectra , in the first quarter of 2019 to provide us with further understanding of sotatercept 's impact on pah . if sotatercept is commercialized to treat pah and we recognize such revenue , then celgene will be eligible to receive a royalty in the low 20 % range on global net sales . in certain circumstances celgene may recognize revenue related to the commercialization of sotatercept in pah , and in this scenario we will be eligible to receive a royalty from celgene such that the economic position of the parties is equivalent to the scenario in which we recognize such revenue . 53 for luspatercept and , outside of the ph field , sotatercept , celgene is responsible for paying 100 % of the development costs for all clinical trials . we may receive a maximum of $ 545.0 million for the potential development , regulatory and commercial milestone payments . if luspatercept and , outside of the ph field , sotatercept are commercialized , we are eligible to receive a royalty on net sales in the low-to-mid 20 % range . we have a co-promotion right in north america , for which our commercialization costs provided in the commercialization plan and budget as approved by the joint commercialization committee will be entirely funded by celgene , and from time to time we may elect to conduct additional activities to support commercialization of luspatercept at our own expense . we are independently developing our wholly-owned neuromuscular candidate , ace-083 . ace-083 is designed for the treatment of focal muscle disorders , and we are currently conducting phase 2 clinical trials with ace-083 in patients with facioscapulohumeral muscular dystrophy , or fshd , as well as in patients with charcot-marie-tooth disease , or cmt . we previously announced results from part 1 of each of our phase 2 clinical trials in patients with fshd and cmt showing increases in mean total and contractile muscle volume , reductions in fat fraction , and an encouraging safety profile . enrollment is complete in part 2 of the ace-083 phase 2 clinical trial in patients with fshd and is ongoing in the ace-083 phase 2 clinical trial in patients with cmt . we expect to announce preliminary results from part 2 of each of these phase 2 clinical trials by the second half of 2019 for fshd and by year end for cmt . in addition to our mid- to late-stage clinical programs , we are currently conducting a phase 1 healthy volunteer study with ace-2494 , our wholly-owned systemic muscle agent from our proprietary platform technology , intellitrap , and we expect to report preliminary results from this healthy volunteer study in the first half of 2019. we are also conducting research primarily within our three focused disease areas—hematologic , neuromuscular and pulmonary—in order to identify new therapeutic candidates to advance into clinical trials . as of december 31 , 2018 , our operations have been funded primarily by $ 105.1 million in equity investments from venture investors , $ 539.7 million from public investors , $ 123.7 million in equity investments from our collaboration partners and $ 284.2 million in upfront payments , milestones , and net research and development payments from our collaboration partners . we estimate that we have spent approximately $ 103.9 million , $ 89.7 million , and $ 68.6 million , on research and development for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . on january 18 , 2019 , we completed the sale of 5,348,838 shares of common stock at a public offering price of $ 43.00 per share , resulting in net proceeds to us of approximately $ 215.8 million . story_separator_special_tag milestone payments that are not within our or our licensee 's control , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . at the end of each subsequent reporting period , we reevaluate the probability of achievement of all milestones subject to constraint and , if necessary , adjusts its estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenues and earnings in the period of adjustment . if a milestone or other variable consideration relates specifically to our efforts to satisfy a single performance obligation or to a specific outcome from satisfying the performance obligation , we generally allocate the milestone amount entirely to that performance obligation . the next likely clinical milestone payment for luspatercept would be $ 25.0 million and result from u.s. food and drug administration ( fda ) or european medicines agency ( ema ) acceptance of a biologics licensing application or equivalent for luspatercept in either myelodysplastic syndromes or beta-thalassemia . the company and celgene are planning regulatory application submissions for luspatercept in the united states in april 2019 and in europe in the first half of 2019. following application submission , the fda will determine the acceptance of the application for `` filing `` by 60 days from the submission date . similarly , the ema will validate the application within 10 days of submission . in accordance with the company 's accounting policy regarding revenue recognition as described in note 2 , the revenue associated with this milestone will be recognized once it is probable that the applications are accepted for review by either the fda or ema . milestone payments that are not within the control of the company or the licensee are not considered probable of being achieved until those approvals are received . the acceptance of the application is not within the control of the company or the licensee , and therefore , as of december 31 , 2018 , the company can not determine if it is probable that a regulatory agency will accept the application . royalties 58 for arrangements that include sales-based royalties , including milestone payments based on a level of sales , and the license is deemed to be the predominant item to which the royalties relate , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . to date , we have not recognized any royalty revenue resulting from any of its licensing arrangements . accrued clinical trial expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . this process involves reviewing contracts , and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost : cros and investigative sites in connection with clinical studies ; vendors in connection with preclinical development activities ; and vendors related to product manufacturing , development and distribution of clinical supplies . we base our expenses related to cros and third-party service providers on our estimates of the services provided and efforts expended pursuant to quotes and contracts with cros and third parties that conduct research and development on our behalf , as well as discussion with internal personnel and external service providers as to the progress of the services and the agreed-upon fee to be paid for such services . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . we make significant judgments and estimates in determining the accrued balance in each reporting period . as actual costs become know , we adjust our accrued estimates . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed , the number of subjects enrolled , and the rate of enrollment may vary from its estimates and could result in us reporting amounts that are too high or too low in a particular period . our accrued expenses are dependent , in part , upon the receipt of timely and accurate reporting from cros and third-party service providers . to date , we have not experienced any material differences between accrued costs and actual costs incurred . stock-based compensation we account for our stock-based awards in accordance with asc topic 718 , compensation—stock compensation , or asc 718 , which requires all stock-based payments to employees , including grants of employee stock options , modifications to existing stock options , and restricted stock unit awards , to be recognized in the statements of operations and comprehensive income ( loss ) based on their fair values . we recognize the compensation cost of awards subject to service-based vesting conditions over the requisite service period , which is generally equal to the vesting term . for awards subject to both performance and service-based vesting conditions , we recognize compensation cost using an accelerated recognition method when it is probable that the performance condition will be achieved . if achievement of the performance condition is not probable , but the award will vest based on the service condition , we recognize the expense over the requisite service period . in july 2018 , the company early adopted asu 2018-07 , which expands the scope of topic 718 to include share-based

liquidity and capital resources historically , our principal uses of cash have included operating expenses , particularly selling expenses , and working capital ( principally inventory purchases ) , as well as capital expenditures , stock repurchases , dividends , debt repayment , and the development of operations in new markets . we have generally relied on cash flow from operations to fund operating activities , and we have at times incurred long-term debt in order to fund strategic transactions and stock repurchases . we typically generate positive cash flow from operations due to favorable margins . we generated $ 224.3 million in cash from operations in 2011 compared to $ 187.9 million in 2010. this increase in cash generated from operations is primarily due to the increase in revenue in 2011 as well as increased profitability from our restructuring efforts . as of december 31 , 2011 , working capital was $ 288.9 million compared to $ 206.1 million as of december 31 , 2010. our working capital increased primarily due to an increase in cash and cash equivalents . cash and cash equivalents , including current investments , at december 31 , 2011 were $ 290.7 million compared to $ 230.3 million at december 31 , 2010. the increase in cash was primarily the result of the increase in our cash generated from operations in 2011. capital expenditures in 2011 totaled $ 41.8 million , and we anticipate capital expenditures of approximately $ 100.0 million for 2012. this year-over-year increase reflects significant construction projects as noted below , which we currently anticipate will be completed in 2013.the capital expenditures in 2012 are primarily related to : planning and construction of a new innovation center on our provo campus and a new greater china regional headquarters in shanghai , china , and related real estate acquisitions ; the build-out and upgrade of leasehold improvements in our various markets , including retail stores in china ; and purchases of computer systems and software , including equipment and development costs . - 62 - we currently have debt pursuant to various credit facilities and other borrowings .

`` we and celgene are planning regulatory application submissions for luspatercept in both mds and beta-thalassemia in the united states in april 2019 and in europe in the first half of 2019. in addition to the medalist and believe phase 3 clinical trials with luspatercept , celgene is currently conducting a phase 2 clinical trial in non-transfusion-dependent beta-thalassemia patients , referred to as the beyond trial , with preliminary top-line results currently expected in 2020. celgene has also initiated a phase 3 clinical trial , the commands trial , in first-line , lower-risk mds patients and enrollment is ongoing . enrollment is also currently ongoing in a phase 2 clinical trial being conducted by celgene for the treatment of patients with myelofibrosis , a rare bone marrow disorder , with preliminary top-line results currently expected in the second half of 2019. if luspatercept were to receive regulatory approval for each of these indications in the united states and europe , we believe that there is an annual peak sales opportunity for luspatercept in excess of $ 2 billion across the indications in the beyond trial and the luspatercept phase 3 clinical trials , and an annual peak sales opportunity for luspatercept in excess of $ 1 billion in myelofibrosis . we and celgene are also evaluating further research of luspatercept for the treatment of anemia in potential new indications that could provide additional sales opportunities . for sotatercept , we have the rights to fund , develop , and lead the global commercialization of sotatercept in pulmonary hypertension , which we refer to as the ph field , including pulmonary arterial hypertension , or pah . pah is a rare and chronic , rapidly progressing disorder characterized by the constriction of small pulmonary arteries , resulting in abnormally high blood pressure in the pulmonary arteries . we are currently enrolling the pulsar phase 2 clinical trial of sotatercept for the treatment of patients with pah with preliminary results expected in the first half of 2020 , and we recently initiated an exploratory study , called spectra , in the first quarter of 2019 to provide us with further understanding of sotatercept 's impact on pah . if sotatercept is commercialized to treat pah and we recognize such revenue , then celgene will be eligible to receive a royalty in the low 20 % range on global net sales . in certain circumstances celgene may recognize revenue related to the commercialization of sotatercept in pah , and in this scenario we will be eligible to receive a royalty from celgene such that the economic position of the parties is equivalent to the scenario in which we recognize such revenue . 53 for luspatercept and , outside of the ph field , sotatercept , celgene is responsible for paying 100 % of the development costs for all clinical trials . we may receive a maximum of $ 545.0 million for the potential development , regulatory and commercial milestone payments . if luspatercept and , outside of the ph field , sotatercept are commercialized , we are eligible to receive a royalty on net sales in the low-to-mid 20 % range . we have a co-promotion right in north america , for which our commercialization costs provided in the commercialization plan and budget as approved by the joint commercialization committee will be entirely funded by celgene , and from time to time we may elect to conduct additional activities to support commercialization of luspatercept at our own expense . we are independently developing our wholly-owned neuromuscular candidate , ace-083 . ace-083 is designed for the treatment of focal muscle disorders , and we are currently conducting phase 2 clinical trials with ace-083 in patients with facioscapulohumeral muscular dystrophy , or fshd , as well as in patients with charcot-marie-tooth disease , or cmt . we previously announced results from part 1 of each of our phase 2 clinical trials in patients with fshd and cmt showing increases in mean total and contractile muscle volume , reductions in fat fraction , and an encouraging safety profile . enrollment is complete in part 2 of the ace-083 phase 2 clinical trial in patients with fshd and is ongoing in the ace-083 phase 2 clinical trial in patients with cmt . we expect to announce preliminary results from part 2 of each of these phase 2 clinical trials by the second half of 2019 for fshd and by year end for cmt . in addition to our mid- to late-stage clinical programs , we are currently conducting a phase 1 healthy volunteer study with ace-2494 , our wholly-owned systemic muscle agent from our proprietary platform technology , intellitrap , and we expect to report preliminary results from this healthy volunteer study in the first half of 2019. we are also conducting research primarily within our three focused disease areas—hematologic , neuromuscular and pulmonary—in order to identify new therapeutic candidates to advance into clinical trials . as of december 31 , 2018 , our operations have been funded primarily by $ 105.1 million in equity investments from venture investors , $ 539.7 million from public investors , $ 123.7 million in equity investments from our collaboration partners and $ 284.2 million in upfront payments , milestones , and net research and development payments from our collaboration partners . we estimate that we have spent approximately $ 103.9 million , $ 89.7 million , and $ 68.6 million , on research and development for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . on january 18 , 2019 , we completed the sale of 5,348,838 shares of common stock at a public offering price of $ 43.00 per share , resulting in net proceeds to us of approximately $ 215.8 million . story_separator_special_tag milestone payments that are not within our or our licensee 's control , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . at the end of each subsequent reporting period , we reevaluate the probability of achievement of all milestones subject to constraint and , if necessary , adjusts its estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenues and earnings in the period of adjustment . if a milestone or other variable consideration relates specifically to our efforts to satisfy a single performance obligation or to a specific outcome from satisfying the performance obligation , we generally allocate the milestone amount entirely to that performance obligation . the next likely clinical milestone payment for luspatercept would be $ 25.0 million and result from u.s. food and drug administration ( fda ) or european medicines agency ( ema ) acceptance of a biologics licensing application or equivalent for luspatercept in either myelodysplastic syndromes or beta-thalassemia . the company and celgene are planning regulatory application submissions for luspatercept in the united states in april 2019 and in europe in the first half of 2019. following application submission , the fda will determine the acceptance of the application for `` filing `` by 60 days from the submission date . similarly , the ema will validate the application within 10 days of submission . in accordance with the company 's accounting policy regarding revenue recognition as described in note 2 , the revenue associated with this milestone will be recognized once it is probable that the applications are accepted for review by either the fda or ema . milestone payments that are not within the control of the company or the licensee are not considered probable of being achieved until those approvals are received . the acceptance of the application is not within the control of the company or the licensee , and therefore , as of december 31 , 2018 , the company can not determine if it is probable that a regulatory agency will accept the application . royalties 58 for arrangements that include sales-based royalties , including milestone payments based on a level of sales , and the license is deemed to be the predominant item to which the royalties relate , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . to date , we have not recognized any royalty revenue resulting from any of its licensing arrangements . accrued clinical trial expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . this process involves reviewing contracts , and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost : cros and investigative sites in connection with clinical studies ; vendors in connection with preclinical development activities ; and vendors related to product manufacturing , development and distribution of clinical supplies . we base our expenses related to cros and third-party service providers on our estimates of the services provided and efforts expended pursuant to quotes and contracts with cros and third parties that conduct research and development on our behalf , as well as discussion with internal personnel and external service providers as to the progress of the services and the agreed-upon fee to be paid for such services . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . we make significant judgments and estimates in determining the accrued balance in each reporting period . as actual costs become know , we adjust our accrued estimates . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed , the number of subjects enrolled , and the rate of enrollment may vary from its estimates and could result in us reporting amounts that are too high or too low in a particular period . our accrued expenses are dependent , in part , upon the receipt of timely and accurate reporting from cros and third-party service providers . to date , we have not experienced any material differences between accrued costs and actual costs incurred . stock-based compensation we account for our stock-based awards in accordance with asc topic 718 , compensation—stock compensation , or asc 718 , which requires all stock-based payments to employees , including grants of employee stock options , modifications to existing stock options , and restricted stock unit awards , to be recognized in the statements of operations and comprehensive income ( loss ) based on their fair values . we recognize the compensation cost of awards subject to service-based vesting conditions over the requisite service period , which is generally equal to the vesting term . for awards subject to both performance and service-based vesting conditions , we recognize compensation cost using an accelerated recognition method when it is probable that the performance condition will be achieved . if achievement of the performance condition is not probable , but the award will vest based on the service condition , we recognize the expense over the requisite service period . in july 2018 , the company early adopted asu 2018-07 , which expands the scope of topic 718 to include share-based

cash flows the following table sets forth the primary sources and uses of cash for each of the years set forth below : replace_table_token_9_th operating activities . net cash used in operating activities was $ 94.7 million for the year ended december 31 , 2018 , compared to $ 76.5 million and $ 44.5 million for the years ended december 31 , 2017 and 2016 , respectively . net cash used in operating activities has increased over this three-year period as a result of increased headcount and related facilities as well as additional external expenses to support our wholly-owned therapeutic programs . the change primarily consists of our net losses adjusted for non-cash items and changes in components of operating assets and liabilities as follows : for the year ended december 31 , 2018 , a net loss of $ 118.9 million adjusted for non-cash items including : stock-based compensation expense of $ 24.6 million and depreciation and amortization expense of $ 3.7 million , and a net decrease of $ 4.6 million due to changes in operating assets and liabilities . the significant items in the change in operating assets and liabilities include an increase in prepaid expenses of $ 3.0 million primarily for start-up activities for the pulsar clinical trial , and an increase in collaboration receivables of $ 3.5 million . for the year ended december 31 , 2017 , a net loss of $ 108.5 million adjusted for non-cash items including : stock-based compensation expense of $ 28.2 million , depreciation and amortization expense of $ 2.8 million and an increase in fair value of warrants of $ 1.0 million . for the year ended december 31 , 2016 , a net loss of $ 57.0 million adjusted for non-cash items including : stock-based compensation expense of $ 18.6 million , depreciation and amortization expense of $ 1.7 million , and a decrease in fair value of warrants of $ 7.3 million . 62 investing activities . net cash provided by investing activities was $ 122.9 million for the year ended december 31 , 2018 , compared to net cash used in investing activities of $ 64.4

, credit card , auto lending , retail credit , mortgages ) and the utility and insurance industries . the technology services segment principally consists of our realsuite tm applications as well as our information technology ( “it” ) infrastructure services . the realsuite tm platform provides a fully integrated set of software applications and technologies that manage the end-to-end lifecycle for residential and commercial mortgage loan servicing including the automated management and payment of a distributed network of vendors . in addition , our corporate items and eliminations segment includes eliminations of transactions between the reporting segments and costs related to corporate support functions including executive , finance , legal , human resources , vendor management , risk and six sigma . further discussion regarding our business may be found under item 1 of part i , “ business ” . we classify revenue in three categories : service revenue , revenue from reimbursable expenses and non-controlling interests . in evaluating our performance , we focus on service revenue which consists of amounts attributable to our fee based services . reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin . reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee based services , but we pass such costs directly on to our customers without any additional markup . non-controlling interests represent the earnings of lenders one , a consolidated entity not owned by altisource . it is included in revenue and reduced from net income to arrive at net income attributable to altisource . basis of presentation we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “gaap” ) . recent acquisitions by ocwen during 2012 , ocwen 's residential loan servicing portfolio grew from $ 102.2 billion in upb to $ 203.7 billion in upb . the 2012 growth is primarily from ocwen 's acquisition of homeward residential in the fourth quarter and the acquisition of mortgage servicing rights and related assets from saxon mortgage services , inc. and from jp morgan chase portfolios in the second quarter of 2012. additionally , in october 2012 , ocwen and walter investment management corporation presented the highest bid in the auction of rescap 's servicing portfolio . we expect ocwen to close the rescap transaction in the first quarter of 2013. excluding the approximately $ 120 billion of ally bank subservicing and master servicing , the rescap transaction will increase ocwen 's servicing portfolio upb by approximately $ 203.7 billion . with these servicing platform acquisitions , ocwen is now positioned as the fifth largest mortgage servicer in the united states . as the structured shift of servicing to non-banks continues , we expect ocwen to continue to grow . ocwen 's highly scalable platform and low cost operating structure positions it to be very competitive as additional mortgage servicing portfolios become available . in connection with ocwen 's acquisition of homeward residential and the anticipated acquisition of the rescap servicing platform , we intend to acquire the fee based businesses associated with these servicing portfolios from ocwen at a price that we believe will provide an unlevered pre-tax return of approximately 20 % . the fee based business acquisitions are strategically valuable as they will help us maintain our business model with ocwen , expand our footprint and provide us significant revenue and earnings growth . 22 separation of residential asset businesses on december 21 , 2012 , we completed the capitalization and distribution of residential and aamc to our shareholders . see “ separation of residential asset businesses ” in item 1 of part i , “ business ” . residential and aamc plan to enter the growing residential single-family rental market . because of the different capital considerations and the operating metrics associated with owning and renting single-family homes , we believe these businesses are best suited to operate as separate stand-alone companies . residential will acquire residential related assets , and aamc will provide asset management and advisory services to residential . we will provide property management , lease management and renovation management services to residential once it begins acquiring assets . with $ 100 million of initial equity , we believe residential is poised to execute on its strategy of achieving above market returns by ( 1 ) acquiring non-performing loans at a lower cost than directly acquiring reo and ( 2 ) operating at a lower cost than its competitors . on december 24 , 2012 , the shares of residential and aamc were distributed to our shareholders of record as of december 17 , 2012 , in the form of a taxable pro rata stock distribution ( the “distribution” ) . our shareholders received a pro rata distribution of : · one share of residential common stock for every three shares of altisource common stock held ; · one share of aamc common stock for every 10 shares of altisource common stock held and · received cash in lieu of fractional residential and aamc shares . there are contractual agreements between altisource , residential and aamc that govern certain ongoing relationships and provide for an orderly transition to the status of three independent companies . these agreements are described further in “ related parties” at the end of this section . we did not report the historical operating results of residential and aamc as a discontinued operation because residential and aamc are development state companies that had not commenced operations as of the date of separation and because of the significance of the continuing involvement between these entities and altisource under these agreements . although residential and aamc are separate companies from altisource , these entities have the same chairman . as a result , our chairman has obligations to altisource as well as to residential and aamc . story_separator_special_tag more specifically , financial services asset recovery revenue tends to be higher in the first quarter and generally declines throughout the year . mortgage services revenue is impacted by reo sales which tend to be at their lowest level during the fall and winter months and highest during the spring and summer months . cost of revenue and gross profit cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles , fees paid to external providers related to the provision of services , reimbursable expenses , technology and telephony expenses as well as depreciation and amortization of operating assets . we recognized cost of revenue of $ 366.2 million , $ 275.8 million and $ 189.1 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the increase in cost of revenue over the three year period is directly attributable to compensation , technology and vendor costs associated with the growth in ocwen 's servicing portfolio and higher costs in our technology services segment as we continue to invest in the development of our next generation technology and infrastructure . gross profit as a percentage of service revenue was 43 % , 44 % and 45 % for the years ended december 31 , 2012 , 2011 and 2010 , respectively . our gross margins can vary significantly from period to period . the most significant factors contributing to variability include the mix of services delivered , timing of investments in new services , hiring of staff in advance of new business and the timing of when loans are boarded by our customers . gross profit as a percentage of service revenue decreased over the three year period primarily from higher costs in our technology services segment as we continue to invest in the development of our next generation technology . gross profit as a percentage of service revenue further declined in 2012 from the costs incurred to develop the rental property management business and the growth of the lower margin origination services business . selling , general and administrative expenses and income from operations sg & a includes payroll for personnel employed in executive , finance , legal , human resources , vendor management , risk and six sigma roles . this category also includes occupancy costs , professional fees , depreciation and amortization on non-operating assets . we recognized sg & a of $ 74.7 million , $ 62.1 million and $ 57.4 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . our operating margins were 27 % , 26 % and 22 % , respectively , as a percentage of each year 's service revenue . income from operations as a percentage of service revenue is improving as sg & a is growing at a slower pace than service revenue . the benefit was partially offset in 2012 by costs associated with the separation of residential and aamc . 29 on an absolute basis , the increase in sg & a for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 was primarily due to a $ 6.2 million increase in occupancy related costs primarily from the addition of new leased facilities and equipment to support our growth . in addition , other sg & a increased $ 4.2 million from higher marketing costs related to hubzu , travel expenses primarily associated with the management of our global operations and higher bad debt expense . finally , professional services increased primarily from $ 2.2 million of expenses incurred in connection with the separation of the residential asset businesses . partially offsetting these increases was lower compensation expense of $ 1.2 million primarily due to the reversal in the first quarter of share-based compensation and incentive compensation expense related to the departure of an executive officer in march 2012. income tax provision ( benefit ) we recognized an income tax provision ( benefit ) of $ 8.7 million , $ 7.9 million and $ ( 0.4 ) million in 2012 , 2011 and 2010 , respectively . the effective tax rate in all three periods differs from the luxembourg statutory tax rate of 28.8 % primarily because of the effect of a favorable tax ruling in luxembourg in 2010 and the mix of income and losses and varying tax rates in multiple taxing jurisdictions . our effective tax rate was 7.0 % , 9.2 % and ( 0.7 ) % for 2012 , 2011 and 2010 , respectively . our consolidated effective income tax rate for financial reporting purposes may change periodically due to changes in enacted tax rates , fluctuations in the mix of income earned from our domestic and international operations which may be subject to differing tax rates and our ability to utilize net operating loss and tax credit carryforwards . recent accounting pronouncements there are no pending accounting pronouncements that are expected to have a material impact upon adoption . 30 segment results of operations the following section provides a discussion of pre-tax results of operations of our business segments for the years ended december 31 , 2012 , 2011 and 2010. transactions between segments are accounted for as third-party arrangements for purposes of presenting segment results of operations . intercompany transactions primarily consist of it infrastructure services and charges for the use of certain realsuite applications from our technology services segment to our other two segments . generally , we reflect these charges within technology and communications expense in the segment receiving the services , except for consulting services , which we reflect in professional services expense . financial information for our segments is as follows : replace_table_token_9_th n/m — not meaningful . 31 replace_table_token_10_th n/m — not meaningful . 32 replace_table_token_11_th n/m — not meaningful . 33 mortgage services revenue revenue by service line was as follows for the years ended december 31

cash flows the following table sets forth the primary sources and uses of cash for each of the years set forth below : replace_table_token_9_th operating activities . net cash used in operating activities was $ 94.7 million for the year ended december 31 , 2018 , compared to $ 76.5 million and $ 44.5 million for the years ended december 31 , 2017 and 2016 , respectively . net cash used in operating activities has increased over this three-year period as a result of increased headcount and related facilities as well as additional external expenses to support our wholly-owned therapeutic programs . the change primarily consists of our net losses adjusted for non-cash items and changes in components of operating assets and liabilities as follows : for the year ended december 31 , 2018 , a net loss of $ 118.9 million adjusted for non-cash items including : stock-based compensation expense of $ 24.6 million and depreciation and amortization expense of $ 3.7 million , and a net decrease of $ 4.6 million due to changes in operating assets and liabilities . the significant items in the change in operating assets and liabilities include an increase in prepaid expenses of $ 3.0 million primarily for start-up activities for the pulsar clinical trial , and an increase in collaboration receivables of $ 3.5 million . for the year ended december 31 , 2017 , a net loss of $ 108.5 million adjusted for non-cash items including : stock-based compensation expense of $ 28.2 million , depreciation and amortization expense of $ 2.8 million and an increase in fair value of warrants of $ 1.0 million . for the year ended december 31 , 2016 , a net loss of $ 57.0 million adjusted for non-cash items including : stock-based compensation expense of $ 18.6 million , depreciation and amortization expense of $ 1.7 million , and a decrease in fair value of warrants of $ 7.3 million . 62 investing activities . net cash provided by investing activities was $ 122.9 million for the year ended december 31 , 2018 , compared to net cash used in investing activities of $ 64.4

, credit card , auto lending , retail credit , mortgages ) and the utility and insurance industries . the technology services segment principally consists of our realsuite tm applications as well as our information technology ( “it” ) infrastructure services . the realsuite tm platform provides a fully integrated set of software applications and technologies that manage the end-to-end lifecycle for residential and commercial mortgage loan servicing including the automated management and payment of a distributed network of vendors . in addition , our corporate items and eliminations segment includes eliminations of transactions between the reporting segments and costs related to corporate support functions including executive , finance , legal , human resources , vendor management , risk and six sigma . further discussion regarding our business may be found under item 1 of part i , “ business ” . we classify revenue in three categories : service revenue , revenue from reimbursable expenses and non-controlling interests . in evaluating our performance , we focus on service revenue which consists of amounts attributable to our fee based services . reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin . reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee based services , but we pass such costs directly on to our customers without any additional markup . non-controlling interests represent the earnings of lenders one , a consolidated entity not owned by altisource . it is included in revenue and reduced from net income to arrive at net income attributable to altisource . basis of presentation we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “gaap” ) . recent acquisitions by ocwen during 2012 , ocwen 's residential loan servicing portfolio grew from $ 102.2 billion in upb to $ 203.7 billion in upb . the 2012 growth is primarily from ocwen 's acquisition of homeward residential in the fourth quarter and the acquisition of mortgage servicing rights and related assets from saxon mortgage services , inc. and from jp morgan chase portfolios in the second quarter of 2012. additionally , in october 2012 , ocwen and walter investment management corporation presented the highest bid in the auction of rescap 's servicing portfolio . we expect ocwen to close the rescap transaction in the first quarter of 2013. excluding the approximately $ 120 billion of ally bank subservicing and master servicing , the rescap transaction will increase ocwen 's servicing portfolio upb by approximately $ 203.7 billion . with these servicing platform acquisitions , ocwen is now positioned as the fifth largest mortgage servicer in the united states . as the structured shift of servicing to non-banks continues , we expect ocwen to continue to grow . ocwen 's highly scalable platform and low cost operating structure positions it to be very competitive as additional mortgage servicing portfolios become available . in connection with ocwen 's acquisition of homeward residential and the anticipated acquisition of the rescap servicing platform , we intend to acquire the fee based businesses associated with these servicing portfolios from ocwen at a price that we believe will provide an unlevered pre-tax return of approximately 20 % . the fee based business acquisitions are strategically valuable as they will help us maintain our business model with ocwen , expand our footprint and provide us significant revenue and earnings growth . 22 separation of residential asset businesses on december 21 , 2012 , we completed the capitalization and distribution of residential and aamc to our shareholders . see “ separation of residential asset businesses ” in item 1 of part i , “ business ” . residential and aamc plan to enter the growing residential single-family rental market . because of the different capital considerations and the operating metrics associated with owning and renting single-family homes , we believe these businesses are best suited to operate as separate stand-alone companies . residential will acquire residential related assets , and aamc will provide asset management and advisory services to residential . we will provide property management , lease management and renovation management services to residential once it begins acquiring assets . with $ 100 million of initial equity , we believe residential is poised to execute on its strategy of achieving above market returns by ( 1 ) acquiring non-performing loans at a lower cost than directly acquiring reo and ( 2 ) operating at a lower cost than its competitors . on december 24 , 2012 , the shares of residential and aamc were distributed to our shareholders of record as of december 17 , 2012 , in the form of a taxable pro rata stock distribution ( the “distribution” ) . our shareholders received a pro rata distribution of : · one share of residential common stock for every three shares of altisource common stock held ; · one share of aamc common stock for every 10 shares of altisource common stock held and · received cash in lieu of fractional residential and aamc shares . there are contractual agreements between altisource , residential and aamc that govern certain ongoing relationships and provide for an orderly transition to the status of three independent companies . these agreements are described further in “ related parties” at the end of this section . we did not report the historical operating results of residential and aamc as a discontinued operation because residential and aamc are development state companies that had not commenced operations as of the date of separation and because of the significance of the continuing involvement between these entities and altisource under these agreements . although residential and aamc are separate companies from altisource , these entities have the same chairman . as a result , our chairman has obligations to altisource as well as to residential and aamc . story_separator_special_tag more specifically , financial services asset recovery revenue tends to be higher in the first quarter and generally declines throughout the year . mortgage services revenue is impacted by reo sales which tend to be at their lowest level during the fall and winter months and highest during the spring and summer months . cost of revenue and gross profit cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles , fees paid to external providers related to the provision of services , reimbursable expenses , technology and telephony expenses as well as depreciation and amortization of operating assets . we recognized cost of revenue of $ 366.2 million , $ 275.8 million and $ 189.1 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the increase in cost of revenue over the three year period is directly attributable to compensation , technology and vendor costs associated with the growth in ocwen 's servicing portfolio and higher costs in our technology services segment as we continue to invest in the development of our next generation technology and infrastructure . gross profit as a percentage of service revenue was 43 % , 44 % and 45 % for the years ended december 31 , 2012 , 2011 and 2010 , respectively . our gross margins can vary significantly from period to period . the most significant factors contributing to variability include the mix of services delivered , timing of investments in new services , hiring of staff in advance of new business and the timing of when loans are boarded by our customers . gross profit as a percentage of service revenue decreased over the three year period primarily from higher costs in our technology services segment as we continue to invest in the development of our next generation technology . gross profit as a percentage of service revenue further declined in 2012 from the costs incurred to develop the rental property management business and the growth of the lower margin origination services business . selling , general and administrative expenses and income from operations sg & a includes payroll for personnel employed in executive , finance , legal , human resources , vendor management , risk and six sigma roles . this category also includes occupancy costs , professional fees , depreciation and amortization on non-operating assets . we recognized sg & a of $ 74.7 million , $ 62.1 million and $ 57.4 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . our operating margins were 27 % , 26 % and 22 % , respectively , as a percentage of each year 's service revenue . income from operations as a percentage of service revenue is improving as sg & a is growing at a slower pace than service revenue . the benefit was partially offset in 2012 by costs associated with the separation of residential and aamc . 29 on an absolute basis , the increase in sg & a for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 was primarily due to a $ 6.2 million increase in occupancy related costs primarily from the addition of new leased facilities and equipment to support our growth . in addition , other sg & a increased $ 4.2 million from higher marketing costs related to hubzu , travel expenses primarily associated with the management of our global operations and higher bad debt expense . finally , professional services increased primarily from $ 2.2 million of expenses incurred in connection with the separation of the residential asset businesses . partially offsetting these increases was lower compensation expense of $ 1.2 million primarily due to the reversal in the first quarter of share-based compensation and incentive compensation expense related to the departure of an executive officer in march 2012. income tax provision ( benefit ) we recognized an income tax provision ( benefit ) of $ 8.7 million , $ 7.9 million and $ ( 0.4 ) million in 2012 , 2011 and 2010 , respectively . the effective tax rate in all three periods differs from the luxembourg statutory tax rate of 28.8 % primarily because of the effect of a favorable tax ruling in luxembourg in 2010 and the mix of income and losses and varying tax rates in multiple taxing jurisdictions . our effective tax rate was 7.0 % , 9.2 % and ( 0.7 ) % for 2012 , 2011 and 2010 , respectively . our consolidated effective income tax rate for financial reporting purposes may change periodically due to changes in enacted tax rates , fluctuations in the mix of income earned from our domestic and international operations which may be subject to differing tax rates and our ability to utilize net operating loss and tax credit carryforwards . recent accounting pronouncements there are no pending accounting pronouncements that are expected to have a material impact upon adoption . 30 segment results of operations the following section provides a discussion of pre-tax results of operations of our business segments for the years ended december 31 , 2012 , 2011 and 2010. transactions between segments are accounted for as third-party arrangements for purposes of presenting segment results of operations . intercompany transactions primarily consist of it infrastructure services and charges for the use of certain realsuite applications from our technology services segment to our other two segments . generally , we reflect these charges within technology and communications expense in the segment receiving the services , except for consulting services , which we reflect in professional services expense . financial information for our segments is as follows : replace_table_token_9_th n/m — not meaningful . 31 replace_table_token_10_th n/m — not meaningful . 32 replace_table_token_11_th n/m — not meaningful . 33 mortgage services revenue revenue by service line was as follows for the years ended december 31

cash flows the following table presents our cash flows for the years ended december 31 : replace_table_token_18_th n/m — not meaningful . cash flows from operating activities cash flows from operating activities are generally the cash effects of transactions and events that factor into the determination of net income . for the year ended december 31 , 2012 , we generated $ 116.5 million in cash flows from operations , or approximately $ 0.25 per dollar of service revenue , compared to $ 111.6 million of cash flows from operations , or approximately $ 0.33 per dollar of service revenue in 2011. the increase in cash flow from operating activities compared to 2011 is primarily due to the increase in net income substantially offset by a decline in working capital principally due to higher accounts receivable . the reduction in cash flow from operations per service revenue dollar when compared to 2011 is the result of higher growth in accounts receivable in 2012 compared to 2011. we anticipate a more normalized level of accounts receivable in the first quarter of 2013. in periods of growth , operating cash flow per service revenue dollar can be negatively impacted because of the nature of some of our services . certain services are performed immediately following or shortly after the referral , but the collection of the receivable does not occur until a specific event occurs ( i.e. , the foreclosure is complete , the reo asset is sold , etc. ) .

on may 13 , 2016 , giggles n ' hugs , inc. entered into a termination of lease agreement with century city mall , llc ( “ landlord ” ) , accelerating the termination date of the lease dated january 13 , 2010 for its store located in westfield century city , los angeles , california . pursuant to the agreement , the lease terminated june 30 , 2016 and the landlord agreed to a monetary reimbursement of $ 350,000 which was received by june 26 , 2016. as such , sales from june 30 , 2016 only include operations from two stores , as compared to three stores in the prior fiscal year . the company continues to operate its restaurants in westfield mall in topanga , california and in the glendale galleria mall in glendale , california . 12 results of operations replace_table_token_2_th * not divisible by zero net sales . during the fiscal year ended january 1 , 2017 , net sales reflected a drop of $ 428,278 , a decline of 12.4 % , from the year ended december 27 , 2015. due to the major remodeling of the century city westfield mall , our century city store closed on june 30 , 2016. of the decrease in sales of $ 428,278 , $ 555,287 relates to the closure of the century city location . the increase of $ 127,009 is due to the same store sale growth at the two locations . the topanga and glendale stores had increased sales of 5.3 % and 5.7 % , respectively . cost and operating expenses . total costs and operating expenses of $ 3,953,942 for the year ended january 1 , 2017 , reflected a substantial drop from $ 5,480,307 for the year ended december 27 , 2015. the decline of $ 1,526,365 ( 28 % ) was due to multiple factors such as the closing of the century city store ; lower general and administrative costs ; lower other operating expenses ; and lower depreciation . cost of operations . cost of operations decreased by $ 543,460 ( 18 % ) , of which $ 356,772 was attributable to the closing of the century city store on june 30 , 2016. costs of food and other operating expenses decreased , which was offset slightly by higher labor costs . general and administrative costs . total general and administrative costs decreased by $ 501,543 ( 36 % ) . again , the closing of the century city store , contributed proportionately ( $ 163,250 ) , to this decline . additionally , non-employee stock compensation was accountable of much of the remaining difference . depreciation and other operating expenses . depreciation and other operating expenses declined by $ 127,948 ( 38 % ) , which was mostly reflected by the closing of the century city store . 13 loss on impairment . the loss on impairment of $ 353,414 that occurred in the year ended december 27 , 2015 , also contributed to the lower overall cost and operating expenses . there was no such impairment for the year ended january 1 , 2017. loss from operations . the loss from operation dropped $ 1,098,087 ( 54 % ) for the year ended january 1 , 2017 compared to december 27 , 2015 , due to the various factors previously noted . other expenses . other expenses reflected a net increase in the year ended january 1 , 2017 over the year ended december 27 , 2015. finance and interest expense of $ 497,714 increased by $ 384,275 ( 339 % ) over the prior year , and change in the fair value of derivatives caused a loss of $ 369,861. these expenses were partially offset by gains from the century city lease termination ( $ 214,111 ) , as well as the extinguishment of the derivatives ( $ 190,370 ) . net loss . the net loss declined from $ 2,068,687 in the year ended december 27 , 2015 , to $ 1,386,955 an improvement of $ 681,732 ( 33 % ) due to the factors noted above . 14 story_separator_special_tag times new roman , times , serif ; padding-right : 0 ; padding-left : 0 ; text-align : justify `` > the new note will add 10 % ( $ 26,500 ) to the original principal as an exchange fee , making the new principal amount $ 291,500 . 2. the note shall carry an interest rate of 8 % per annum 3. the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion , 4. in conjunction with the conversion provision , the company agreed to an irrevocable letter of instructions to transfer agent , along with a secretary 's certificate and board resolution , which allows a share reserve equal to three times the number of shares of common stock divided by outstanding debt by the defined conversion price , but not less than 18,000,000 shares . 5. in addition , the company executed a share issuance resolution authorizing the issuance of new shares of common stock . this document , in effect , allows the holder to provide , at their discretion , a conversion notice directly to the transfer agent to receive unrestricted shares under the terms of this exchange agreement . 6. further to this exchange agreement , the company executed an authorization to initiate ach debit entries that allowed the holder to receive a daily payment of $ 312.50 ( $ 7,500 per month ) . the company can cancel such authorization with five days ' written notice . during the fiscal year ended january 1 , 2017 , the holder converted $ 81,300 of debt into 9,261,973 shares of common stock . in addition , story_separator_special_tag on may 13 , 2016 , giggles n ' hugs , inc. entered into a termination of lease agreement with century city mall , llc ( “ landlord ” ) , accelerating the termination date of the lease dated january 13 , 2010 for its store located in westfield century city , los angeles , california . pursuant to the agreement , the lease terminated june 30 , 2016 and the landlord agreed to a monetary reimbursement of $ 350,000 which was received by june 26 , 2016. as such , sales from june 30 , 2016 only include operations from two stores , as compared to three stores in the prior fiscal year . the company continues to operate its restaurants in westfield mall in topanga , california and in the glendale galleria mall in glendale , california . 12 results of operations replace_table_token_2_th * not divisible by zero net sales . during the fiscal year ended january 1 , 2017 , net sales reflected a drop of $ 428,278 , a decline of 12.4 % , from the year ended december 27 , 2015. due to the major remodeling of the century city westfield mall , our century city store closed on june 30 , 2016. of the decrease in sales of $ 428,278 , $ 555,287 relates to the closure of the century city location . the increase of $ 127,009 is due to the same store sale growth at the two locations . the topanga and glendale stores had increased sales of 5.3 % and 5.7 % , respectively . cost and operating expenses . total costs and operating expenses of $ 3,953,942 for the year ended january 1 , 2017 , reflected a substantial drop from $ 5,480,307 for the year ended december 27 , 2015. the decline of $ 1,526,365 ( 28 % ) was due to multiple factors such as the closing of the century city store ; lower general and administrative costs ; lower other operating expenses ; and lower depreciation . cost of operations . cost of operations decreased by $ 543,460 ( 18 % ) , of which $ 356,772 was attributable to the closing of the century city store on june 30 , 2016. costs of food and other operating expenses decreased , which was offset slightly by higher labor costs . general and administrative costs . total general and administrative costs decreased by $ 501,543 ( 36 % ) . again , the closing of the century city store , contributed proportionately ( $ 163,250 ) , to this decline . additionally , non-employee stock compensation was accountable of much of the remaining difference . depreciation and other operating expenses . depreciation and other operating expenses declined by $ 127,948 ( 38 % ) , which was mostly reflected by the closing of the century city store . 13 loss on impairment . the loss on impairment of $ 353,414 that occurred in the year ended december 27 , 2015 , also contributed to the lower overall cost and operating expenses . there was no such impairment for the year ended january 1 , 2017. loss from operations . the loss from operation dropped $ 1,098,087 ( 54 % ) for the year ended january 1 , 2017 compared to december 27 , 2015 , due to the various factors previously noted . other expenses . other expenses reflected a net increase in the year ended january 1 , 2017 over the year ended december 27 , 2015. finance and interest expense of $ 497,714 increased by $ 384,275 ( 339 % ) over the prior year , and change in the fair value of derivatives caused a loss of $ 369,861. these expenses were partially offset by gains from the century city lease termination ( $ 214,111 ) , as well as the extinguishment of the derivatives ( $ 190,370 ) . net loss . the net loss declined from $ 2,068,687 in the year ended december 27 , 2015 , to $ 1,386,955 an improvement of $ 681,732 ( 33 % ) due to the factors noted above . 14 story_separator_special_tag times new roman , times , serif ; padding-right : 0 ; padding-left : 0 ; text-align : justify `` > the new note will add 10 % ( $ 26,500 ) to the original principal as an exchange fee , making the new principal amount $ 291,500 . 2. the note shall carry an interest rate of 8 % per annum 3. the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion , 4. in conjunction with the conversion provision , the company agreed to an irrevocable letter of instructions to transfer agent , along with a secretary 's certificate and board resolution , which allows a share reserve equal to three times the number of shares of common stock divided by outstanding debt by the defined conversion price , but not less than 18,000,000 shares . 5. in addition , the company executed a share issuance resolution authorizing the issuance of new shares of common stock . this document , in effect , allows the holder to provide , at their discretion , a conversion notice directly to the transfer agent to receive unrestricted shares under the terms of this exchange agreement . 6. further to this exchange agreement , the company executed an authorization to initiate ach debit entries that allowed the holder to receive a daily payment of $ 312.50 ( $ 7,500 per month ) . the company can cancel such authorization with five days ' written notice . during the fiscal year ended january 1 , 2017 , the holder converted $ 81,300 of debt into 9,261,973 shares of common stock . in addition ,

cash flows the following table presents our cash flows for the years ended december 31 : replace_table_token_18_th n/m — not meaningful . cash flows from operating activities cash flows from operating activities are generally the cash effects of transactions and events that factor into the determination of net income . for the year ended december 31 , 2012 , we generated $ 116.5 million in cash flows from operations , or approximately $ 0.25 per dollar of service revenue , compared to $ 111.6 million of cash flows from operations , or approximately $ 0.33 per dollar of service revenue in 2011. the increase in cash flow from operating activities compared to 2011 is primarily due to the increase in net income substantially offset by a decline in working capital principally due to higher accounts receivable . the reduction in cash flow from operations per service revenue dollar when compared to 2011 is the result of higher growth in accounts receivable in 2012 compared to 2011. we anticipate a more normalized level of accounts receivable in the first quarter of 2013. in periods of growth , operating cash flow per service revenue dollar can be negatively impacted because of the nature of some of our services . certain services are performed immediately following or shortly after the referral , but the collection of the receivable does not occur until a specific event occurs ( i.e. , the foreclosure is complete , the reo asset is sold , etc. ) .

on may 13 , 2016 , giggles n ' hugs , inc. entered into a termination of lease agreement with century city mall , llc ( “ landlord ” ) , accelerating the termination date of the lease dated january 13 , 2010 for its store located in westfield century city , los angeles , california . pursuant to the agreement , the lease terminated june 30 , 2016 and the landlord agreed to a monetary reimbursement of $ 350,000 which was received by june 26 , 2016. as such , sales from june 30 , 2016 only include operations from two stores , as compared to three stores in the prior fiscal year . the company continues to operate its restaurants in westfield mall in topanga , california and in the glendale galleria mall in glendale , california . 12 results of operations replace_table_token_2_th * not divisible by zero net sales . during the fiscal year ended january 1 , 2017 , net sales reflected a drop of $ 428,278 , a decline of 12.4 % , from the year ended december 27 , 2015. due to the major remodeling of the century city westfield mall , our century city store closed on june 30 , 2016. of the decrease in sales of $ 428,278 , $ 555,287 relates to the closure of the century city location . the increase of $ 127,009 is due to the same store sale growth at the two locations . the topanga and glendale stores had increased sales of 5.3 % and 5.7 % , respectively . cost and operating expenses . total costs and operating expenses of $ 3,953,942 for the year ended january 1 , 2017 , reflected a substantial drop from $ 5,480,307 for the year ended december 27 , 2015. the decline of $ 1,526,365 ( 28 % ) was due to multiple factors such as the closing of the century city store ; lower general and administrative costs ; lower other operating expenses ; and lower depreciation . cost of operations . cost of operations decreased by $ 543,460 ( 18 % ) , of which $ 356,772 was attributable to the closing of the century city store on june 30 , 2016. costs of food and other operating expenses decreased , which was offset slightly by higher labor costs . general and administrative costs . total general and administrative costs decreased by $ 501,543 ( 36 % ) . again , the closing of the century city store , contributed proportionately ( $ 163,250 ) , to this decline . additionally , non-employee stock compensation was accountable of much of the remaining difference . depreciation and other operating expenses . depreciation and other operating expenses declined by $ 127,948 ( 38 % ) , which was mostly reflected by the closing of the century city store . 13 loss on impairment . the loss on impairment of $ 353,414 that occurred in the year ended december 27 , 2015 , also contributed to the lower overall cost and operating expenses . there was no such impairment for the year ended january 1 , 2017. loss from operations . the loss from operation dropped $ 1,098,087 ( 54 % ) for the year ended january 1 , 2017 compared to december 27 , 2015 , due to the various factors previously noted . other expenses . other expenses reflected a net increase in the year ended january 1 , 2017 over the year ended december 27 , 2015. finance and interest expense of $ 497,714 increased by $ 384,275 ( 339 % ) over the prior year , and change in the fair value of derivatives caused a loss of $ 369,861. these expenses were partially offset by gains from the century city lease termination ( $ 214,111 ) , as well as the extinguishment of the derivatives ( $ 190,370 ) . net loss . the net loss declined from $ 2,068,687 in the year ended december 27 , 2015 , to $ 1,386,955 an improvement of $ 681,732 ( 33 % ) due to the factors noted above . 14 story_separator_special_tag times new roman , times , serif ; padding-right : 0 ; padding-left : 0 ; text-align : justify `` > the new note will add 10 % ( $ 26,500 ) to the original principal as an exchange fee , making the new principal amount $ 291,500 . 2. the note shall carry an interest rate of 8 % per annum 3. the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion , 4. in conjunction with the conversion provision , the company agreed to an irrevocable letter of instructions to transfer agent , along with a secretary 's certificate and board resolution , which allows a share reserve equal to three times the number of shares of common stock divided by outstanding debt by the defined conversion price , but not less than 18,000,000 shares . 5. in addition , the company executed a share issuance resolution authorizing the issuance of new shares of common stock . this document , in effect , allows the holder to provide , at their discretion , a conversion notice directly to the transfer agent to receive unrestricted shares under the terms of this exchange agreement . 6. further to this exchange agreement , the company executed an authorization to initiate ach debit entries that allowed the holder to receive a daily payment of $ 312.50 ( $ 7,500 per month ) . the company can cancel such authorization with five days ' written notice . during the fiscal year ended january 1 , 2017 , the holder converted $ 81,300 of debt into 9,261,973 shares of common stock . in addition , story_separator_special_tag on may 13 , 2016 , giggles n ' hugs , inc. entered into a termination of lease agreement with century city mall , llc ( “ landlord ” ) , accelerating the termination date of the lease dated january 13 , 2010 for its store located in westfield century city , los angeles , california . pursuant to the agreement , the lease terminated june 30 , 2016 and the landlord agreed to a monetary reimbursement of $ 350,000 which was received by june 26 , 2016. as such , sales from june 30 , 2016 only include operations from two stores , as compared to three stores in the prior fiscal year . the company continues to operate its restaurants in westfield mall in topanga , california and in the glendale galleria mall in glendale , california . 12 results of operations replace_table_token_2_th * not divisible by zero net sales . during the fiscal year ended january 1 , 2017 , net sales reflected a drop of $ 428,278 , a decline of 12.4 % , from the year ended december 27 , 2015. due to the major remodeling of the century city westfield mall , our century city store closed on june 30 , 2016. of the decrease in sales of $ 428,278 , $ 555,287 relates to the closure of the century city location . the increase of $ 127,009 is due to the same store sale growth at the two locations . the topanga and glendale stores had increased sales of 5.3 % and 5.7 % , respectively . cost and operating expenses . total costs and operating expenses of $ 3,953,942 for the year ended january 1 , 2017 , reflected a substantial drop from $ 5,480,307 for the year ended december 27 , 2015. the decline of $ 1,526,365 ( 28 % ) was due to multiple factors such as the closing of the century city store ; lower general and administrative costs ; lower other operating expenses ; and lower depreciation . cost of operations . cost of operations decreased by $ 543,460 ( 18 % ) , of which $ 356,772 was attributable to the closing of the century city store on june 30 , 2016. costs of food and other operating expenses decreased , which was offset slightly by higher labor costs . general and administrative costs . total general and administrative costs decreased by $ 501,543 ( 36 % ) . again , the closing of the century city store , contributed proportionately ( $ 163,250 ) , to this decline . additionally , non-employee stock compensation was accountable of much of the remaining difference . depreciation and other operating expenses . depreciation and other operating expenses declined by $ 127,948 ( 38 % ) , which was mostly reflected by the closing of the century city store . 13 loss on impairment . the loss on impairment of $ 353,414 that occurred in the year ended december 27 , 2015 , also contributed to the lower overall cost and operating expenses . there was no such impairment for the year ended january 1 , 2017. loss from operations . the loss from operation dropped $ 1,098,087 ( 54 % ) for the year ended january 1 , 2017 compared to december 27 , 2015 , due to the various factors previously noted . other expenses . other expenses reflected a net increase in the year ended january 1 , 2017 over the year ended december 27 , 2015. finance and interest expense of $ 497,714 increased by $ 384,275 ( 339 % ) over the prior year , and change in the fair value of derivatives caused a loss of $ 369,861. these expenses were partially offset by gains from the century city lease termination ( $ 214,111 ) , as well as the extinguishment of the derivatives ( $ 190,370 ) . net loss . the net loss declined from $ 2,068,687 in the year ended december 27 , 2015 , to $ 1,386,955 an improvement of $ 681,732 ( 33 % ) due to the factors noted above . 14 story_separator_special_tag times new roman , times , serif ; padding-right : 0 ; padding-left : 0 ; text-align : justify `` > the new note will add 10 % ( $ 26,500 ) to the original principal as an exchange fee , making the new principal amount $ 291,500 . 2. the note shall carry an interest rate of 8 % per annum 3. the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion , 4. in conjunction with the conversion provision , the company agreed to an irrevocable letter of instructions to transfer agent , along with a secretary 's certificate and board resolution , which allows a share reserve equal to three times the number of shares of common stock divided by outstanding debt by the defined conversion price , but not less than 18,000,000 shares . 5. in addition , the company executed a share issuance resolution authorizing the issuance of new shares of common stock . this document , in effect , allows the holder to provide , at their discretion , a conversion notice directly to the transfer agent to receive unrestricted shares under the terms of this exchange agreement . 6. further to this exchange agreement , the company executed an authorization to initiate ach debit entries that allowed the holder to receive a daily payment of $ 312.50 ( $ 7,500 per month ) . the company can cancel such authorization with five days ' written notice . during the fiscal year ended january 1 , 2017 , the holder converted $ 81,300 of debt into 9,261,973 shares of common stock . in addition ,

liquidity and capital resources as of january 1 , 2017 , we had $ 144,520 in cash and cash equivalents . the following table provides detailed information about our net cash flow for all financial statement periods presented in this annual report . to date , we have financed our operations through the issuance of stock and borrowings , in addition to sales-generated revenue . the following table sets forth a summary of our cash flows for the year ended january 1 , 2017 and december 27 , 2015. replace_table_token_3_th operating activities net cash used in operating activities was $ 518,526 for the year ended january 1 , 2017 compared to $ 647,762 used in operating activities for year ended december 27 , 2015. this improvement of $ 129,236 between the two periods mostly resulted from reduced cost from the closing of the century city store , together with higher sales from the other two stores for the year ended january 1 , 2017. investing activities net cash of $ 350,000 was provided in investing activities during the year ended january 1 , 2017 , which resulted from the closure of the century city office as the landlord , westfield mass paid for the early termination of the lease . in addition , the furniture and fixtures were sold for another $ 10,500. net cash used in investment activities for the year ended december 27 , 2015 was $ 13,069 due to the purchase of certain fixed assets . financing activities net cash used for financing activities for the year ended january 1 , 2017 was $ 31,645 for payments on a promissory note and a note payable , while net cash of $ 886,786 was provided for the year ended december 27 , 2015 , from proceeds received from issuance of shares of common stock and a convertible note payable . going concern and liquidity the accompanying consolidated financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business .

approximately 69 % of the executive searches we performed in fiscal 2018 were for board level , chief executive and other senior executive and general management positions . our 3,773 search engagement clients in fiscal 2018 included many of the world 's largest and most prestigious public and private companies . we have built strong client loyalty , with 88 % of assignments performed during fiscal 2018 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years . approximately 62 % of our revenues were generated from clients that utilize multiple lines of business . 33 superior performance comes from having the right conditions for success in two key areas—the organization and its people . organizational conditions encourage people to put forth their best effort and invest their energy towards achieving the organization 's purpose . we can help operationalize a client 's complete strategy or address any combination of five broad categories : organizational strategy we map talent strategy to business strategy by designing operating models and organizational structures that align to them , helping organizations put their plans into action . we make sure they have the right people , in the right roles , engaged and enabled to do the right things . assessment and succession we provide actionable , research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are ready—when and where they are needed—in the future . talent acquisition from executive search to recruitment process outsourcing , we integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions for client organizations . leadership development we activate purpose , vision and strategy through leaders at all levels and organizations . we combine expertise , science and proven techniques with forward thinking and creativity to build leadership experiences that help entry- to senior-level leaders grow and deliver superior results . rewards and benefits we help organizations align reward with strategy . we help them pay their people fairly for doing the right things—with rewards they value—at a cost the organization can afford . the company currently operates through three business segments : executive search , hay group and futurestep . see note 11— business segments , in the notes to our consolidated financial statements in this annual report on form 10-k , for discussion of the company 's global business segments . the company evaluates performance and allocates resources based on the chief operating decision maker 's review of ( 1 ) fee revenue and ( 2 ) adjusted earnings before interest , taxes , depreciation and amortization ( “adjusted ebitda” ) . to the extent that such charges occur , adjusted ebitda excludes restructuring charges , integration/acquisition costs , certain separation costs and certain non-cash charges ( goodwill , intangible asset and other than temporary impairment ) . for fiscal 2017 and 2016 , adjusted ebitda includes a deferred revenue adjustment related to the legacy hay acquisition , reflecting revenue that hay group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue . for fiscal 2018 , management no longer has adjusted fee revenue . ebitda and adjusted ebitda are non-gaap financial measures . they have limitations as analytical tools , should not be viewed as a substitute for financial information determined in accordance with united states ( “u.s.” ) generally accepted accounting principles ( “gaap” ) and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . in addition , they may not necessarily be comparable to non-gaap performance measures that may be presented by other companies . management believes the presentation of these non-gaap financial measures provides meaningful supplemental information regarding korn ferry 's performance by excluding certain charges , items of income and other items that may not be indicative of korn ferry 's ongoing operating results . the use of these non-gaap financial measures facilitates comparisons to korn ferry 's historical performance and identification of operating trends that may otherwise be distorted by certain charges and other items that may not be indicative of korn ferry 's ongoing operating results . korn ferry includes these non-gaap financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of korn ferry 's ongoing operations and financial and operational decision-making . the accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements , except that the above noted items are excluded from ebitda to arrive at adjusted ebitda . management further believes that ebitda is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures , effective tax rates and tax attributes and capitalized asset values , all of which can vary substantially from company to company . 34 similarly , adjusted fee revenue , which includes revenue that hay group would have realized over the ensuing year after the acquisition if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue , is a non-gaap financial measure . adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of gaap ; rather , it is an adjustment for a short period of time that will provide better comparability in the current and future periods . story_separator_special_tag north america 's fee revenue was higher due to an 11 % increase in the number of engagements billed and a 3 % increase in the weighted-average fees billed per engagement ( calculated using local currency ) during fiscal 2018 compared to the year-ago period . all business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to fiscal 2017 , with industrial , technology and financial services contributing the most . the effect of exchange rates on fee revenue was minimal in fiscal 2018 , compared to the year-ago period . emea reported fee revenue of $ 173.7 million , an increase of $ 27.2 million , or 19 % , in fiscal 2018 compared to $ 146.5 million in fiscal 2017. the favorable effect of exchange rates on fee revenue was $ 8.8 million , or 6 % , in fiscal 2018 , compared to the year-ago period . the increase in fee revenue was due to a 10 % increase in the number of engagements billed , partially offset by a 2 % decrease in the weighted-average fees billed per engagement ( calculated using local currency ) during fiscal 2018 compared to the year-ago period . the performance in the united kingdom , germany , and france were the primary contributors to the increase in fee revenue in fiscal 2018 compared to the year-ago period . all business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to the year-ago period , with industrial , financial services and consumer goods contributing the most . asia pacific reported fee revenue of $ 96.6 million , an increase of $ 16.4 million , or 20 % , in fiscal 2018 compared to $ 80.2 million in fiscal 2017. the increase in fee revenue was due to an 8 % increase in the number of engagements billed and an 8 % increase in the weighted-average fees billed per engagement ( calculated using local currency ) in fiscal 2018 compared to the year-ago period . the performance in china , australia , singapore , and japan were the primary contributors to the increase in fee revenue in fiscal 2018 compared to the year-ago period , partially offset by a decrease in fee revenue in new zealand . all business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to the year-ago period , with financial services , life sciences/healthcare , and technology contributing the most . the favorable effect of exchange rates on fee revenue was $ 2.3 million , or 3 % , compared to the year-ago period . latin america reported fee revenue of $ 30.6 million , a decrease of $ 3.8 million , or 11 % , in fiscal 2018 compared to $ 34.4 million in fiscal 2017. the decrease in fee revenue was due to lower fee revenue in mexico in fiscal 2018 , compared to the year-ago period , partially offset by higher fee revenue in argentina . financial services and consumer goods were the main sectors contributing to the decline in fee revenue in fiscal 2018 , compared to the year-ago period . the effect of exchange rates on fee revenue was minimal . hay group . hay group reported fee revenue of $ 785.0 million , an increase of $ 60.8 million , or 8 % , in fiscal 2018 compared to $ 724.2 million in fiscal 2017. exchange rates favorably impacted fee revenue by $ 17.4 million , or 2 % , compared to the year-ago period . fee revenue from consulting services was higher by $ 42.8 million in fiscal 2018 compared to the year-ago period , with the remaining increase of $ 18.0 million generated by our products business . futurestep . futurestep reported fee revenue of $ 273.2 million , an increase of $ 49.5 million , or 22 % , in fiscal 2018 compared to $ 223.7 million in fiscal 2017. higher fee revenues in rpo and professional search of $ 33.3 million and $ 18.1 million , respectively , drove the increase in fee revenue . exchange rates favorably impacted fee revenue by $ 5.6 million , or 3 % , compared to the year-ago period . compensation and benefits compensation and benefits expense increased $ 132.1 million , or 12 % , to $ 1,203.6 million in fiscal 2018 from $ 1,071.5 million in fiscal 2017. exchange rates unfavorably impacted compensation and benefits expenses by $ 23.0 million , or 2 % , in fiscal 2018 compared to the year-ago period . the increase in compensation and benefits was primarily due to a 9 % increase in the average consultant headcount , which contributed $ 80.4 million in higher salaries and related payroll taxes , $ 8.1 million more in expenses associated with our deferred compensation and 42 retirement plans ( includes the increases in the fair value of participants ' accounts ) and an increase of $ 5.8 million in employer insurance costs in fiscal 2018 compared to the year-ago period . the rest of the change was due to $ 40.8 million increase in performance-related bonus expense mainly due to the increase in fee revenue and $ 11.3 million increase in amortization of long term incentive awards , offset by a $ 9.8 million decrease in integration costs and $ 2.9 million from the change in the cash surrender value ( “csv” ) of company owned life insurance ( “coli” ) in fiscal 2018 compared to the year-ago period . the change in the csv of coli decreased compensation and benefits expense in fiscal 2018 compared to fiscal 2017 due to larger increases in the market value of the underlying investments due to market changes . coli is held to fund other deferred compensation retirement plans ( see note 6— deferred compensation and retirement plans , included in the notes to our consolidated financial statements ) . compensation and benefits expense ,

liquidity and capital resources as of january 1 , 2017 , we had $ 144,520 in cash and cash equivalents . the following table provides detailed information about our net cash flow for all financial statement periods presented in this annual report . to date , we have financed our operations through the issuance of stock and borrowings , in addition to sales-generated revenue . the following table sets forth a summary of our cash flows for the year ended january 1 , 2017 and december 27 , 2015. replace_table_token_3_th operating activities net cash used in operating activities was $ 518,526 for the year ended january 1 , 2017 compared to $ 647,762 used in operating activities for year ended december 27 , 2015. this improvement of $ 129,236 between the two periods mostly resulted from reduced cost from the closing of the century city store , together with higher sales from the other two stores for the year ended january 1 , 2017. investing activities net cash of $ 350,000 was provided in investing activities during the year ended january 1 , 2017 , which resulted from the closure of the century city office as the landlord , westfield mass paid for the early termination of the lease . in addition , the furniture and fixtures were sold for another $ 10,500. net cash used in investment activities for the year ended december 27 , 2015 was $ 13,069 due to the purchase of certain fixed assets . financing activities net cash used for financing activities for the year ended january 1 , 2017 was $ 31,645 for payments on a promissory note and a note payable , while net cash of $ 886,786 was provided for the year ended december 27 , 2015 , from proceeds received from issuance of shares of common stock and a convertible note payable . going concern and liquidity the accompanying consolidated financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business .

approximately 69 % of the executive searches we performed in fiscal 2018 were for board level , chief executive and other senior executive and general management positions . our 3,773 search engagement clients in fiscal 2018 included many of the world 's largest and most prestigious public and private companies . we have built strong client loyalty , with 88 % of assignments performed during fiscal 2018 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years . approximately 62 % of our revenues were generated from clients that utilize multiple lines of business . 33 superior performance comes from having the right conditions for success in two key areas—the organization and its people . organizational conditions encourage people to put forth their best effort and invest their energy towards achieving the organization 's purpose . we can help operationalize a client 's complete strategy or address any combination of five broad categories : organizational strategy we map talent strategy to business strategy by designing operating models and organizational structures that align to them , helping organizations put their plans into action . we make sure they have the right people , in the right roles , engaged and enabled to do the right things . assessment and succession we provide actionable , research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are ready—when and where they are needed—in the future . talent acquisition from executive search to recruitment process outsourcing , we integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions for client organizations . leadership development we activate purpose , vision and strategy through leaders at all levels and organizations . we combine expertise , science and proven techniques with forward thinking and creativity to build leadership experiences that help entry- to senior-level leaders grow and deliver superior results . rewards and benefits we help organizations align reward with strategy . we help them pay their people fairly for doing the right things—with rewards they value—at a cost the organization can afford . the company currently operates through three business segments : executive search , hay group and futurestep . see note 11— business segments , in the notes to our consolidated financial statements in this annual report on form 10-k , for discussion of the company 's global business segments . the company evaluates performance and allocates resources based on the chief operating decision maker 's review of ( 1 ) fee revenue and ( 2 ) adjusted earnings before interest , taxes , depreciation and amortization ( “adjusted ebitda” ) . to the extent that such charges occur , adjusted ebitda excludes restructuring charges , integration/acquisition costs , certain separation costs and certain non-cash charges ( goodwill , intangible asset and other than temporary impairment ) . for fiscal 2017 and 2016 , adjusted ebitda includes a deferred revenue adjustment related to the legacy hay acquisition , reflecting revenue that hay group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue . for fiscal 2018 , management no longer has adjusted fee revenue . ebitda and adjusted ebitda are non-gaap financial measures . they have limitations as analytical tools , should not be viewed as a substitute for financial information determined in accordance with united states ( “u.s.” ) generally accepted accounting principles ( “gaap” ) and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . in addition , they may not necessarily be comparable to non-gaap performance measures that may be presented by other companies . management believes the presentation of these non-gaap financial measures provides meaningful supplemental information regarding korn ferry 's performance by excluding certain charges , items of income and other items that may not be indicative of korn ferry 's ongoing operating results . the use of these non-gaap financial measures facilitates comparisons to korn ferry 's historical performance and identification of operating trends that may otherwise be distorted by certain charges and other items that may not be indicative of korn ferry 's ongoing operating results . korn ferry includes these non-gaap financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of korn ferry 's ongoing operations and financial and operational decision-making . the accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements , except that the above noted items are excluded from ebitda to arrive at adjusted ebitda . management further believes that ebitda is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures , effective tax rates and tax attributes and capitalized asset values , all of which can vary substantially from company to company . 34 similarly , adjusted fee revenue , which includes revenue that hay group would have realized over the ensuing year after the acquisition if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue , is a non-gaap financial measure . adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of gaap ; rather , it is an adjustment for a short period of time that will provide better comparability in the current and future periods . story_separator_special_tag north america 's fee revenue was higher due to an 11 % increase in the number of engagements billed and a 3 % increase in the weighted-average fees billed per engagement ( calculated using local currency ) during fiscal 2018 compared to the year-ago period . all business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to fiscal 2017 , with industrial , technology and financial services contributing the most . the effect of exchange rates on fee revenue was minimal in fiscal 2018 , compared to the year-ago period . emea reported fee revenue of $ 173.7 million , an increase of $ 27.2 million , or 19 % , in fiscal 2018 compared to $ 146.5 million in fiscal 2017. the favorable effect of exchange rates on fee revenue was $ 8.8 million , or 6 % , in fiscal 2018 , compared to the year-ago period . the increase in fee revenue was due to a 10 % increase in the number of engagements billed , partially offset by a 2 % decrease in the weighted-average fees billed per engagement ( calculated using local currency ) during fiscal 2018 compared to the year-ago period . the performance in the united kingdom , germany , and france were the primary contributors to the increase in fee revenue in fiscal 2018 compared to the year-ago period . all business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to the year-ago period , with industrial , financial services and consumer goods contributing the most . asia pacific reported fee revenue of $ 96.6 million , an increase of $ 16.4 million , or 20 % , in fiscal 2018 compared to $ 80.2 million in fiscal 2017. the increase in fee revenue was due to an 8 % increase in the number of engagements billed and an 8 % increase in the weighted-average fees billed per engagement ( calculated using local currency ) in fiscal 2018 compared to the year-ago period . the performance in china , australia , singapore , and japan were the primary contributors to the increase in fee revenue in fiscal 2018 compared to the year-ago period , partially offset by a decrease in fee revenue in new zealand . all business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to the year-ago period , with financial services , life sciences/healthcare , and technology contributing the most . the favorable effect of exchange rates on fee revenue was $ 2.3 million , or 3 % , compared to the year-ago period . latin america reported fee revenue of $ 30.6 million , a decrease of $ 3.8 million , or 11 % , in fiscal 2018 compared to $ 34.4 million in fiscal 2017. the decrease in fee revenue was due to lower fee revenue in mexico in fiscal 2018 , compared to the year-ago period , partially offset by higher fee revenue in argentina . financial services and consumer goods were the main sectors contributing to the decline in fee revenue in fiscal 2018 , compared to the year-ago period . the effect of exchange rates on fee revenue was minimal . hay group . hay group reported fee revenue of $ 785.0 million , an increase of $ 60.8 million , or 8 % , in fiscal 2018 compared to $ 724.2 million in fiscal 2017. exchange rates favorably impacted fee revenue by $ 17.4 million , or 2 % , compared to the year-ago period . fee revenue from consulting services was higher by $ 42.8 million in fiscal 2018 compared to the year-ago period , with the remaining increase of $ 18.0 million generated by our products business . futurestep . futurestep reported fee revenue of $ 273.2 million , an increase of $ 49.5 million , or 22 % , in fiscal 2018 compared to $ 223.7 million in fiscal 2017. higher fee revenues in rpo and professional search of $ 33.3 million and $ 18.1 million , respectively , drove the increase in fee revenue . exchange rates favorably impacted fee revenue by $ 5.6 million , or 3 % , compared to the year-ago period . compensation and benefits compensation and benefits expense increased $ 132.1 million , or 12 % , to $ 1,203.6 million in fiscal 2018 from $ 1,071.5 million in fiscal 2017. exchange rates unfavorably impacted compensation and benefits expenses by $ 23.0 million , or 2 % , in fiscal 2018 compared to the year-ago period . the increase in compensation and benefits was primarily due to a 9 % increase in the average consultant headcount , which contributed $ 80.4 million in higher salaries and related payroll taxes , $ 8.1 million more in expenses associated with our deferred compensation and 42 retirement plans ( includes the increases in the fair value of participants ' accounts ) and an increase of $ 5.8 million in employer insurance costs in fiscal 2018 compared to the year-ago period . the rest of the change was due to $ 40.8 million increase in performance-related bonus expense mainly due to the increase in fee revenue and $ 11.3 million increase in amortization of long term incentive awards , offset by a $ 9.8 million decrease in integration costs and $ 2.9 million from the change in the cash surrender value ( “csv” ) of company owned life insurance ( “coli” ) in fiscal 2018 compared to the year-ago period . the change in the csv of coli decreased compensation and benefits expense in fiscal 2018 compared to fiscal 2017 due to larger increases in the market value of the underlying investments due to market changes . coli is held to fund other deferred compensation retirement plans ( see note 6— deferred compensation and retirement plans , included in the notes to our consolidated financial statements ) . compensation and benefits expense ,

liquidity and capital resources the company and its board of directors endorse a balanced approach to capital allocation . the company 's priority is to invest in growth initiatives , such as the hiring of consultants , the continued development of ip and derivative products and services , and the investment in synergistic , accretive merger and acquisition transactions that earn a return that is superior to the company 's cost of capital . next , the company 's capital allocation approach contemplates the return of a portion of excess capital to stockholders , in the form of a regular quarterly dividend , subject to the factors discussed below and in the “risk factors” section of this annual report on form 10-k. additionally , the company considers share repurchases on an opportunistic basis and subject to the terms of our credit agreement . on june 15 , 2016 , we entered into a senior secured $ 400 million credit agreement with a syndicate of banks and wells fargo bank , national association as administrative agent , to provide for enhanced financial flexibility and in recognition of the accelerated pace of the legacy hay integration . see note 10— long-term debt for a description of the credit facility . in anticipation of the plan , on june 8 , 2018 , we entered into an amendment ( the “amendment” ) to the credit agreement . the amendment permits the kf merger , and will become effective when certain conditions set forth therein , including consummation of the kf merger , are satisfied . we drew down $ 275 million on the term loan and used $ 140 million of the proceeds to pay-off the term loan that was outstanding as of april 30 , 2016. we had $ 2.9 million and $ 3.0 million standby letters of credit issued under our long-term debt arrangements as of april 30 , 2018 and 2017 , respectively . we had a total of $ 7.4 million and $ 8.1 million of standby letters of credits with other financial institutions as of april 30 , 2018 and 2017 , respectively .

we remain uncertain as to how long current macroeconomic and industry conditions will persist , the pace of any recovery , and the magnitude of the effect of these conditions on the growth of our markets and business , as well as our results of operations . we continue to encounter a highly competitive marketplace for sales of our networking solutions offering , particularly within our packet-optical transport segment . competition has intensified as we and our competitors have introduced new , high-capacity , high-speed network solutions and more aggressively sought to capture market share and displace incumbent vendors at large carrier customers . we have also encountered increased competition as we have expanded our business in emerging geographies and new markets or applications for our communications networking products . for example , we have made early progress in the sale of our products for application in submarine networks and with sales to customers in the middle east . in this competitive environment , securing new opportunities , particularly in international markets , often requires that we agree to less favorable commercial terms or pricing , financial commitments requiring collateralized performance bonds or similar instruments that place cash resources at risk , and other contractual commitments that place a disproportionate allocation of risk upon the vendor . these terms can adversely affect our result of operations . we expect the level of competition , particularly in north america , to continue and potentially increase , as chinese equipment vendors seek to gain entry into the u.s. market , and other multinational competitors seek to retain incumbent positions with large customers in the region . potential supply chain disruption in recent months , several regions of thailand have experienced severe flooding , causing significant damage to infrastructure and factories . flooding has affected the operations of certain component providers in our supply chain , or , in turn , their suppliers of components based in thailand . we are actively monitoring and evaluating stabilization efforts of these suppliers following the flooding and are currently working with existing suppliers and qualifying new sources of supply in order to minimize the effect on our customers and our business . given the severity of the situation and our dependency upon the recovery efforts of these suppliers , however , there can be no assurance that we will not encounter shortages , extended lead 33 times , additional costs or other disruptions in the availability or allocation of components that could affect our business over the next several fiscal quarters . market opportunity and strategy despite recent macroeconomic and competitive dynamics , we believe that a number of important underlying drivers represent significant long-term opportunities and growing demand for converged optical ethernet networking solutions in our target markets . we believe that market trends , including the proliferation of smartphones , tablets and similar devices running mobile web applications , the prevalence of video applications , and the shift of enterprise and consumer applications to cloud-based or virtualized network environments are emblematic of increased use and dependence by consumers and enterprises upon a growing variety of broadband applications and services . we expect that these services will continue to add significant multiservice network traffic , requiring our customers to invest in next-generation , high-capacity network infrastructures that are more efficient , robust and dynamic . to capitalize on the market dynamics above , we invested heavily in our business during fiscal 2011 and are in the process of introducing , or transitioning to new solutions offerings in each of our product segments . simultaneously , we have been investing in market entry into multiple new geographies and customer segments , as well as the expansion of footprint and market share within our traditional customer base across our segments . we have also been making investments in an effort to optimize and gain leverage from our business processes , systems , infrastructure and resources in order to achieve our desired operating model and profitability goals . these investments are a critical element of our effort to address customer business challenges and evolving network requirements and position us to seize market opportunities . we believe these investments , together with the successful completion of significant integration activities relating to the men business during fiscal 2011 , lay a strong foundation for long-term growth of our business . additional components of our overall corporate strategy can be found in item 1 , “ business ” above . acquisition of nortel metro ethernet networks business and effect on results of operations and financial condition on march 19 , 2010 , we completed our acquisition ( the `` men acquisition `` ) of substantially all of the optical networking and carrier ethernet assets of nortel 's metro ethernet networks business ( the “ men business ” ) for a purchase price of $ 676.8 million . see note 2 to the consolidated financial statements in item 8 of part ii of this annual report for more information . the men acquisition represented a transformative opportunity for ciena , strengthening our position as a leader in next-generation , converged optical ethernet networking and accelerating the execution of our corporate and research and development strategies . due to the relative scale of its operations , however , the men acquisition materially affected our operations , financial results and liquidity during the periods covered in this report and may make period to period comparisons difficult . story_separator_special_tag gross margin can vary significantly depending upon the mix and concentration of revenue by segment or product line , the concentration of lower margin common equipment sales within a segment or product line , geographic mix and the mix of customers and services in a given fiscal quarter . gross margin can also be affected by our introduction of new products , charges for excess and obsolete inventory , changes in warranty costs and sales volume . we expect that gross margins will be subject to fluctuation based on our level of success in driving cost reductions , rationalizing our supply chain and consolidating third party contract manufacturers and distribution sites as part of our effort to optimize our operations . gross margin can also be adversely affected by the competitive environment and level of pricing pressure we encounter . the combination of the recent period of uncertain market conditions , constraints on customer capital expenditures and increased competition has resulted in a heightened customer focus on pricing and return on network investment , as customers address network traffic growth and strive to increase revenue and profit . while competition is intense across our segments , our exposure to pricing pressure has been most severe in metro and core applications for our packet-optical transport platforms , particularly in international markets . as a result , in an effort to retain or secure customers , enter new markets or capture market share , in the past we have and in the future we may agree to pricing or other unfavorable commercial terms that result in lower or negative gross margins on a particular order or group of orders . because packet-optical transport and international revenue 38 comprise a greater percentage of our overall revenue than in prior periods , these market dynamics may adversely affect our gross margins and results of operations in certain periods . service gross margin can be affected by the mix of customers and services , particularly the mix between deployment and maintenance services , geographic mix and the timing and extent of any investments in internal resources to support this business . the tables below ( in thousands , except percentage data ) set forth the changes in revenue , cost of goods sold and gross profit for the periods indicated : replace_table_token_5_th _ * denotes % of total revenue * * denotes % change from 2010 to 2011 replace_table_token_6_th _ * denotes % of product revenue * * denotes % change from 2010 to 2011 replace_table_token_7_th _ * denotes % of service revenue * * denotes % change from 2010 to 2011 gross profit as a percentage of revenue increased as a result of the factors described below . gross profit on products as a percentage of product revenue increased , despite less favorable product mix in fiscal 2011 , largely as a result of the adverse effect , in fiscal 2010 , of a number of items relating to the men acquisition that increased costs of goods sold in that period . these items included $ 48.0 million related to the revaluation of inventory and $ 6.6 million in excess purchase commitment losses on ciena 's pre-acquisition inventory relating to product rationalization decisions . fiscal 2011 cost of goods sold included $ 14.3 million related to the revaluation of inventory and an $ 8.8 million increase in amortization of intangible assets . gross profit on services as a percentage of services revenue increased due to higher concentration of professional services as a percentage of revenue , and improved operational efficiencies . 39 operating expense research and development expense primarily consists of salaries and related employee expense ( including share-based compensation expense ) , prototype costs relating to design , development , and testing of our products , depreciation expense and third-party consulting costs . sales and marketing expense primarily consists of salaries , commissions and related employee expense ( including share-based compensation expense ) , and sales and marketing support expense , including travel , demonstration units , trade show expense and third-party consulting costs . general and administrative expense primarily consists of salaries and related employee expense ( including share-based compensation expense ) , and costs for third-party consulting and other services . amortization of intangible assets primarily reflects purchased technology and customer relationships from our acquisitions . the table below ( in thousands , except percentage data ) sets forth the changes in operating expense for the periods indicated : replace_table_token_8_th _ * denotes % of total revenue * * denotes % change from 2010 to 2011 research and development expense was adversely affected by $ 12.2 million as a result of foreign exchange rates , primarily due to the weakening of the u.s. dollar in relation to the canadian dollar . the $ 52.2 million increase primarily reflects increases of $ 47.4 million in employee compensation and related costs , $ 13.6 million in facilities and information systems , $ 4.8 million in depreciation expense and $ 2.5 million in professional services and fees . these increases were partially offset by decreases of $ 9.6 million in prototype expense and a $ 5.5 million benefit related to a conditional grant from the province of ontario . under this strategic jobs investment fund grant , we can receive up to an aggregate of $ 25.0 million canadian dollars in funding for eligible costs relating to certain next-generation , coherent optical transport development initiatives over the period from fiscal 2011 to fiscal 2015. we anticipate receiving future disbursements , approximating cad $ 5.0 million per fiscal year over the period above . amounts received under the grant are subject to recoupment in the event that we fail to achieve certain minimum investment , employment and project milestones . selling and marketing expense was adversely affected by $ 2.5 million due to foreign exchange rates , primarily due to the weakening of the u.s. dollar in relation to the euro and the canadian dollar

liquidity and capital resources the company and its board of directors endorse a balanced approach to capital allocation . the company 's priority is to invest in growth initiatives , such as the hiring of consultants , the continued development of ip and derivative products and services , and the investment in synergistic , accretive merger and acquisition transactions that earn a return that is superior to the company 's cost of capital . next , the company 's capital allocation approach contemplates the return of a portion of excess capital to stockholders , in the form of a regular quarterly dividend , subject to the factors discussed below and in the “risk factors” section of this annual report on form 10-k. additionally , the company considers share repurchases on an opportunistic basis and subject to the terms of our credit agreement . on june 15 , 2016 , we entered into a senior secured $ 400 million credit agreement with a syndicate of banks and wells fargo bank , national association as administrative agent , to provide for enhanced financial flexibility and in recognition of the accelerated pace of the legacy hay integration . see note 10— long-term debt for a description of the credit facility . in anticipation of the plan , on june 8 , 2018 , we entered into an amendment ( the “amendment” ) to the credit agreement . the amendment permits the kf merger , and will become effective when certain conditions set forth therein , including consummation of the kf merger , are satisfied . we drew down $ 275 million on the term loan and used $ 140 million of the proceeds to pay-off the term loan that was outstanding as of april 30 , 2016. we had $ 2.9 million and $ 3.0 million standby letters of credit issued under our long-term debt arrangements as of april 30 , 2018 and 2017 , respectively . we had a total of $ 7.4 million and $ 8.1 million of standby letters of credits with other financial institutions as of april 30 , 2018 and 2017 , respectively .

we remain uncertain as to how long current macroeconomic and industry conditions will persist , the pace of any recovery , and the magnitude of the effect of these conditions on the growth of our markets and business , as well as our results of operations . we continue to encounter a highly competitive marketplace for sales of our networking solutions offering , particularly within our packet-optical transport segment . competition has intensified as we and our competitors have introduced new , high-capacity , high-speed network solutions and more aggressively sought to capture market share and displace incumbent vendors at large carrier customers . we have also encountered increased competition as we have expanded our business in emerging geographies and new markets or applications for our communications networking products . for example , we have made early progress in the sale of our products for application in submarine networks and with sales to customers in the middle east . in this competitive environment , securing new opportunities , particularly in international markets , often requires that we agree to less favorable commercial terms or pricing , financial commitments requiring collateralized performance bonds or similar instruments that place cash resources at risk , and other contractual commitments that place a disproportionate allocation of risk upon the vendor . these terms can adversely affect our result of operations . we expect the level of competition , particularly in north america , to continue and potentially increase , as chinese equipment vendors seek to gain entry into the u.s. market , and other multinational competitors seek to retain incumbent positions with large customers in the region . potential supply chain disruption in recent months , several regions of thailand have experienced severe flooding , causing significant damage to infrastructure and factories . flooding has affected the operations of certain component providers in our supply chain , or , in turn , their suppliers of components based in thailand . we are actively monitoring and evaluating stabilization efforts of these suppliers following the flooding and are currently working with existing suppliers and qualifying new sources of supply in order to minimize the effect on our customers and our business . given the severity of the situation and our dependency upon the recovery efforts of these suppliers , however , there can be no assurance that we will not encounter shortages , extended lead 33 times , additional costs or other disruptions in the availability or allocation of components that could affect our business over the next several fiscal quarters . market opportunity and strategy despite recent macroeconomic and competitive dynamics , we believe that a number of important underlying drivers represent significant long-term opportunities and growing demand for converged optical ethernet networking solutions in our target markets . we believe that market trends , including the proliferation of smartphones , tablets and similar devices running mobile web applications , the prevalence of video applications , and the shift of enterprise and consumer applications to cloud-based or virtualized network environments are emblematic of increased use and dependence by consumers and enterprises upon a growing variety of broadband applications and services . we expect that these services will continue to add significant multiservice network traffic , requiring our customers to invest in next-generation , high-capacity network infrastructures that are more efficient , robust and dynamic . to capitalize on the market dynamics above , we invested heavily in our business during fiscal 2011 and are in the process of introducing , or transitioning to new solutions offerings in each of our product segments . simultaneously , we have been investing in market entry into multiple new geographies and customer segments , as well as the expansion of footprint and market share within our traditional customer base across our segments . we have also been making investments in an effort to optimize and gain leverage from our business processes , systems , infrastructure and resources in order to achieve our desired operating model and profitability goals . these investments are a critical element of our effort to address customer business challenges and evolving network requirements and position us to seize market opportunities . we believe these investments , together with the successful completion of significant integration activities relating to the men business during fiscal 2011 , lay a strong foundation for long-term growth of our business . additional components of our overall corporate strategy can be found in item 1 , “ business ” above . acquisition of nortel metro ethernet networks business and effect on results of operations and financial condition on march 19 , 2010 , we completed our acquisition ( the `` men acquisition `` ) of substantially all of the optical networking and carrier ethernet assets of nortel 's metro ethernet networks business ( the “ men business ” ) for a purchase price of $ 676.8 million . see note 2 to the consolidated financial statements in item 8 of part ii of this annual report for more information . the men acquisition represented a transformative opportunity for ciena , strengthening our position as a leader in next-generation , converged optical ethernet networking and accelerating the execution of our corporate and research and development strategies . due to the relative scale of its operations , however , the men acquisition materially affected our operations , financial results and liquidity during the periods covered in this report and may make period to period comparisons difficult . story_separator_special_tag gross margin can vary significantly depending upon the mix and concentration of revenue by segment or product line , the concentration of lower margin common equipment sales within a segment or product line , geographic mix and the mix of customers and services in a given fiscal quarter . gross margin can also be affected by our introduction of new products , charges for excess and obsolete inventory , changes in warranty costs and sales volume . we expect that gross margins will be subject to fluctuation based on our level of success in driving cost reductions , rationalizing our supply chain and consolidating third party contract manufacturers and distribution sites as part of our effort to optimize our operations . gross margin can also be adversely affected by the competitive environment and level of pricing pressure we encounter . the combination of the recent period of uncertain market conditions , constraints on customer capital expenditures and increased competition has resulted in a heightened customer focus on pricing and return on network investment , as customers address network traffic growth and strive to increase revenue and profit . while competition is intense across our segments , our exposure to pricing pressure has been most severe in metro and core applications for our packet-optical transport platforms , particularly in international markets . as a result , in an effort to retain or secure customers , enter new markets or capture market share , in the past we have and in the future we may agree to pricing or other unfavorable commercial terms that result in lower or negative gross margins on a particular order or group of orders . because packet-optical transport and international revenue 38 comprise a greater percentage of our overall revenue than in prior periods , these market dynamics may adversely affect our gross margins and results of operations in certain periods . service gross margin can be affected by the mix of customers and services , particularly the mix between deployment and maintenance services , geographic mix and the timing and extent of any investments in internal resources to support this business . the tables below ( in thousands , except percentage data ) set forth the changes in revenue , cost of goods sold and gross profit for the periods indicated : replace_table_token_5_th _ * denotes % of total revenue * * denotes % change from 2010 to 2011 replace_table_token_6_th _ * denotes % of product revenue * * denotes % change from 2010 to 2011 replace_table_token_7_th _ * denotes % of service revenue * * denotes % change from 2010 to 2011 gross profit as a percentage of revenue increased as a result of the factors described below . gross profit on products as a percentage of product revenue increased , despite less favorable product mix in fiscal 2011 , largely as a result of the adverse effect , in fiscal 2010 , of a number of items relating to the men acquisition that increased costs of goods sold in that period . these items included $ 48.0 million related to the revaluation of inventory and $ 6.6 million in excess purchase commitment losses on ciena 's pre-acquisition inventory relating to product rationalization decisions . fiscal 2011 cost of goods sold included $ 14.3 million related to the revaluation of inventory and an $ 8.8 million increase in amortization of intangible assets . gross profit on services as a percentage of services revenue increased due to higher concentration of professional services as a percentage of revenue , and improved operational efficiencies . 39 operating expense research and development expense primarily consists of salaries and related employee expense ( including share-based compensation expense ) , prototype costs relating to design , development , and testing of our products , depreciation expense and third-party consulting costs . sales and marketing expense primarily consists of salaries , commissions and related employee expense ( including share-based compensation expense ) , and sales and marketing support expense , including travel , demonstration units , trade show expense and third-party consulting costs . general and administrative expense primarily consists of salaries and related employee expense ( including share-based compensation expense ) , and costs for third-party consulting and other services . amortization of intangible assets primarily reflects purchased technology and customer relationships from our acquisitions . the table below ( in thousands , except percentage data ) sets forth the changes in operating expense for the periods indicated : replace_table_token_8_th _ * denotes % of total revenue * * denotes % change from 2010 to 2011 research and development expense was adversely affected by $ 12.2 million as a result of foreign exchange rates , primarily due to the weakening of the u.s. dollar in relation to the canadian dollar . the $ 52.2 million increase primarily reflects increases of $ 47.4 million in employee compensation and related costs , $ 13.6 million in facilities and information systems , $ 4.8 million in depreciation expense and $ 2.5 million in professional services and fees . these increases were partially offset by decreases of $ 9.6 million in prototype expense and a $ 5.5 million benefit related to a conditional grant from the province of ontario . under this strategic jobs investment fund grant , we can receive up to an aggregate of $ 25.0 million canadian dollars in funding for eligible costs relating to certain next-generation , coherent optical transport development initiatives over the period from fiscal 2011 to fiscal 2015. we anticipate receiving future disbursements , approximating cad $ 5.0 million per fiscal year over the period above . amounts received under the grant are subject to recoupment in the event that we fail to achieve certain minimum investment , employment and project milestones . selling and marketing expense was adversely affected by $ 2.5 million due to foreign exchange rates , primarily due to the weakening of the u.s. dollar in relation to the euro and the canadian dollar

cash used by accounts receivable during fiscal 2011 , net of $ 1.7 million in provision for doubtful accounts , was $ 75.6 million primarily due to increased sales volume . our days sales outstanding ( dsos ) decreased from 100 days for fiscal 2010 to 86 days for fiscal 2011 . our dsos level for fiscal 2010 largely reflects the timing of the men acquisition and the effect on this calculation of having only a partial year of revenue from the men business . utilizing annualized fourth quarter revenue for purposes of this calculation would have resulted in dsos of 74 days for fiscal 2010 and 83 days for fiscal 2011. our dsos increased due to growth in international sales , which generally involve longer payment cycles . the following table sets forth ( in thousands ) changes to our accounts receivable , net of allowance for doubtful accounts , from the end of fiscal 2010 through the end of fiscal 2011 : october 31 , increase 2010 2011 ( decrease ) accounts receivable , net $ 343,582 $ 417,509 $ 73,927 inventory cash generated by inventory during fiscal 2011 was $ 14.2 million . our inventory turns increased from 2.3 turns during fiscal 2010 to 3.6 turns during fiscal 2011 . during fiscal 2011 , changes in inventory reflect a $ 17.3 million reduction related to a non-cash provision for excess and obsolescence . the following table sets forth ( in thousands ) changes to the components of our inventory from the end of fiscal 2010 through the end fiscal 2011 : 48 replace_table_token_20_th prepaid expense and other cash used by prepaid expense and other during fiscal 2011 was $ 18.3 million . this usage was primarily related to increases in product demonstration units and deferred deployment expense , partially offset by the receipt of the contingent refund receivable related to the carling lease termination . accounts payable , accruals and other obligations cash used by accounts payable , accruals and other obligations during fiscal 2011 was $ 59.3 million . between the end of fiscal 2010 and fiscal 2011 , the change in unpaid equipment purchases was $ 1.2

the state has implemented a four phase reopening plan that requires benchmarks be met for a certain period of time before transitioning from one phase to another . in north dakota , the governor did not issue an order requiring individuals to stay at home , but placed certain restrictions on bars , restaurants and gyms . these orders have been lifted and north dakota is now working toward a “ smart restart ” program to encourage businesses to open safely and take precautions to slow the spread of covid-19 . in response to these orders , the bank has been serving its customers through its drive-up windows at various branch locations and through online and mobile banking . the bank is also permitting certain visits to its branches on a limited basis and by appointment only . in minnesota and arizona , the bank is offering appointments to clients to meet with safeguards in place that materially comply with the cdc guidance . in north dakota , offices have re-opened for business with safeguards in place that materially comply with cdc guidance . each state experienced a dramatic and sudden increase in unemployment levels as a result of the curtailment of business activities . according to data released by the u.s. department of labor , initial claims for unemployment insurance initially spiked in each of the states in our banking markets . we expect claims for unemployment insurance to remain at elevated levels for the foreseeable future until restrictions are lifted and the pandemic 's effects have subsided . policy and regulatory developments . federal , state and local governments and regulatory authorities have enacted and issued a range of policy responses to the covid-19 pandemic , including the following : ● the federal reserve decreased the range for the federal funds target rate by 0.50 % on march 3 , 2020 , and by another 1.00 % on march 16 , 2020 , reaching a current range of 0.00-0.25 % . ● on march 27 . 2020 , president trump signed into law the coronavirus aid , relief and economic security act , or cares act , which established a $ 2.0 trillion economic stimulus package , including cash payments to individuals , supplemental unemployment insurance benefits and a $ 349 billion loan program administered through the u.s. small business administration , or sba , referred to as the paycheck protection program , or ppp . on april 24 , 2020 , an additional $ 310 billion in funding for ppp loans was authorized , with such funds available for ppp loans beginning on april 27 , 2020. in addition , the cares act , as extended by the coronavirus response and relief supplemental appropriations act of 2021 ( a part of the consolidated appropriations act , 2021 ) , provides financial institutions the option to temporarily suspend certain requirements under gaap related to tdrs for a limited period of time to account for the effects of covid-19 . see “ note 6 loans and allowance for loan losses ” for additional discussion regarding tdrs . ● on april 7 , 2020 , federal banking regulators issued a revised interagency statement on loan modifications and reporting for financial institutions , which , among other things , encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of covid-19 , and stated that institutions generally do not need to categorize covid-19-related modifications as tdrs and that the agencies will not direct supervised institutions to automatically categorize all covid-19 related loan modifications as tdrs . see “ note 6 loans and allowance for loan losses ” for additional discussion regarding tdrs . 63 ● on april 9 , 2020 , the federal reserve announced additional measures aimed at supporting small and midsized businesses , as well as state and local governments impacted by covid-19 . the federal reserve announced the main street business lending program , which established two new loan facilities intended to facilitate lending to small and midsized businesses : ( 1 ) the main street new loan facility , or msnlf , and ( 2 ) the main street expanded loan facility , or mself . msnlf loans are unsecured term loans originated on or after april 8 , 2020 , while mself loans are provided as upsized tranches of existing loans originated before april 8 , 2020. the combined size of the program is $ 600 billion . ● on august 3 , 2020 , the ffiec issued a joint statement on additional loan accommodations related to covid-19 , which among other things , encouraged financial institutions to consider prudent additional loan accommodation options when borrowers are unable to meet their obligations due to continuing financial challenges . accommodation options should be based on prudent risk management and consumer protection principles . ● on december 27 , 2020 , president trump signed the consolidated appropriations act , 2021 , a $ 900.0 billion covid-19 relief package that includes an additional $ 284.0 billion in ppp funding . ● in addition to the policy responses described above , the federal bank regulatory agencies , along with their state counterparts , have issued a stream of guidance in response to the covid-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact . story_separator_special_tag 's audited consolidated financial statements included elsewhere in this report . fair value measurements —fair value is the price that would be received to sell an asset , or paid to transfer a liability , in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices , or observable market inputs . for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgement may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . financial assets that are recorded at fair value on a recurring basis include investment securities and derivative financial instruments . as of december 31 , 2020 and 2019 , $ 605.7 million or 20.1 % and $ 314.8 million or 13.4 % , respectively , of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities . the fair value of financial assets on a recurring basis are classified in either levels 1 or 2 of the fair value hierarchy . financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2020 and 2019 , $ 2.9 million and $ 109 thousand , respectively represented less than 1 % of our total liabilities in those years and were classified as level 2 of the fair value hierarchy . we have no fair value assets or liabilities classified in level 3 of the fair value hierarchy . a further discussion regarding the fair value of assets and liabilities , and the classification of level 1 , 2 , and 3 hierarchies , is disclosed in note 27 ( fair value of assets and liabilities ) of the company 's audited consolidated financial statements included elsewhere in this report . a summary of the accounting policies used by management is disclosed in note 1 ( significant accounting policies ) of the company 's audited consolidated financial statements included elsewhere in this report . selected financial data the following consolidated selected financial data is derived from the company 's audited consolidated financial statements as of and for the five years ended december 31 , 2020. the consolidated selected financial data presented below contains financial measures that are not presented in accordance with accounting principles generally accepted in the united states and have not been audited . see “ non-gaap to gaap reconciliations and calculation of non-gaap financial measures ” below . 68 replace_table_token_1_th ( 1 ) excluding a one-time $ 4.8 million expense related to the revaluation of our deferred tax assets in 2017 , our net income , roaa , roae , and roatce would have been $ 19.8 million , 0.99 % , 11.21 % , and 18.04 % , respectively . these adjusted metrics represent non-gaap financial measures . see “ non-gaap to gaap reconciliations and calculation of non-gaap financial measures . ” ( 2 ) represents a non-gaap financial measure . see “ non-gaap to gaap reconciliations and calculation of non-gaap financial measures . ” ( 3 ) excludes loans held for branch sale at 2018 . ( 4 ) excludes deposits held for sale at 2018 . ( 5 ) includes esop-owned shares . 69 non-gaap to gaap reconciliations and calculation of non-gaap financial measures in addition to the results presented in accordance with gaap , we routinely supplement our evaluation with an analysis of certain non-gaap financial measures . these non-gaap financial measures include the ratio of tangible common equity to tangible assets , tangible common equity per share , return on average tangible common equity , net interest margin ( tax-equivalent ) , and the efficiency ratio . management uses these non-gaap financial measures in its analysis of its performance , and believes financial analysts and others frequently use these measures , and other similar measures , to evaluate capital adequacy . management calculates : ( i ) tangible common equity as total common stockholders ' equity , less goodwill and other intangible assets ; ( ii ) tangible common equity per share as tangible common equity divided by shares of common stock outstanding ; ( iii ) tangible assets as total assets , less goodwill and other intangible assets ; ( iv ) return on average tangible common equity as net income adjusted for intangible amortization net of tax , divided by average tangible common equity ; ( v ) net interest margin ( tax-equivalent ) as net interest income plus a tax-equivalent adjustment , divided by average earning assets ; and ( vi ) efficiency ratio as noninterest expense less intangible amortization expense , divided by net interest income plus noninterest income plus a tax-equivalent adjustment . the following tables present these non-gaap financial measures along with the most directly comparable financial measures calculated in accordance with gaap for the periods indicated . replace_table_token_2_th ​ 70 replace_table_token_3_th ​ results of operations the following discussion describes the consolidated operations and financial condition of the company and the bank . results of operations for the year ended december 31 , 2020 are compared to the results for the year ended december 31 , 2019 , and the consolidated financial condition of the company as of december 31 , 2020 is compared to december 31 , 2019. results of operations for the year ended december 31 , 2019 compared to results for the year ended december 31 , 2018 , can be found

cash used by accounts receivable during fiscal 2011 , net of $ 1.7 million in provision for doubtful accounts , was $ 75.6 million primarily due to increased sales volume . our days sales outstanding ( dsos ) decreased from 100 days for fiscal 2010 to 86 days for fiscal 2011 . our dsos level for fiscal 2010 largely reflects the timing of the men acquisition and the effect on this calculation of having only a partial year of revenue from the men business . utilizing annualized fourth quarter revenue for purposes of this calculation would have resulted in dsos of 74 days for fiscal 2010 and 83 days for fiscal 2011. our dsos increased due to growth in international sales , which generally involve longer payment cycles . the following table sets forth ( in thousands ) changes to our accounts receivable , net of allowance for doubtful accounts , from the end of fiscal 2010 through the end of fiscal 2011 : october 31 , increase 2010 2011 ( decrease ) accounts receivable , net $ 343,582 $ 417,509 $ 73,927 inventory cash generated by inventory during fiscal 2011 was $ 14.2 million . our inventory turns increased from 2.3 turns during fiscal 2010 to 3.6 turns during fiscal 2011 . during fiscal 2011 , changes in inventory reflect a $ 17.3 million reduction related to a non-cash provision for excess and obsolescence . the following table sets forth ( in thousands ) changes to the components of our inventory from the end of fiscal 2010 through the end fiscal 2011 : 48 replace_table_token_20_th prepaid expense and other cash used by prepaid expense and other during fiscal 2011 was $ 18.3 million . this usage was primarily related to increases in product demonstration units and deferred deployment expense , partially offset by the receipt of the contingent refund receivable related to the carling lease termination . accounts payable , accruals and other obligations cash used by accounts payable , accruals and other obligations during fiscal 2011 was $ 59.3 million . between the end of fiscal 2010 and fiscal 2011 , the change in unpaid equipment purchases was $ 1.2

the state has implemented a four phase reopening plan that requires benchmarks be met for a certain period of time before transitioning from one phase to another . in north dakota , the governor did not issue an order requiring individuals to stay at home , but placed certain restrictions on bars , restaurants and gyms . these orders have been lifted and north dakota is now working toward a “ smart restart ” program to encourage businesses to open safely and take precautions to slow the spread of covid-19 . in response to these orders , the bank has been serving its customers through its drive-up windows at various branch locations and through online and mobile banking . the bank is also permitting certain visits to its branches on a limited basis and by appointment only . in minnesota and arizona , the bank is offering appointments to clients to meet with safeguards in place that materially comply with the cdc guidance . in north dakota , offices have re-opened for business with safeguards in place that materially comply with cdc guidance . each state experienced a dramatic and sudden increase in unemployment levels as a result of the curtailment of business activities . according to data released by the u.s. department of labor , initial claims for unemployment insurance initially spiked in each of the states in our banking markets . we expect claims for unemployment insurance to remain at elevated levels for the foreseeable future until restrictions are lifted and the pandemic 's effects have subsided . policy and regulatory developments . federal , state and local governments and regulatory authorities have enacted and issued a range of policy responses to the covid-19 pandemic , including the following : ● the federal reserve decreased the range for the federal funds target rate by 0.50 % on march 3 , 2020 , and by another 1.00 % on march 16 , 2020 , reaching a current range of 0.00-0.25 % . ● on march 27 . 2020 , president trump signed into law the coronavirus aid , relief and economic security act , or cares act , which established a $ 2.0 trillion economic stimulus package , including cash payments to individuals , supplemental unemployment insurance benefits and a $ 349 billion loan program administered through the u.s. small business administration , or sba , referred to as the paycheck protection program , or ppp . on april 24 , 2020 , an additional $ 310 billion in funding for ppp loans was authorized , with such funds available for ppp loans beginning on april 27 , 2020. in addition , the cares act , as extended by the coronavirus response and relief supplemental appropriations act of 2021 ( a part of the consolidated appropriations act , 2021 ) , provides financial institutions the option to temporarily suspend certain requirements under gaap related to tdrs for a limited period of time to account for the effects of covid-19 . see “ note 6 loans and allowance for loan losses ” for additional discussion regarding tdrs . ● on april 7 , 2020 , federal banking regulators issued a revised interagency statement on loan modifications and reporting for financial institutions , which , among other things , encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of covid-19 , and stated that institutions generally do not need to categorize covid-19-related modifications as tdrs and that the agencies will not direct supervised institutions to automatically categorize all covid-19 related loan modifications as tdrs . see “ note 6 loans and allowance for loan losses ” for additional discussion regarding tdrs . 63 ● on april 9 , 2020 , the federal reserve announced additional measures aimed at supporting small and midsized businesses , as well as state and local governments impacted by covid-19 . the federal reserve announced the main street business lending program , which established two new loan facilities intended to facilitate lending to small and midsized businesses : ( 1 ) the main street new loan facility , or msnlf , and ( 2 ) the main street expanded loan facility , or mself . msnlf loans are unsecured term loans originated on or after april 8 , 2020 , while mself loans are provided as upsized tranches of existing loans originated before april 8 , 2020. the combined size of the program is $ 600 billion . ● on august 3 , 2020 , the ffiec issued a joint statement on additional loan accommodations related to covid-19 , which among other things , encouraged financial institutions to consider prudent additional loan accommodation options when borrowers are unable to meet their obligations due to continuing financial challenges . accommodation options should be based on prudent risk management and consumer protection principles . ● on december 27 , 2020 , president trump signed the consolidated appropriations act , 2021 , a $ 900.0 billion covid-19 relief package that includes an additional $ 284.0 billion in ppp funding . ● in addition to the policy responses described above , the federal bank regulatory agencies , along with their state counterparts , have issued a stream of guidance in response to the covid-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact . story_separator_special_tag 's audited consolidated financial statements included elsewhere in this report . fair value measurements —fair value is the price that would be received to sell an asset , or paid to transfer a liability , in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices , or observable market inputs . for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgement may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . financial assets that are recorded at fair value on a recurring basis include investment securities and derivative financial instruments . as of december 31 , 2020 and 2019 , $ 605.7 million or 20.1 % and $ 314.8 million or 13.4 % , respectively , of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities . the fair value of financial assets on a recurring basis are classified in either levels 1 or 2 of the fair value hierarchy . financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2020 and 2019 , $ 2.9 million and $ 109 thousand , respectively represented less than 1 % of our total liabilities in those years and were classified as level 2 of the fair value hierarchy . we have no fair value assets or liabilities classified in level 3 of the fair value hierarchy . a further discussion regarding the fair value of assets and liabilities , and the classification of level 1 , 2 , and 3 hierarchies , is disclosed in note 27 ( fair value of assets and liabilities ) of the company 's audited consolidated financial statements included elsewhere in this report . a summary of the accounting policies used by management is disclosed in note 1 ( significant accounting policies ) of the company 's audited consolidated financial statements included elsewhere in this report . selected financial data the following consolidated selected financial data is derived from the company 's audited consolidated financial statements as of and for the five years ended december 31 , 2020. the consolidated selected financial data presented below contains financial measures that are not presented in accordance with accounting principles generally accepted in the united states and have not been audited . see “ non-gaap to gaap reconciliations and calculation of non-gaap financial measures ” below . 68 replace_table_token_1_th ( 1 ) excluding a one-time $ 4.8 million expense related to the revaluation of our deferred tax assets in 2017 , our net income , roaa , roae , and roatce would have been $ 19.8 million , 0.99 % , 11.21 % , and 18.04 % , respectively . these adjusted metrics represent non-gaap financial measures . see “ non-gaap to gaap reconciliations and calculation of non-gaap financial measures . ” ( 2 ) represents a non-gaap financial measure . see “ non-gaap to gaap reconciliations and calculation of non-gaap financial measures . ” ( 3 ) excludes loans held for branch sale at 2018 . ( 4 ) excludes deposits held for sale at 2018 . ( 5 ) includes esop-owned shares . 69 non-gaap to gaap reconciliations and calculation of non-gaap financial measures in addition to the results presented in accordance with gaap , we routinely supplement our evaluation with an analysis of certain non-gaap financial measures . these non-gaap financial measures include the ratio of tangible common equity to tangible assets , tangible common equity per share , return on average tangible common equity , net interest margin ( tax-equivalent ) , and the efficiency ratio . management uses these non-gaap financial measures in its analysis of its performance , and believes financial analysts and others frequently use these measures , and other similar measures , to evaluate capital adequacy . management calculates : ( i ) tangible common equity as total common stockholders ' equity , less goodwill and other intangible assets ; ( ii ) tangible common equity per share as tangible common equity divided by shares of common stock outstanding ; ( iii ) tangible assets as total assets , less goodwill and other intangible assets ; ( iv ) return on average tangible common equity as net income adjusted for intangible amortization net of tax , divided by average tangible common equity ; ( v ) net interest margin ( tax-equivalent ) as net interest income plus a tax-equivalent adjustment , divided by average earning assets ; and ( vi ) efficiency ratio as noninterest expense less intangible amortization expense , divided by net interest income plus noninterest income plus a tax-equivalent adjustment . the following tables present these non-gaap financial measures along with the most directly comparable financial measures calculated in accordance with gaap for the periods indicated . replace_table_token_2_th ​ 70 replace_table_token_3_th ​ results of operations the following discussion describes the consolidated operations and financial condition of the company and the bank . results of operations for the year ended december 31 , 2020 are compared to the results for the year ended december 31 , 2019 , and the consolidated financial condition of the company as of december 31 , 2020 is compared to december 31 , 2019. results of operations for the year ended december 31 , 2019 compared to results for the year ended december 31 , 2018 , can be found

borrowings and subordinated debt we utilize both short-term and long-term borrowings as part of our asset/liability management and funding strategies . short-term borrowings consists of fhlb advances and federal funds purchased . we had no short-term borrowings outstanding at december 31 , 2020 or december 31 , 2019. fhlb advances were secured by specific investment securities and real estate loans with a carrying amount of approximately $ 943.5 million and $ 881.2 million at december 31 , 2020 and 2019 , respectively . long-term debt is utilized to fund longer term assets and as a source of regulatory capital . at december 31 , 2020 , we had $ 50.0 million of outstanding 5.75 % fixed to floating rate subordinated notes due 2025 , or subordinated notes . the subordinated notes currently bear interest at a fixed rate of 5.75 % per year , payable semi-annually through december 30 , 2020 , and then convert automatically to floating rate notes that reset quarterly to an interest rate equal to the three-month libor plus 412 basis points . the subordinated notes mature on december 30 , 2025 , and we have the option to redeem or prepay any or all of the subordinated notes without premium or penalty any time after december 30 , 2020 or at any time in the event of certain changes that affect the deductibility of interest for tax purposes or the treatment of the notes as tier 2 capital . on december 29 , 2020 , we gave notice pursuant to section 4 ( b ) of the subordinated notes , that the entire aggregate $ 50.0 million outstanding principal amount of the subordinated notes is being called for redemption on friday , january 29 , 2021 , the redemption date .

accordingly , the results of medicomp , inc. , including the gain recognized on its disposal , have been included in discontinued operations for each of the three years in the three-year period ended december 31 , 2011 on our consolidated statements of operations . refer to note 18 — sale of medicomp , inc. to our consolidated financial statements included in this annual report on form 10-k for details . revenues sales of remodulin comprise the largest share of our revenues . other significant sources of revenues include sales of tyvaso and adcirca . sales of tyvaso and adcirca have continued to grow since their commercial introduction in 2009 , as each of these therapies has gained broader market acceptance . we sell remodulin and tyvaso in the united states to our specialty pharmaceutical distributors : accredo health group , inc. , curascript , inc. and cvs caremark . adcirca is sold to pharmaceutical wholesalers that are part of lilly 's pharmaceutical wholesaler network . we also sell remodulin to distributors outside of the united states . on july 21 , 2011 , express scripts , inc. , the parent company of curascript , announced the signing of a merger agreement with medco health solutions , inc. , the parent company of accredo . the parties announced that the merger , which is subject to regulatory and shareholder approvals , is expected to close in the first half of 2012. presently , we do not expect the merger , if approved , to materially affect our business . we require our distributors to maintain reasonable levels of contingent inventory at all times as the interruption of remodulin or tyvaso therapy can be life threatening . consequently , sales of these therapies in any given quarter may not precisely reflect patient demand . our distributors typically place monthly orders based on estimates of future demand and considerations of contractual minimum inventory requirements . as a result , sales volume of remodulin and tyvaso can vary , depending on the timing and magnitude of these orders . the patient protection and affordable care act , as amended by the health care and education reconciliation act ( collectively , the acts ) contains broad provisions that will be implemented over the next several years . we are continually evaluating the impact of the acts on our business ; however , our evaluation is dependent upon the issuance of final regulations and the impact this legislation will have on insurance companies and their relationships with drug manufacturers . on january 1 , 2011 , certain provisions of the acts that address the coverage gap in the medicare part d prescription drug program ( commonly known as the `` donut hole `` ) became effective . under these provisions , drug manufacturers are required to provide a 50 percent discount on branded prescription drugs to patients receiving reimbursement under medicare part d while they remain in this coverage gap . these provisions of the acts apply to adcirca , which is our only commercial pharmaceutical product covered by medicare part d. approximately 35 percent of our adcirca patients are covered under medicare part d. the vast majority of our remodulin and tyvaso medicare patients are covered under medicare part b , which does not contain a similar coverage gap . we were not materially impacted by the acts during 2010 and our revenues were reduced by less than one percent in 2011 as a result of the acts . however , the potential long-term impact of the acts on our business is inherently difficult to predict as many details regarding the implementation of this legislation have not yet been determined . presently , we have not identified any provisions that could 61 materially impact our business , but will continue to monitor future developments related to this legislation . total revenues are reported net of : ( 1 ) estimated rebates ; ( 2 ) prompt pay discounts ; ( 3 ) allowances for product returns or exchanges ; and ( 4 ) distributor fees . we estimate our liability for rebates based on an analysis of historical levels of rebates by product to both state medicaid agencies and commercial third-party payers relative to sales of each product . in addition , we determine our obligation for prescription drug discounts required for medicare part d patients within the coverage gap based on estimations of the number of medicare part d patients and the period such patients will remain within the coverage gap . we provide prompt pay discounts to customers that pay amounts due within a specific time period and base our estimates for prompt pay discounts on observed customer payment behavior . we derive estimates relating to the allowance for returns of adcirca from published industry data specific to specialty pharmaceuticals and will continue to do so until we have sufficient historical data on which to base our allowance . in addition , we compare patient prescription data for adcirca to sales of adcirca on a quarterly basis to ensure a reasonable relationship between prescription and sales trends . to date , we have not identified any unusual patterns in the volume of prescriptions relative to sales that would warrant reconsideration of , or adjustment to , the methodology we currently employ to estimate our allowance for returns . the allowance for exchanges for remodulin is based on the historical rate of product exchanges , which has been too immaterial to record . in addition , because tyvaso is distributed in the same manner and under similar contractual arrangements as remodulin , the level of product exchanges for tyvaso has been comparable to that of remodulin and we anticipate minimal exchange activity in the future for both products . lastly , we estimate distributor fees based on contractual rates for specific services applied to the estimated units of service provided for the period . story_separator_special_tag cancer disease projects ch14.18 antibody in july 2010 , we entered into a cooperative research and development agreement ( crada ) with the national cancer institute ( nci ) to collaborate on the late-stage development and regulatory submissions of chimeric monoclonal antibody 14.18 ( ch14.18 ) for children with high-risk neuroblastoma and patients with other forms of cancer . ch14.18 is an antibody that has shown potential in the treatment of certain types of cancer by targeting gd2 , a glycolipid on the surface of tumor cells . under the terms of the crada , nci is conducting a clinical trial in approximately 100 patients to define more clearly the safety and toxicity profile of ch14.18 immunotherapy in children , and we are developing the commercial manufacturing capability for the antibody . as part of developing our commercial manufacturing capability , we will need to demonstrate comparability of our ch14.18 to the nci-produced ch14.18 , which typically includes a series of analytical and bioanalytical assays and human pharmacokinetics . the nci studies , including a previously conducted phase iii clinical trial and all other necessary studies supported by nci , will be used as the basis for a biologics license application we expect to file seeking fda approval of ch14.18 immunotherapy for the treatment of neuroblastoma . we have received orphan drug designation for ch14.18 from the fda and european medicines agency . 66 8h9 antibody pursuant to a december 2007 agreement with memorial sloan-kettering cancer center , we obtained certain license rights to an investigational monoclonal antibody , 8h9 , for the treatment of metastatic brain cancer . 8h9 is a mouse igg1 mab that is highly reactive with a range of human solid tumors , including human brain cancers . the 8h9 antibody is in early investigational development for metastases that develop in the brain from the spread of cancers from other tissues in the body . metastatic brain cancers are ten times more common than cancers that originate in the brain , and prognosis for patients with metastatic brain cancers is very poor . in the united states , more than 100,000 cases of metastatic brain cancer are diagnosed each year . we have spent $ 75.0 million from inception to december 31 , 2011 , on our cancer programs . infectious disease projects pursuant to our research agreement with the university of oxford ( oxford ) , we have the exclusive right to commercialize a platform of glycobiology antiviral drug candidates in various preclinical and clinical stages of testing for the treatment of a wide variety of viruses . through our research agreement with oxford , we are also supporting research into new glycobiology antiviral drug candidates and technologies . we are currently testing many of these compounds in preclinical studies and oxford continues to synthesize new agents that we may elect to test . on september 30 , 2011 , we were awarded a cost plus fixed fee contract with an aggregate value of up to $ 45.0 million under a broad agency announcement from the u.s. national institute of allergy and infectious diseases for studies directed at the development of a broad spectrum antiviral drug based on our glycobiology antiviral platform . under the contract 's base period of forty-two months , we will receive $ 10.6 million in funding and there are eight milestone-based options to expand the project and funding under the contract , up to an aggregate of $ 45.0 million . we recognize revenue on this contract to the extent of costs incurred , plus a proportionate amount of fees earned . we have spent $ 52.6 million from inception to december 31 , 2011 , on our infectious disease programs . future prospects because pah remains a progressive disease without a cure , we expect continued growth in the demand for our commercial products as alternatives or complements to other existing approved therapies . furthermore , the commercial introduction of tyvaso and adcirca has enabled us to offer products to more patients along the full continuum of the disease . the continued achievement of our growth objectives will depend in large part upon the successful commercial development of products within our pipeline . to this end , we submitted to the fda an nda for oral treprostinil in december 2011 , plan to initiate enrollment in the freedom-c 3 study of oral treprostinil and a new event-driven phase iii tyvaso study during 2012 and continue to develop beraprost-mr. in addition , we seek to expand the use of our therapies to treat patients at earlier stages in the pah disease progression . our future growth and profitability will depend on many factors including , but not limited to : ( 1 ) the timing and outcome of clinical trials and regulatory approvals , including the filing and approval of our nda for oral treprostinil , and the pmr for tyvaso ; ( 2 ) the timing of the commercial launch of new products ; ( 3 ) the pricing of and demand for our products and services ; ( 4 ) the reimbursement of our products by public and private insurance organizations ; ( 5 ) the competition we face within our industry ; ( 6 ) our ability to effectively manage our growth in an increasingly complex regulatory environment ; and ( 7 ) our ability to defend against generic competition , including the recent challenge to our remodulin patents by a generic drug company . 67 we operate in a highly competitive market in which a small number of pharmaceutical companies control a majority of the currently approved pah therapies . these pharmaceutical companies not only possess greater visibility in the market , but also greater financial , technical and marketing resources than we do . in addition , there are a number of investigational products in late-stage development that , if approved , may erode the market share of our existing commercial therapies and make market

borrowings and subordinated debt we utilize both short-term and long-term borrowings as part of our asset/liability management and funding strategies . short-term borrowings consists of fhlb advances and federal funds purchased . we had no short-term borrowings outstanding at december 31 , 2020 or december 31 , 2019. fhlb advances were secured by specific investment securities and real estate loans with a carrying amount of approximately $ 943.5 million and $ 881.2 million at december 31 , 2020 and 2019 , respectively . long-term debt is utilized to fund longer term assets and as a source of regulatory capital . at december 31 , 2020 , we had $ 50.0 million of outstanding 5.75 % fixed to floating rate subordinated notes due 2025 , or subordinated notes . the subordinated notes currently bear interest at a fixed rate of 5.75 % per year , payable semi-annually through december 30 , 2020 , and then convert automatically to floating rate notes that reset quarterly to an interest rate equal to the three-month libor plus 412 basis points . the subordinated notes mature on december 30 , 2025 , and we have the option to redeem or prepay any or all of the subordinated notes without premium or penalty any time after december 30 , 2020 or at any time in the event of certain changes that affect the deductibility of interest for tax purposes or the treatment of the notes as tier 2 capital . on december 29 , 2020 , we gave notice pursuant to section 4 ( b ) of the subordinated notes , that the entire aggregate $ 50.0 million outstanding principal amount of the subordinated notes is being called for redemption on friday , january 29 , 2021 , the redemption date .

accordingly , the results of medicomp , inc. , including the gain recognized on its disposal , have been included in discontinued operations for each of the three years in the three-year period ended december 31 , 2011 on our consolidated statements of operations . refer to note 18 — sale of medicomp , inc. to our consolidated financial statements included in this annual report on form 10-k for details . revenues sales of remodulin comprise the largest share of our revenues . other significant sources of revenues include sales of tyvaso and adcirca . sales of tyvaso and adcirca have continued to grow since their commercial introduction in 2009 , as each of these therapies has gained broader market acceptance . we sell remodulin and tyvaso in the united states to our specialty pharmaceutical distributors : accredo health group , inc. , curascript , inc. and cvs caremark . adcirca is sold to pharmaceutical wholesalers that are part of lilly 's pharmaceutical wholesaler network . we also sell remodulin to distributors outside of the united states . on july 21 , 2011 , express scripts , inc. , the parent company of curascript , announced the signing of a merger agreement with medco health solutions , inc. , the parent company of accredo . the parties announced that the merger , which is subject to regulatory and shareholder approvals , is expected to close in the first half of 2012. presently , we do not expect the merger , if approved , to materially affect our business . we require our distributors to maintain reasonable levels of contingent inventory at all times as the interruption of remodulin or tyvaso therapy can be life threatening . consequently , sales of these therapies in any given quarter may not precisely reflect patient demand . our distributors typically place monthly orders based on estimates of future demand and considerations of contractual minimum inventory requirements . as a result , sales volume of remodulin and tyvaso can vary , depending on the timing and magnitude of these orders . the patient protection and affordable care act , as amended by the health care and education reconciliation act ( collectively , the acts ) contains broad provisions that will be implemented over the next several years . we are continually evaluating the impact of the acts on our business ; however , our evaluation is dependent upon the issuance of final regulations and the impact this legislation will have on insurance companies and their relationships with drug manufacturers . on january 1 , 2011 , certain provisions of the acts that address the coverage gap in the medicare part d prescription drug program ( commonly known as the `` donut hole `` ) became effective . under these provisions , drug manufacturers are required to provide a 50 percent discount on branded prescription drugs to patients receiving reimbursement under medicare part d while they remain in this coverage gap . these provisions of the acts apply to adcirca , which is our only commercial pharmaceutical product covered by medicare part d. approximately 35 percent of our adcirca patients are covered under medicare part d. the vast majority of our remodulin and tyvaso medicare patients are covered under medicare part b , which does not contain a similar coverage gap . we were not materially impacted by the acts during 2010 and our revenues were reduced by less than one percent in 2011 as a result of the acts . however , the potential long-term impact of the acts on our business is inherently difficult to predict as many details regarding the implementation of this legislation have not yet been determined . presently , we have not identified any provisions that could 61 materially impact our business , but will continue to monitor future developments related to this legislation . total revenues are reported net of : ( 1 ) estimated rebates ; ( 2 ) prompt pay discounts ; ( 3 ) allowances for product returns or exchanges ; and ( 4 ) distributor fees . we estimate our liability for rebates based on an analysis of historical levels of rebates by product to both state medicaid agencies and commercial third-party payers relative to sales of each product . in addition , we determine our obligation for prescription drug discounts required for medicare part d patients within the coverage gap based on estimations of the number of medicare part d patients and the period such patients will remain within the coverage gap . we provide prompt pay discounts to customers that pay amounts due within a specific time period and base our estimates for prompt pay discounts on observed customer payment behavior . we derive estimates relating to the allowance for returns of adcirca from published industry data specific to specialty pharmaceuticals and will continue to do so until we have sufficient historical data on which to base our allowance . in addition , we compare patient prescription data for adcirca to sales of adcirca on a quarterly basis to ensure a reasonable relationship between prescription and sales trends . to date , we have not identified any unusual patterns in the volume of prescriptions relative to sales that would warrant reconsideration of , or adjustment to , the methodology we currently employ to estimate our allowance for returns . the allowance for exchanges for remodulin is based on the historical rate of product exchanges , which has been too immaterial to record . in addition , because tyvaso is distributed in the same manner and under similar contractual arrangements as remodulin , the level of product exchanges for tyvaso has been comparable to that of remodulin and we anticipate minimal exchange activity in the future for both products . lastly , we estimate distributor fees based on contractual rates for specific services applied to the estimated units of service provided for the period . story_separator_special_tag cancer disease projects ch14.18 antibody in july 2010 , we entered into a cooperative research and development agreement ( crada ) with the national cancer institute ( nci ) to collaborate on the late-stage development and regulatory submissions of chimeric monoclonal antibody 14.18 ( ch14.18 ) for children with high-risk neuroblastoma and patients with other forms of cancer . ch14.18 is an antibody that has shown potential in the treatment of certain types of cancer by targeting gd2 , a glycolipid on the surface of tumor cells . under the terms of the crada , nci is conducting a clinical trial in approximately 100 patients to define more clearly the safety and toxicity profile of ch14.18 immunotherapy in children , and we are developing the commercial manufacturing capability for the antibody . as part of developing our commercial manufacturing capability , we will need to demonstrate comparability of our ch14.18 to the nci-produced ch14.18 , which typically includes a series of analytical and bioanalytical assays and human pharmacokinetics . the nci studies , including a previously conducted phase iii clinical trial and all other necessary studies supported by nci , will be used as the basis for a biologics license application we expect to file seeking fda approval of ch14.18 immunotherapy for the treatment of neuroblastoma . we have received orphan drug designation for ch14.18 from the fda and european medicines agency . 66 8h9 antibody pursuant to a december 2007 agreement with memorial sloan-kettering cancer center , we obtained certain license rights to an investigational monoclonal antibody , 8h9 , for the treatment of metastatic brain cancer . 8h9 is a mouse igg1 mab that is highly reactive with a range of human solid tumors , including human brain cancers . the 8h9 antibody is in early investigational development for metastases that develop in the brain from the spread of cancers from other tissues in the body . metastatic brain cancers are ten times more common than cancers that originate in the brain , and prognosis for patients with metastatic brain cancers is very poor . in the united states , more than 100,000 cases of metastatic brain cancer are diagnosed each year . we have spent $ 75.0 million from inception to december 31 , 2011 , on our cancer programs . infectious disease projects pursuant to our research agreement with the university of oxford ( oxford ) , we have the exclusive right to commercialize a platform of glycobiology antiviral drug candidates in various preclinical and clinical stages of testing for the treatment of a wide variety of viruses . through our research agreement with oxford , we are also supporting research into new glycobiology antiviral drug candidates and technologies . we are currently testing many of these compounds in preclinical studies and oxford continues to synthesize new agents that we may elect to test . on september 30 , 2011 , we were awarded a cost plus fixed fee contract with an aggregate value of up to $ 45.0 million under a broad agency announcement from the u.s. national institute of allergy and infectious diseases for studies directed at the development of a broad spectrum antiviral drug based on our glycobiology antiviral platform . under the contract 's base period of forty-two months , we will receive $ 10.6 million in funding and there are eight milestone-based options to expand the project and funding under the contract , up to an aggregate of $ 45.0 million . we recognize revenue on this contract to the extent of costs incurred , plus a proportionate amount of fees earned . we have spent $ 52.6 million from inception to december 31 , 2011 , on our infectious disease programs . future prospects because pah remains a progressive disease without a cure , we expect continued growth in the demand for our commercial products as alternatives or complements to other existing approved therapies . furthermore , the commercial introduction of tyvaso and adcirca has enabled us to offer products to more patients along the full continuum of the disease . the continued achievement of our growth objectives will depend in large part upon the successful commercial development of products within our pipeline . to this end , we submitted to the fda an nda for oral treprostinil in december 2011 , plan to initiate enrollment in the freedom-c 3 study of oral treprostinil and a new event-driven phase iii tyvaso study during 2012 and continue to develop beraprost-mr. in addition , we seek to expand the use of our therapies to treat patients at earlier stages in the pah disease progression . our future growth and profitability will depend on many factors including , but not limited to : ( 1 ) the timing and outcome of clinical trials and regulatory approvals , including the filing and approval of our nda for oral treprostinil , and the pmr for tyvaso ; ( 2 ) the timing of the commercial launch of new products ; ( 3 ) the pricing of and demand for our products and services ; ( 4 ) the reimbursement of our products by public and private insurance organizations ; ( 5 ) the competition we face within our industry ; ( 6 ) our ability to effectively manage our growth in an increasingly complex regulatory environment ; and ( 7 ) our ability to defend against generic competition , including the recent challenge to our remodulin patents by a generic drug company . 67 we operate in a highly competitive market in which a small number of pharmaceutical companies control a majority of the currently approved pah therapies . these pharmaceutical companies not only possess greater visibility in the market , but also greater financial , technical and marketing resources than we do . in addition , there are a number of investigational products in late-stage development that , if approved , may erode the market share of our existing commercial therapies and make market

debt to the consolidated financial statements included in this annual report on form 10-k for details . other noncurrent liabilities at december 31 , 2011 were $ 80.5 million , compared to $ 39.3 million at december 31 , 2010. the $ 41.2 million increase was largely due to the recognition of the net , non-current portion of our royalty buy-down obligation to toray in the amount of $ 28.3 million and a $ 6.5 million increase in our supplemental executive retirement plan ( serp ) obligation which reflects an increased number of serp participants . additional paid-in capital increased by $ 64.0 million from $ 928.7 million at december 31 , 2010 to $ 992.7 million at december 31 , 2011. the increase consisted principally of the following elements : ( 1 ) increases of $ 24.0 million and $ 11.3 million , respectively , relating to proceeds received from stock-option exercises and related tax benefits ; ( 2 ) an increase of $ 27.3 million recognized in connection with the value of the shares we received from the exercise of a note hedge upon the conversion of the 2011 convertible notes ; and ( 3 ) an increase of $ 27.1 million representing the net effects of the issuance of the 2016 convertible notes and related note hedge and warrant transactions .

in the fourth quarter of 2017 , we recorded non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . see item 8 , financial statements and supplementary data under note 15 “ closure and restructuring costs and liability ” and note 4 “ impairment of property , plant and equipment and goodwill ” , for more information . 2 in the fourth quarter of 2017 , we recorded a net tax benefit of $ 140 million related to the u.s. tax reform , which is composed of a benefit of $ 186 million for the remeasurement of deferred tax assets and liabilities and a charge of $ 46 million for the repatriation tax , and adjusted by $ 7 million in the third quarter of 2018. see item 8 , financial statements and supplementary data under note 10 “ income taxes ” for more information . 3 see item 8 , financial statements and supplementary data under note 6 `` earnings ( loss ) per common share `` for more information on the calculation of net earnings per common share . outlook in 2019 , our paper shipments will increase as we respond to increased demand from our customers following the announced industry capacity closures while paper prices will continue to improve in the wake of the recently announced price increases across the majority of our paper grades . softwood and fluff pulp markets will remain balanced through the year due to continued steady demand growth and limited announced new capacity . we anticipate costs , including freight , labor and raw materials , to marginally increase . personal care is expected to benefit from our margin improvement plan and new customer wins , partially offset by further raw material cost inflation . consolidated results of operations and segment review this section presents a discussion and analysis of our 2018 , 2017 and 2016 sales , operating income ( loss ) and other information relevant to the understanding of our results of operations . as a result of adopting the new accounting standard “ revenue from contracts with customers , ” we have revised our segment disclosures to conform to the new guideline . in 2017 and 2016 , previously reported sales were as follows : $ 4,216 million for pulp and paper ( 2016 - $ 4,239 million ) , $ 1,005 million for personal care ( 2016 - $ 917 million ) , and $ ( 64 ) million for intersegment sales ( 2016 - $ ( 58 ) million ) . as a result of adopting the new accounting guideline “ improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , ” we have revised our 2017 and 2016 segment disclosures to conform to the new guideline . in 2017 and 2016 , previously reported numbers for operating income ( loss ) were as follows : $ 250 million for pulp and paper ( 2016 - $ 217 million ) , ( $ 527 ) million for personal care ( 2016 - $ 57 million ) , and $ ( 40 ) million for corporate ( 2016 - $ ( 51 ) million ) . 28 replace_table_token_6_th replace_table_token_7_th ( a ) includes sales of hdis since october 1 , 2016. replace_table_token_8_th ( a ) includes closure and restructuring charge and accelerated depreciation of property , plant and equipment associated with an announced margin improvement plan within our personal care segment of $ 8 million and $ 7 million , respectively . ( b ) includes non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . replace_table_token_9_th 29 ( a ) includes raw materials ( such as fiber , chemicals , nonwovens and super absorbent polymers ) and energy costs . ( b ) includes maintenance , freight costs , selling , general and administrative ( “ sg & a ” ) expenses and other costs . ( c ) in our personal care segment , in 2018 , we recorded $ 7 million of non-cash impairment of property , plant and equipment compared to $ 578 million of non-cash impairment of goodwill recorded in 2017. depreciation charges were lower by $ 13 million in 2018 , excluding foreign currency impact . ( d ) 2018 restructuring charges relate mostly to : 2017 restructuring charges relate mostly to : -inventory write-down ( $ 4 million ) -severance and termination costs ( $ 3 million ) -other costs ( $ 1 million ) -severance and termination costs ( $ 2 million ) ( e ) 2018 operating expenses/income includes : 2017 operating expenses/income includes : - net gain on sale of property , plant and equipment ( $ 4 million ) - foreign exchange gain ( $ 2 million ) - environmental provision ( $ 5 million ) - bad debt expense ( $ 2 million ) - other income ( $ 1 million ) - net gain on sale of property , plant and equipment ( $ 13 million ) - reversal of contingent consideration ( $ 2 million ) - bad debt expense ( $ 1 million ) - environmental provision ( $ 3 million ) - foreign exchange loss ( $ 1 million ) - other income ( $ 4 million ) commentary - 2018 vs. 2017 interest expense , net we incurred $ 62 million of net interest expense in 2018 compared to net interest expense of $ 66 million in 2017. interest expense decreased mainly due to the repayment at maturity of the 10.75 % notes due in june 2017 and was partially offset by an increase in interest rate on the term loan . story_separator_special_tag mostly due to the acquisition of hdis on october 1 , 2016 and organic sales growth . this increase was partially offset by lower selling prices of 1 % when compared to 2016. operating income decreased by $ 584 million compared to 2016. our results were negatively impacted by : higher depreciation/impairment charges ( $ 579 million ) mostly due to the non-cash impairment of goodwill recorded in 2017 of $ 578 million unfavorable average net selling prices ( $ 11 million ) unfavorable foreign exchange impact , net of our hedging program ( $ 4 million ) higher restructuring charges ( $ 1 million ) unfavorable other income/expense ( $ 1 million ) these decreases were partially offset by the following : higher volume and mix ( $ 6 million ) lower input costs ( $ 3 million ) mostly due to a decrease in price of super absorbent polymers , fluff pulp and non-wovens lower operating expenses ( $ 3 million ) mostly due to lower manufacturing costs , partially offset by higher salaries & wages in our absorbent hygiene products business , we compete in an industry with fundamental drivers for long-term growth ; however , competitive market pressures in the healthcare and retail markets grew significantly in recent years . although the impact of such pressures presents some uncertainties , we expect them to result in lower than previously anticipated sales and operating margins . while we are expected to benefit from the overall increase in healthcare spending due to an aging population , the pressures to limit spending on healthcare may impact overall consumption or the channels in which consumption occurs . additionally , excess industry capacity has increased pricing pressure in all markets and instigated a shift in the infant and adult private label retail space as competitors historically almost absent in our markets have increased their presence in such markets . the principal methods and elements of competition remain brand recognition and loyalty , product innovation , quality and performance , price and marketing and distribution capabilities . 34 margin improvement plan on november 1 , 2018 , we announced a margin improvement plan within our personal care segment . as part of this plan , our board of directors approved the permanent closure of our waco , texas , manufacturing and distribution facility , the relocation of certain of our manufacturing assets and a workforce reduction across the division . the waco , texas facility is expected to cease operations in the third quarter of 2019. the aggregate pre-tax earnings charge in connection with this margin improvement plan is estimated to be $ 57 million , which includes : a ) an estimated $ 29 million in charges relating to accelerated depreciation of the carrying amounts of certain manufacturing equipment and the write-down of related spare parts ; b ) $ 10 million of estimated severance and related employee benefits ; c ) $ 11 million of estimated relocation and other costs ; and d ) $ 7 million of an estimated amount related to the future lease payments at the waco facility , net of expected sublease revenues . we also expect to incur approximately $ 5 million of capital expenditures related to certain equipment installation costs . closure and restructuring costs are based on management 's best estimates . although we do not anticipate significant changes , actual costs may differ from these estimates due to subsequent business developments . as such , additional costs and further impairment charges may be required in future periods . we recorded $ 7 million for the year ended december 31 , 2018 of accelerated depreciation under impairment of property , plant and equipment and goodwill on the consolidated statement of earnings ( loss ) and comprehensive income ( loss ) . during the fourth quarter of 2018 , we also recorded a $ 4 million write-down of inventory , $ 3 million of severance and termination costs , and $ 1 million of other costs under closure and restructuring costs . the balance will be recognized through the third quarter of 2019. stock-based compensation expense under the omnibus incentive plan , we may award to key employees and non-employee directors , at the discretion of the human resources committee of the board of directors , non-qualified stock options , incentive stock options , stock appreciation rights , restricted stock units , performance-conditioned restricted stock units , performance share units , deferred share units ( “ dsus ” ) and other stock-based awards . the non-employee directors only receive dsus . we generally grant awards annually and use , when available , treasury stock to fulfill awards settled in common stock and options exercised . for the year ended december 31 , 2018 , stock-based compensation expense recognized in our results of operations was $ 10 million ( 2017– $ 20 million ; 2016 – $ 16 million ) for all of the outstanding awards . compensation costs not yet recognized amounted to $ 17 million ( 2017– $ 20 million ; 2016– $ 17 million ) and will be recognized over the remaining service period of approximately 26 months . the aggregate value of liability awards settled in 2018 was $ 8 million ( 2017 – $ 7 million ; 2016 – $ 4 million ) . the total fair value of equity awards settled in 2018 was $ 6 million ( 2017 – $ 3 million ) , representing the fair value at the time of settlement . the fair value at the grant date for these settled equity awards was $ 7 million ( 2017 – $ 4 million ) . compensation costs for performance awards are based on management 's best estimate of the final performance measurement . liquidity and capital resources our principal cash requirements are for ongoing operating costs , pension contributions , working capital and capital expenditures , as well as principal and interest payments on our

debt to the consolidated financial statements included in this annual report on form 10-k for details . other noncurrent liabilities at december 31 , 2011 were $ 80.5 million , compared to $ 39.3 million at december 31 , 2010. the $ 41.2 million increase was largely due to the recognition of the net , non-current portion of our royalty buy-down obligation to toray in the amount of $ 28.3 million and a $ 6.5 million increase in our supplemental executive retirement plan ( serp ) obligation which reflects an increased number of serp participants . additional paid-in capital increased by $ 64.0 million from $ 928.7 million at december 31 , 2010 to $ 992.7 million at december 31 , 2011. the increase consisted principally of the following elements : ( 1 ) increases of $ 24.0 million and $ 11.3 million , respectively , relating to proceeds received from stock-option exercises and related tax benefits ; ( 2 ) an increase of $ 27.3 million recognized in connection with the value of the shares we received from the exercise of a note hedge upon the conversion of the 2011 convertible notes ; and ( 3 ) an increase of $ 27.1 million representing the net effects of the issuance of the 2016 convertible notes and related note hedge and warrant transactions .

in the fourth quarter of 2017 , we recorded non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . see item 8 , financial statements and supplementary data under note 15 “ closure and restructuring costs and liability ” and note 4 “ impairment of property , plant and equipment and goodwill ” , for more information . 2 in the fourth quarter of 2017 , we recorded a net tax benefit of $ 140 million related to the u.s. tax reform , which is composed of a benefit of $ 186 million for the remeasurement of deferred tax assets and liabilities and a charge of $ 46 million for the repatriation tax , and adjusted by $ 7 million in the third quarter of 2018. see item 8 , financial statements and supplementary data under note 10 “ income taxes ” for more information . 3 see item 8 , financial statements and supplementary data under note 6 `` earnings ( loss ) per common share `` for more information on the calculation of net earnings per common share . outlook in 2019 , our paper shipments will increase as we respond to increased demand from our customers following the announced industry capacity closures while paper prices will continue to improve in the wake of the recently announced price increases across the majority of our paper grades . softwood and fluff pulp markets will remain balanced through the year due to continued steady demand growth and limited announced new capacity . we anticipate costs , including freight , labor and raw materials , to marginally increase . personal care is expected to benefit from our margin improvement plan and new customer wins , partially offset by further raw material cost inflation . consolidated results of operations and segment review this section presents a discussion and analysis of our 2018 , 2017 and 2016 sales , operating income ( loss ) and other information relevant to the understanding of our results of operations . as a result of adopting the new accounting standard “ revenue from contracts with customers , ” we have revised our segment disclosures to conform to the new guideline . in 2017 and 2016 , previously reported sales were as follows : $ 4,216 million for pulp and paper ( 2016 - $ 4,239 million ) , $ 1,005 million for personal care ( 2016 - $ 917 million ) , and $ ( 64 ) million for intersegment sales ( 2016 - $ ( 58 ) million ) . as a result of adopting the new accounting guideline “ improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , ” we have revised our 2017 and 2016 segment disclosures to conform to the new guideline . in 2017 and 2016 , previously reported numbers for operating income ( loss ) were as follows : $ 250 million for pulp and paper ( 2016 - $ 217 million ) , ( $ 527 ) million for personal care ( 2016 - $ 57 million ) , and $ ( 40 ) million for corporate ( 2016 - $ ( 51 ) million ) . 28 replace_table_token_6_th replace_table_token_7_th ( a ) includes sales of hdis since october 1 , 2016. replace_table_token_8_th ( a ) includes closure and restructuring charge and accelerated depreciation of property , plant and equipment associated with an announced margin improvement plan within our personal care segment of $ 8 million and $ 7 million , respectively . ( b ) includes non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . replace_table_token_9_th 29 ( a ) includes raw materials ( such as fiber , chemicals , nonwovens and super absorbent polymers ) and energy costs . ( b ) includes maintenance , freight costs , selling , general and administrative ( “ sg & a ” ) expenses and other costs . ( c ) in our personal care segment , in 2018 , we recorded $ 7 million of non-cash impairment of property , plant and equipment compared to $ 578 million of non-cash impairment of goodwill recorded in 2017. depreciation charges were lower by $ 13 million in 2018 , excluding foreign currency impact . ( d ) 2018 restructuring charges relate mostly to : 2017 restructuring charges relate mostly to : -inventory write-down ( $ 4 million ) -severance and termination costs ( $ 3 million ) -other costs ( $ 1 million ) -severance and termination costs ( $ 2 million ) ( e ) 2018 operating expenses/income includes : 2017 operating expenses/income includes : - net gain on sale of property , plant and equipment ( $ 4 million ) - foreign exchange gain ( $ 2 million ) - environmental provision ( $ 5 million ) - bad debt expense ( $ 2 million ) - other income ( $ 1 million ) - net gain on sale of property , plant and equipment ( $ 13 million ) - reversal of contingent consideration ( $ 2 million ) - bad debt expense ( $ 1 million ) - environmental provision ( $ 3 million ) - foreign exchange loss ( $ 1 million ) - other income ( $ 4 million ) commentary - 2018 vs. 2017 interest expense , net we incurred $ 62 million of net interest expense in 2018 compared to net interest expense of $ 66 million in 2017. interest expense decreased mainly due to the repayment at maturity of the 10.75 % notes due in june 2017 and was partially offset by an increase in interest rate on the term loan . story_separator_special_tag mostly due to the acquisition of hdis on october 1 , 2016 and organic sales growth . this increase was partially offset by lower selling prices of 1 % when compared to 2016. operating income decreased by $ 584 million compared to 2016. our results were negatively impacted by : higher depreciation/impairment charges ( $ 579 million ) mostly due to the non-cash impairment of goodwill recorded in 2017 of $ 578 million unfavorable average net selling prices ( $ 11 million ) unfavorable foreign exchange impact , net of our hedging program ( $ 4 million ) higher restructuring charges ( $ 1 million ) unfavorable other income/expense ( $ 1 million ) these decreases were partially offset by the following : higher volume and mix ( $ 6 million ) lower input costs ( $ 3 million ) mostly due to a decrease in price of super absorbent polymers , fluff pulp and non-wovens lower operating expenses ( $ 3 million ) mostly due to lower manufacturing costs , partially offset by higher salaries & wages in our absorbent hygiene products business , we compete in an industry with fundamental drivers for long-term growth ; however , competitive market pressures in the healthcare and retail markets grew significantly in recent years . although the impact of such pressures presents some uncertainties , we expect them to result in lower than previously anticipated sales and operating margins . while we are expected to benefit from the overall increase in healthcare spending due to an aging population , the pressures to limit spending on healthcare may impact overall consumption or the channels in which consumption occurs . additionally , excess industry capacity has increased pricing pressure in all markets and instigated a shift in the infant and adult private label retail space as competitors historically almost absent in our markets have increased their presence in such markets . the principal methods and elements of competition remain brand recognition and loyalty , product innovation , quality and performance , price and marketing and distribution capabilities . 34 margin improvement plan on november 1 , 2018 , we announced a margin improvement plan within our personal care segment . as part of this plan , our board of directors approved the permanent closure of our waco , texas , manufacturing and distribution facility , the relocation of certain of our manufacturing assets and a workforce reduction across the division . the waco , texas facility is expected to cease operations in the third quarter of 2019. the aggregate pre-tax earnings charge in connection with this margin improvement plan is estimated to be $ 57 million , which includes : a ) an estimated $ 29 million in charges relating to accelerated depreciation of the carrying amounts of certain manufacturing equipment and the write-down of related spare parts ; b ) $ 10 million of estimated severance and related employee benefits ; c ) $ 11 million of estimated relocation and other costs ; and d ) $ 7 million of an estimated amount related to the future lease payments at the waco facility , net of expected sublease revenues . we also expect to incur approximately $ 5 million of capital expenditures related to certain equipment installation costs . closure and restructuring costs are based on management 's best estimates . although we do not anticipate significant changes , actual costs may differ from these estimates due to subsequent business developments . as such , additional costs and further impairment charges may be required in future periods . we recorded $ 7 million for the year ended december 31 , 2018 of accelerated depreciation under impairment of property , plant and equipment and goodwill on the consolidated statement of earnings ( loss ) and comprehensive income ( loss ) . during the fourth quarter of 2018 , we also recorded a $ 4 million write-down of inventory , $ 3 million of severance and termination costs , and $ 1 million of other costs under closure and restructuring costs . the balance will be recognized through the third quarter of 2019. stock-based compensation expense under the omnibus incentive plan , we may award to key employees and non-employee directors , at the discretion of the human resources committee of the board of directors , non-qualified stock options , incentive stock options , stock appreciation rights , restricted stock units , performance-conditioned restricted stock units , performance share units , deferred share units ( “ dsus ” ) and other stock-based awards . the non-employee directors only receive dsus . we generally grant awards annually and use , when available , treasury stock to fulfill awards settled in common stock and options exercised . for the year ended december 31 , 2018 , stock-based compensation expense recognized in our results of operations was $ 10 million ( 2017– $ 20 million ; 2016 – $ 16 million ) for all of the outstanding awards . compensation costs not yet recognized amounted to $ 17 million ( 2017– $ 20 million ; 2016– $ 17 million ) and will be recognized over the remaining service period of approximately 26 months . the aggregate value of liability awards settled in 2018 was $ 8 million ( 2017 – $ 7 million ; 2016 – $ 4 million ) . the total fair value of equity awards settled in 2018 was $ 6 million ( 2017 – $ 3 million ) , representing the fair value at the time of settlement . the fair value at the grant date for these settled equity awards was $ 7 million ( 2017 – $ 4 million ) . compensation costs for performance awards are based on management 's best estimate of the final performance measurement . liquidity and capital resources our principal cash requirements are for ongoing operating costs , pension contributions , working capital and capital expenditures , as well as principal and interest payments on our

capital resources net indebtedness , consisting of long-term debt , net of cash and cash equivalents , was $ 743 million as of december 31 , 2018 compared to $ 991 million as of december 31 , 2017. notes maturity our 10.75 % notes , in aggregate principal amount of $ 63 million , matured on june 1 , 2017. our 9.5 % notes , in aggregate principal amount of $ 39 million , matured on august 1 , 2016. term loan in the fourth quarter of 2018 , we repaid the $ 300 million unsecured term loan that had been entered into in 2015 by a wholly-owned subsidiary of domtar with certain domestic banks . revolving credit facility in august 2018 , we amended and restated our unsecured revolving credit facility ( the “ credit agreement ” ) with certain domestic and foreign banks , extending the credit agreement 's maturity date from august 18 , 2021 to august 22 , 2023. the amount available under the credit agreement remains at $ 700 million . borrowings by the company under the credit agreement are guaranteed by our significant domestic subsidiaries . borrowings by foreign borrowers under the credit agreement are guaranteed by the company , our significant domestic subsidiaries and certain of our significant foreign subsidiaries . borrowings under the credit agreement bear interest at libor , euribor , canadian bankers ' acceptance or prime rate , as applicable , plus a margin linked to our credit rating . in addition , we pay facility fees quarterly at rates dependent on our credit ratings .

additional factors that influence the level of drilling activity include : historical , current , and anticipated future o & g prices , 20 federal , state and local governmental actions that may encourage or discourage drilling activity , customers ' strategies relative to capital funds allocations , weather conditions , and technological changes to drilling methods and economics . historical north american drilling activity is reflected in “ table a ” below : customers ' demand for advanced technology products and services provided by the company are dependent on their recognition of the value of : chemistries that improve the economics of their o & g operations , drilling products that improve drilling operations and efficiencies , chemistries that are economically viable , socially responsible and ecologically sound , and production technologies that improve production and production efficiencies in maturing wells . market prices for citrus oils can be influenced by : historical , current , and anticipated future production levels of the global citrus ( primarily orange ) crop , weather related risks , health and condition of citrus trees ( e.g . , disease and pests ) , and international competition and pricing pressures resulting from natural and artificial pricing influences . governmental actions may restrict the future use of hazardous chemicals , including but not limited to , the following industrial applications : o & g drilling and completion operations , o & g production operations , and non-o & g industrial solvents . replace_table_token_4_th source : rig count : baker hughes , inc. ( www.bakerhughes.com ) ; rig counts are the annual average of the reported weekly rig count activity . well count : baker hughes , inc. ( www.bakerhughes.com ) ; well counts are the annual average of the reported quarterly wells/rig activity . during year ended 2014 , total north american active drilling rig count saw an increase when compared to the comparable periods of 2013 but a decrease compared to 2012. the increase in 2014 was primarily in horizontal rig types and rigs drilling in oil fields . while the u.s. drilling activity decreased by ( 8.2 ) % from 2012 to 2013 , it increased by 5.7 % in 2014 compared to 2013. however , the number of wells drilled per rig per quarter in 2014 has decreased to 5.20 from 5.23 for the same period in 2013 . 21 outlook for 2015 during the second half of 2014 the price of crude oil declined dramatically with the decline continuing in early 2015. as a result , most north american exploration and production companies - many of which are flotek clients - have announced plans to significantly reduce their exploration and drilling activity in 2015. the company expects the reduction in activity to create a more challenging environment in which to market its broad range of energy technologies , from chemistry to drilling and production technologies . although the company expects demand for its oil and gas related products and services in north america to be impacted by these industry conditions , the company plans to continue aggressive marketing of its oil and gas based products and services including its complex nano-fluid ® chemistries , teledrift ® product line , recently introduced stemulator ® product line and growing line of production technologies . while international markets may react differently than north american markets to the decline in crude prices , the company expects similar market challenges around the globe . however , the company believes there are a number of new market opportunities that remain available in the current price environment . the company expects capital spending to be approximately $ 25 million in 2015 , inclusive of approximately $ 10 million for construction of major facilities , including the company 's previously announced global research & innovation headquarters in houston and the company 's chemistry manufacturing and research facility near sohar , oman , through its joint venture with gulf energy . the company believes construction of these facilities should generate substantial value in 2016 and beyond . the company will remain nimble in its core capital expenditure plans , adjusting as market conditions warrant . the company 's new global research & innovation headquarters in houston will not only allow for the development of new energy chemistries but will allow expanded collaboration between clients , leaders from academia and company scientists . the company believes these collaborative opportunities will become an important and distinguishing capability within the industry . the company also plans to continue to expand the capabilities and use of its patent pending fracmax tm software which should continue to enhance the company 's sales and marketing efforts by validating the production and economic benefits of the company 's core complex nano-fluid ® chemistries . the company continues to pursue selected strategic relationships , both domestically and internationally , to expand its business : in january , 2014 , the company acquired eclipse ior services , llc ( “ eoga ” ) , a leading enhanced oil recovery design and injection firm . eoga 's expertise in enhanced oil recovery processes and the use of polymers to improve the performance of eor projects have been combined with the company 's previously existing eor products and services . in april , 2014 , the company acquired 100 % of the membership interests in sitelark , llc ( “ sitelark ” ) . sitelark provides reservoir engineering and modeling services for a variety of hydrocarbon applications . its service assists engineers with reservoir simulation , reservoir engineering and waterflood optimization . the outlook for the company 's consumer and industrial chemistries will be driven by availability and demand for citrus oils and other bio-based raw materials . current inventory and crop expectations are sufficient to meet the company 's needs to supply its flavor and fragrance business as well as the industrial markets . story_separator_special_tag the increased service revenue was primarily related to increased rig installations , inspections and increased pricing of services offered in the market drilling technologies gross margin for the year ended december 31 , 2013 decreased by $ 2.6 million , or 5.6 % , from the prior corresponding period due to the sales decrease and actuated tool cost increases . as a percentage of revenue gross margin declined by only 0.8 % as a result of actuated tool cost increases partially offset by an improved product mix resulting from proportionately higher sales of higher margin teledrift ® series tools , stemulator ® tool and other drilling tools and services . drilling technologies income from operations for the year ended december 31 , 2013 decreased by $ 4.0 million , or 17.8 % and by 2.8 % as a percentage of revenue from the prior corresponding period . this decline was primarily due to the lower revenue and gross margins , increased sales force related costs , medical costs , and general insurance expenses . replace_table_token_9_th results for 2014 compared to 2013—production technologies revenue for the production technologies segment for the year ended december 31 , 2014 revenue increased by $ 1.2 million , or 8.1 % from the prior corresponding period as sales of petrovalve tm tools and lifting units rose by $ 4.6 million , or 152.9 % in 2014. offsetting those revenue increases was a decrease in equipment sales and related services of $ 3.5 million , or 31.1 % in coal-bed methane related business . production technologies gross margin increased by $ 1.4 million , or 26.4 % for the year ended december 31 , 2104. gross margin as a percentage of revenue increased to 40.9 % compared to 35.0 % , from the prior corresponding period , primarily due to the higher margins associated with the international valve sales and slight improvement in margins on pump equipment . income from operations increased by $ 0.2 million , or 6.1 % for the year ended december 31 , 2014 , from the prior corresponding period , primarily due to the increased material margins mentioned above partially offset by sg & a expenses which increased by 55.6 % due to costs attributable to employee-related expenses as the segment continues to refocus and reposition for growth in the market . results for 2013 compared to 2012—production technologies production technologies revenue is primarily derived from coal bed methane ( “ cbm ” ) drilling activity , and is impacted by the price of natural gas ; although the segment is starting to diversify into more oil related equipment sales and service . revenue for the production technologies segment for the year ended december 31 , 2013 increased by $ 2.7 million , or 22.3 % from the prior corresponding period . the introduction of ssi lift systems in the second half of 2013 ; as well as increased pump and pump equipment sales led to the revenue increase . this increase is due to a slight rebound in the gas workover drilling market , additional installations in 2013 , and more oil related equipment sales . production technologies gross margins increased for the year ended december 31 , 2013 by $ 0.7 million or 15.7 % from the prior corresponding period due to the increased sales . as a percentage of revenue , gross margin has declined by 1.9 % from the prior corresponding period as the increase in revenue in 2013 is almost entirely made up of oil related surface pump equipment which carries much lower margins than the international valve sales , which were flat year over year . 27 income from operations decreased $ 0.3 million or 9.9 % , for the year ended december 31 , 2013 from the prior corresponding period . operating income in 2013 would have remained the same as 2012 without the onetime gain on disposal of an operational asset included in 2012 operating results . story_separator_special_tag unconsolidated spes . the company has not made any guarantees to customers or vendors nor does the company have any off-balance sheet arrangements or commitments that have , or are reasonably likely to have , a current or future effect on the company 's financial condition , change in financial condition , revenue , expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . contractual obligations cash flows from operations are dependent on a variety of factors , including fluctuations in operating results , accounts receivable collections , inventory management , and the timing of payments for goods and services . correspondingly , the impact of contractual obligations on the company 's liquidity and capital resources in future periods is analyzed in conjunction with such factors . material contractual obligations consist of repayment of amounts borrowed under the company 's credit facility and payment of operating lease obligations . contractual obligations at december 31 , 2014 are as follows ( in thousands ) : replace_table_token_11_th ( 1 ) for the purpose of this calculation , interest rates on variable rate obligations remain unchanged from december 31 , 2014 . ( 2 ) the borrowing is classified as current debt . the weighted-average interest rate was 3.75 % at december 31 , 2014. critical accounting policies and estimates the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . preparation of these statements requires management to make judgments , estimates and assumptions that affect the amounts of assets and liabilities in the financial statements and revenue and expenses during the reporting period . significant accounting policies are described in note 2 `` summary of significant accounting policies `` in the notes to the consolidated financial statements . the company believes the following accounting policies are critical due to the significant , subjective and complex judgments and estimates required when preparing

capital resources net indebtedness , consisting of long-term debt , net of cash and cash equivalents , was $ 743 million as of december 31 , 2018 compared to $ 991 million as of december 31 , 2017. notes maturity our 10.75 % notes , in aggregate principal amount of $ 63 million , matured on june 1 , 2017. our 9.5 % notes , in aggregate principal amount of $ 39 million , matured on august 1 , 2016. term loan in the fourth quarter of 2018 , we repaid the $ 300 million unsecured term loan that had been entered into in 2015 by a wholly-owned subsidiary of domtar with certain domestic banks . revolving credit facility in august 2018 , we amended and restated our unsecured revolving credit facility ( the “ credit agreement ” ) with certain domestic and foreign banks , extending the credit agreement 's maturity date from august 18 , 2021 to august 22 , 2023. the amount available under the credit agreement remains at $ 700 million . borrowings by the company under the credit agreement are guaranteed by our significant domestic subsidiaries . borrowings by foreign borrowers under the credit agreement are guaranteed by the company , our significant domestic subsidiaries and certain of our significant foreign subsidiaries . borrowings under the credit agreement bear interest at libor , euribor , canadian bankers ' acceptance or prime rate , as applicable , plus a margin linked to our credit rating . in addition , we pay facility fees quarterly at rates dependent on our credit ratings .

additional factors that influence the level of drilling activity include : historical , current , and anticipated future o & g prices , 20 federal , state and local governmental actions that may encourage or discourage drilling activity , customers ' strategies relative to capital funds allocations , weather conditions , and technological changes to drilling methods and economics . historical north american drilling activity is reflected in “ table a ” below : customers ' demand for advanced technology products and services provided by the company are dependent on their recognition of the value of : chemistries that improve the economics of their o & g operations , drilling products that improve drilling operations and efficiencies , chemistries that are economically viable , socially responsible and ecologically sound , and production technologies that improve production and production efficiencies in maturing wells . market prices for citrus oils can be influenced by : historical , current , and anticipated future production levels of the global citrus ( primarily orange ) crop , weather related risks , health and condition of citrus trees ( e.g . , disease and pests ) , and international competition and pricing pressures resulting from natural and artificial pricing influences . governmental actions may restrict the future use of hazardous chemicals , including but not limited to , the following industrial applications : o & g drilling and completion operations , o & g production operations , and non-o & g industrial solvents . replace_table_token_4_th source : rig count : baker hughes , inc. ( www.bakerhughes.com ) ; rig counts are the annual average of the reported weekly rig count activity . well count : baker hughes , inc. ( www.bakerhughes.com ) ; well counts are the annual average of the reported quarterly wells/rig activity . during year ended 2014 , total north american active drilling rig count saw an increase when compared to the comparable periods of 2013 but a decrease compared to 2012. the increase in 2014 was primarily in horizontal rig types and rigs drilling in oil fields . while the u.s. drilling activity decreased by ( 8.2 ) % from 2012 to 2013 , it increased by 5.7 % in 2014 compared to 2013. however , the number of wells drilled per rig per quarter in 2014 has decreased to 5.20 from 5.23 for the same period in 2013 . 21 outlook for 2015 during the second half of 2014 the price of crude oil declined dramatically with the decline continuing in early 2015. as a result , most north american exploration and production companies - many of which are flotek clients - have announced plans to significantly reduce their exploration and drilling activity in 2015. the company expects the reduction in activity to create a more challenging environment in which to market its broad range of energy technologies , from chemistry to drilling and production technologies . although the company expects demand for its oil and gas related products and services in north america to be impacted by these industry conditions , the company plans to continue aggressive marketing of its oil and gas based products and services including its complex nano-fluid ® chemistries , teledrift ® product line , recently introduced stemulator ® product line and growing line of production technologies . while international markets may react differently than north american markets to the decline in crude prices , the company expects similar market challenges around the globe . however , the company believes there are a number of new market opportunities that remain available in the current price environment . the company expects capital spending to be approximately $ 25 million in 2015 , inclusive of approximately $ 10 million for construction of major facilities , including the company 's previously announced global research & innovation headquarters in houston and the company 's chemistry manufacturing and research facility near sohar , oman , through its joint venture with gulf energy . the company believes construction of these facilities should generate substantial value in 2016 and beyond . the company will remain nimble in its core capital expenditure plans , adjusting as market conditions warrant . the company 's new global research & innovation headquarters in houston will not only allow for the development of new energy chemistries but will allow expanded collaboration between clients , leaders from academia and company scientists . the company believes these collaborative opportunities will become an important and distinguishing capability within the industry . the company also plans to continue to expand the capabilities and use of its patent pending fracmax tm software which should continue to enhance the company 's sales and marketing efforts by validating the production and economic benefits of the company 's core complex nano-fluid ® chemistries . the company continues to pursue selected strategic relationships , both domestically and internationally , to expand its business : in january , 2014 , the company acquired eclipse ior services , llc ( “ eoga ” ) , a leading enhanced oil recovery design and injection firm . eoga 's expertise in enhanced oil recovery processes and the use of polymers to improve the performance of eor projects have been combined with the company 's previously existing eor products and services . in april , 2014 , the company acquired 100 % of the membership interests in sitelark , llc ( “ sitelark ” ) . sitelark provides reservoir engineering and modeling services for a variety of hydrocarbon applications . its service assists engineers with reservoir simulation , reservoir engineering and waterflood optimization . the outlook for the company 's consumer and industrial chemistries will be driven by availability and demand for citrus oils and other bio-based raw materials . current inventory and crop expectations are sufficient to meet the company 's needs to supply its flavor and fragrance business as well as the industrial markets . story_separator_special_tag the increased service revenue was primarily related to increased rig installations , inspections and increased pricing of services offered in the market drilling technologies gross margin for the year ended december 31 , 2013 decreased by $ 2.6 million , or 5.6 % , from the prior corresponding period due to the sales decrease and actuated tool cost increases . as a percentage of revenue gross margin declined by only 0.8 % as a result of actuated tool cost increases partially offset by an improved product mix resulting from proportionately higher sales of higher margin teledrift ® series tools , stemulator ® tool and other drilling tools and services . drilling technologies income from operations for the year ended december 31 , 2013 decreased by $ 4.0 million , or 17.8 % and by 2.8 % as a percentage of revenue from the prior corresponding period . this decline was primarily due to the lower revenue and gross margins , increased sales force related costs , medical costs , and general insurance expenses . replace_table_token_9_th results for 2014 compared to 2013—production technologies revenue for the production technologies segment for the year ended december 31 , 2014 revenue increased by $ 1.2 million , or 8.1 % from the prior corresponding period as sales of petrovalve tm tools and lifting units rose by $ 4.6 million , or 152.9 % in 2014. offsetting those revenue increases was a decrease in equipment sales and related services of $ 3.5 million , or 31.1 % in coal-bed methane related business . production technologies gross margin increased by $ 1.4 million , or 26.4 % for the year ended december 31 , 2104. gross margin as a percentage of revenue increased to 40.9 % compared to 35.0 % , from the prior corresponding period , primarily due to the higher margins associated with the international valve sales and slight improvement in margins on pump equipment . income from operations increased by $ 0.2 million , or 6.1 % for the year ended december 31 , 2014 , from the prior corresponding period , primarily due to the increased material margins mentioned above partially offset by sg & a expenses which increased by 55.6 % due to costs attributable to employee-related expenses as the segment continues to refocus and reposition for growth in the market . results for 2013 compared to 2012—production technologies production technologies revenue is primarily derived from coal bed methane ( “ cbm ” ) drilling activity , and is impacted by the price of natural gas ; although the segment is starting to diversify into more oil related equipment sales and service . revenue for the production technologies segment for the year ended december 31 , 2013 increased by $ 2.7 million , or 22.3 % from the prior corresponding period . the introduction of ssi lift systems in the second half of 2013 ; as well as increased pump and pump equipment sales led to the revenue increase . this increase is due to a slight rebound in the gas workover drilling market , additional installations in 2013 , and more oil related equipment sales . production technologies gross margins increased for the year ended december 31 , 2013 by $ 0.7 million or 15.7 % from the prior corresponding period due to the increased sales . as a percentage of revenue , gross margin has declined by 1.9 % from the prior corresponding period as the increase in revenue in 2013 is almost entirely made up of oil related surface pump equipment which carries much lower margins than the international valve sales , which were flat year over year . 27 income from operations decreased $ 0.3 million or 9.9 % , for the year ended december 31 , 2013 from the prior corresponding period . operating income in 2013 would have remained the same as 2012 without the onetime gain on disposal of an operational asset included in 2012 operating results . story_separator_special_tag unconsolidated spes . the company has not made any guarantees to customers or vendors nor does the company have any off-balance sheet arrangements or commitments that have , or are reasonably likely to have , a current or future effect on the company 's financial condition , change in financial condition , revenue , expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . contractual obligations cash flows from operations are dependent on a variety of factors , including fluctuations in operating results , accounts receivable collections , inventory management , and the timing of payments for goods and services . correspondingly , the impact of contractual obligations on the company 's liquidity and capital resources in future periods is analyzed in conjunction with such factors . material contractual obligations consist of repayment of amounts borrowed under the company 's credit facility and payment of operating lease obligations . contractual obligations at december 31 , 2014 are as follows ( in thousands ) : replace_table_token_11_th ( 1 ) for the purpose of this calculation , interest rates on variable rate obligations remain unchanged from december 31 , 2014 . ( 2 ) the borrowing is classified as current debt . the weighted-average interest rate was 3.75 % at december 31 , 2014. critical accounting policies and estimates the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . preparation of these statements requires management to make judgments , estimates and assumptions that affect the amounts of assets and liabilities in the financial statements and revenue and expenses during the reporting period . significant accounting policies are described in note 2 `` summary of significant accounting policies `` in the notes to the consolidated financial statements . the company believes the following accounting policies are critical due to the significant , subjective and complex judgments and estimates required when preparing

capital resources and liquidity overview the company 's ongoing capital requirements arise from the company 's needs to service debt , acquire and maintain equipment , fund working capital requirements and when the opportunities arise , to make strategic acquisitions . the company funds its operating and capital requirements through operating cash flows and debt financing . the company 's primary source of debt financing is its credit facility with pnc bank . this credit facility contains provisions for a revolving credit facility of up to $ 75 million and a term loan secured by substantially all of the company 's domestic real and personal property , including accounts receivable , inventory , land , buildings , equipment and other intangible assets . as of december 31 , 2014 , the company had $ 8.5 million in outstanding borrowings under the revolving credit facility and $ 35.5 million outstanding under the term loan . at december 31 , 2014 , the company was in compliance with all debt covenants . significant terms of the company 's credit facility are discussed in part ii , item 8 - `` financial statements and supplementary data '' in note 10 of `` notes to consolidated financial statements '' herein . at december 31 , 2014 , the company remained compliant with the continued listing standards of the nyse . cash and cash equivalents totaled $ 1.3 million at december 31 , 2014 . during 2014 , the company generated $ 48.8 million of cash inflows from operations ( net of $ 28.9 million expended in working capital ) , received gross proceeds of $ 357.2 million from the issuance of new debt and received $ 4.6 million in proceeds related to lost-in-hole and asset sales activity . offsetting these cash inflows , the company paid $ 5.7 million associated with the purchases of eoga and sitelark , paid down $ 375.2 million of debt , used $ 19.9 million in capital expenditures and $ 10.4 million to repurchase common stock .

sales of assets in the other periods presented were not significant . income tax provision the income tax provision of ngl supply fluctuates based on the level of realized pretax income . as a percentage of pretax income , the variance from the expected or statutory rate of 35 % is due to the effects of state income taxes and a valuation allowance recorded each year related to the losses incurred by the propane terminal in st. catharines , ontario , which we refer to as gateway , which ngl supply owned 70 % through september 30 , 2010. see note 10 to our march 31 , 2011 consolidated financial statements included elsewhere in this annual report for additional discussion of the income tax provisions . we expect to qualify as a partnership for income taxes . accordingly , there is no provision for income taxes for periods subsequent to september 30 , 2010. non-controlling interests non-controlling interests represent the 30 % of gateway ngl supply did not own through september 30 , 2010. the operations of gateway have historically resulted in net losses . we purchased the additional 30 % interest in october 2010. see our discussion of our midstream segment below that includes the operations of gateway . non-gaap financial measures the following tables reconcile net income ( loss ) or net income ( loss ) to parent to our ebitda and adjusted ebitda , each of which are non-gaap financial measures , for the periods indicated : 42 replace_table_token_7_th we define ebitda as net income ( loss ) attributable to parent entity , plus income taxes , interest expense and depreciation and amortization expense . we define adjusted ebitda as ebitda excluding the unrealized gain or loss on derivative contracts , the gain or loss on the disposal of assets and share-based compensation expenses . ebitda and adjusted ebitda should not be considered an alternative to net income , income before income taxes , cash flows from operating activities , or any other measure of financial performance calculated in accordance with gaap as those items are used to measure operating performance , liquidity or the ability to service debt obligations . we believe that ebitda provides additional information for evaluating our ability to make quarterly distributions to our unitholders and is presented solely as a supplemental measure . we believe that adjusted ebitda provides additional information for evaluating our financial performance without regard to our financing methods , capital structure and historical cost basis . further , ebitda and adjusted ebitda , as we define them , may not be comparable to ebitda and adjusted ebitda or similarly titled measures used by other entities . segment operating results items impacting the comparability of our financial results our current and future results of operations may not be comparable to the historical results of operations of ngl supply for the periods presented due to the following reasons : · at march 31 , 2011 , and for the six month period then ended , our retail propane operations included the retail propane operations that we acquired from hicksgas in the formation transactions . the historical results of operations for ngl supply do not include these acquired operations . · ngl supply 's historical consolidated financial statements include u.s. federal and state income tax expense . because we have elected to be treated as a partnership for tax purposes , we are not subject to u.s. federal income tax and certain state income taxes . · as a result of our initial public offering , we anticipate incurring incremental general and administrative expenses of approximately $ 1.0 million annually that are attributable to operating as a publicly traded partnership . these expenses will include annual and quarterly reporting ; tax return and schedule k-1 preparation and distribution expenses ; sarbanes-oxley compliance expenses ; expenses associated with listing on the nyse ; independent auditor fees ; legal fees ; investor relations expenses ; registrar and transfer agent fees ; director and officer liability insurance costs ; and director compensation . these incremental general and administrative expenses are not reflected in the historical consolidated financial statements of ngl supply . after we completed the formation transactions , and in accordance with gaap , the financial statements of ngl supply became our financial statements for all periods prior to october 1 , 2010 , the net equity ( net book value ) 43 of ngl supply became our equity and the net book value of all of the assets and liabilities of ngl supply became the accounting basis for our assets and liabilities . there were no adjustments to the carryover basis of the assets and liabilities that we acquired from ngl supply . consequently , we believe that , other than the impact of the acquisition of hicksgas ( as discussed in the following paragraph ) , our operations for periods prior to october 1 , 2010 would have been comparable to the historical results of operations of ngl supply . in connection with our formation transactions , we also acquired the retail propane operations of hicksgas . this acquisition was accounted for as a business combination , and the assets acquired and liabilities assumed were recorded in our consolidated financial statements at acquisition date fair value . our results of operations are also significantly impacted by seasonality , primarily due to the increase in volumes of propane sold by our retail and wholesale segments during the peak heating season of october through march , as well as the increase in terminal throughput volumes during the heating season . story_separator_special_tag million during the six months ended march 31 2011 as compared to the six months ended march 31 , 2010 , primarily related to a $ 1.6 million decrease in gross margin from our pre-existing propane sales operations . the decrease in gross margin of propane sales from our pre-existing business was due to a decrease of $ 1.5 million resulting from a decrease in volumes sold and a decrease of $ 0.1 million due to our inability to fully pass on the increase in the cost of our propane sales . operating expenses . operating expenses of our retail propane segment increased $ 9.4 million during the six months ended march 31 , 2011 as compared to operating expenses of $ 4.1 million during the six months ended march 31 , 2010. this increase is due primarily to the acquisition of hicksgas in october 2010. hicksgas had total operating expenses of $ 9.9 million during the six months ended march 31 , 2011. excluding the impact of the hicksgas acquisition , the operating expenses of our pre-existing business decreased approximately $ 0.5 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 , due primarily to a decrease of approximately $ 0.3 million in compensation costs resulting from a decrease in bonus expense , and a decrease of $ 0.3 million in insurance expenses . general and administrative expenses . general and administrative expenses of our retail propane segment increased approximately $ 1.5 million during the six months ended march 31 , 2011 as compared to general and administrative expenses of $ 0.6 million during the six months ended march 31 , 2010. this increase is due primarily to the acquisition of hicksgas in october 2010. depreciation and amortization . depreciation and amortization expense of our retail propane segment increased $ 2.0 million during the six months ended march 31 , 2011 as compared to depreciation and amortization expense of $ 0.9 million during the six months ended march 31 , 2010. the increase is due to the acquisition of hicksgas in october 2010. hicksgas had depreciation and amortization expense of $ 2.0 million during the six months ended march 31 , 2011. operating income . operating income of our retail propane segment increased $ 4.5 million during the six months ended march 31 , 2011 as compared to operating income of $ 2.9 million during the six months ended march 31 , 2010 , primarily as a result of the hicksgas acquisition in october 2010. hicksgas had operating income of $ 5.7 million during the six months ended march 31 , 2011. excluding the impact of the hicksgas acquisition , operating income of our pre-existing business decreased $ 1.3 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010. this decrease is due to a decrease of $ 1.8 million in the gross margin of our pre-existing business , offset by a decrease of $ 0.5 million in the operating expenses of our pre-existing business . wholesale supply and marketing the following table compares the operating results of our wholesale supply and marketing segment for the periods indicated : 47 replace_table_token_11_th revenues . wholesale sales increased $ 37.2 million during the six months ended march 31 , 2011 as compared to wholesale sales of $ 531.3 million during the six months ended march 31 , 2010. the wholesale sales volume decreased approximately 18.5 million gallons during the six months ended march 31 , 2011 as compared to sales of 440.4 million gallons during the six months ended march 31 , 2010 , as discussed above . the decrease in sales volume resulted in a decrease in sales revenue of $ 22.3 million during the six months ended march 31 , 2011. our average sales price during the six months ended march 31 , 2011 increased $ 0.14 per gallon as compared to $ 1.21 per gallon during the six months ended march 31 , 2010 , which resulted in an increase in sales revenues of $ 59.5 million during the six months ended march 31 , 2011. the increase in price is due to the overall increase in the spot propane price during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010. cost of sales . wholesale cost of sales increased $ 36.0 million during the six months ended march 31 , 2011 as compared to wholesale cost of sales of $ 522.7 million during the six months ended march 31 , 2010. the increase is due primarily to the effect of an increase in our cost of propane during the six months ended march 31 2011. our average cost of propane during the six months ended march 31 , 2011 increased $ 0.14 per gallon as compared to our average cost of $ 1.19 per gallon during the six months ended march 31 , 2010. this increase in cost per gallon resulted in an increase of $ 57.9 million on cost of sales . this increase was offset by a reduction in cost of sales of $ 21.9 million as a result of the decrease in sales volume of 18.5 million gallons . gross margin . gross margin of our wholesale supply and marketing segment increased $ 1.2 million during the six months ended march 31 , 2011 as compared to gross margin of $ 9.8 million during the six months ended march 31 , 2010. the increase in gross margin is due primarily to our ability to fully pass on our increased cost of propane during the six months ended march 31 2011. operating expenses . operating expenses of our wholesale supply and marketing segment decreased $ 0.6 million during the six months ended march 31 , 2011 as compared to operating expenses of $ 2.9 million during the six months ended march 31

capital resources and liquidity overview the company 's ongoing capital requirements arise from the company 's needs to service debt , acquire and maintain equipment , fund working capital requirements and when the opportunities arise , to make strategic acquisitions . the company funds its operating and capital requirements through operating cash flows and debt financing . the company 's primary source of debt financing is its credit facility with pnc bank . this credit facility contains provisions for a revolving credit facility of up to $ 75 million and a term loan secured by substantially all of the company 's domestic real and personal property , including accounts receivable , inventory , land , buildings , equipment and other intangible assets . as of december 31 , 2014 , the company had $ 8.5 million in outstanding borrowings under the revolving credit facility and $ 35.5 million outstanding under the term loan . at december 31 , 2014 , the company was in compliance with all debt covenants . significant terms of the company 's credit facility are discussed in part ii , item 8 - `` financial statements and supplementary data '' in note 10 of `` notes to consolidated financial statements '' herein . at december 31 , 2014 , the company remained compliant with the continued listing standards of the nyse . cash and cash equivalents totaled $ 1.3 million at december 31 , 2014 . during 2014 , the company generated $ 48.8 million of cash inflows from operations ( net of $ 28.9 million expended in working capital ) , received gross proceeds of $ 357.2 million from the issuance of new debt and received $ 4.6 million in proceeds related to lost-in-hole and asset sales activity . offsetting these cash inflows , the company paid $ 5.7 million associated with the purchases of eoga and sitelark , paid down $ 375.2 million of debt , used $ 19.9 million in capital expenditures and $ 10.4 million to repurchase common stock .

sales of assets in the other periods presented were not significant . income tax provision the income tax provision of ngl supply fluctuates based on the level of realized pretax income . as a percentage of pretax income , the variance from the expected or statutory rate of 35 % is due to the effects of state income taxes and a valuation allowance recorded each year related to the losses incurred by the propane terminal in st. catharines , ontario , which we refer to as gateway , which ngl supply owned 70 % through september 30 , 2010. see note 10 to our march 31 , 2011 consolidated financial statements included elsewhere in this annual report for additional discussion of the income tax provisions . we expect to qualify as a partnership for income taxes . accordingly , there is no provision for income taxes for periods subsequent to september 30 , 2010. non-controlling interests non-controlling interests represent the 30 % of gateway ngl supply did not own through september 30 , 2010. the operations of gateway have historically resulted in net losses . we purchased the additional 30 % interest in october 2010. see our discussion of our midstream segment below that includes the operations of gateway . non-gaap financial measures the following tables reconcile net income ( loss ) or net income ( loss ) to parent to our ebitda and adjusted ebitda , each of which are non-gaap financial measures , for the periods indicated : 42 replace_table_token_7_th we define ebitda as net income ( loss ) attributable to parent entity , plus income taxes , interest expense and depreciation and amortization expense . we define adjusted ebitda as ebitda excluding the unrealized gain or loss on derivative contracts , the gain or loss on the disposal of assets and share-based compensation expenses . ebitda and adjusted ebitda should not be considered an alternative to net income , income before income taxes , cash flows from operating activities , or any other measure of financial performance calculated in accordance with gaap as those items are used to measure operating performance , liquidity or the ability to service debt obligations . we believe that ebitda provides additional information for evaluating our ability to make quarterly distributions to our unitholders and is presented solely as a supplemental measure . we believe that adjusted ebitda provides additional information for evaluating our financial performance without regard to our financing methods , capital structure and historical cost basis . further , ebitda and adjusted ebitda , as we define them , may not be comparable to ebitda and adjusted ebitda or similarly titled measures used by other entities . segment operating results items impacting the comparability of our financial results our current and future results of operations may not be comparable to the historical results of operations of ngl supply for the periods presented due to the following reasons : · at march 31 , 2011 , and for the six month period then ended , our retail propane operations included the retail propane operations that we acquired from hicksgas in the formation transactions . the historical results of operations for ngl supply do not include these acquired operations . · ngl supply 's historical consolidated financial statements include u.s. federal and state income tax expense . because we have elected to be treated as a partnership for tax purposes , we are not subject to u.s. federal income tax and certain state income taxes . · as a result of our initial public offering , we anticipate incurring incremental general and administrative expenses of approximately $ 1.0 million annually that are attributable to operating as a publicly traded partnership . these expenses will include annual and quarterly reporting ; tax return and schedule k-1 preparation and distribution expenses ; sarbanes-oxley compliance expenses ; expenses associated with listing on the nyse ; independent auditor fees ; legal fees ; investor relations expenses ; registrar and transfer agent fees ; director and officer liability insurance costs ; and director compensation . these incremental general and administrative expenses are not reflected in the historical consolidated financial statements of ngl supply . after we completed the formation transactions , and in accordance with gaap , the financial statements of ngl supply became our financial statements for all periods prior to october 1 , 2010 , the net equity ( net book value ) 43 of ngl supply became our equity and the net book value of all of the assets and liabilities of ngl supply became the accounting basis for our assets and liabilities . there were no adjustments to the carryover basis of the assets and liabilities that we acquired from ngl supply . consequently , we believe that , other than the impact of the acquisition of hicksgas ( as discussed in the following paragraph ) , our operations for periods prior to october 1 , 2010 would have been comparable to the historical results of operations of ngl supply . in connection with our formation transactions , we also acquired the retail propane operations of hicksgas . this acquisition was accounted for as a business combination , and the assets acquired and liabilities assumed were recorded in our consolidated financial statements at acquisition date fair value . our results of operations are also significantly impacted by seasonality , primarily due to the increase in volumes of propane sold by our retail and wholesale segments during the peak heating season of october through march , as well as the increase in terminal throughput volumes during the heating season . story_separator_special_tag million during the six months ended march 31 2011 as compared to the six months ended march 31 , 2010 , primarily related to a $ 1.6 million decrease in gross margin from our pre-existing propane sales operations . the decrease in gross margin of propane sales from our pre-existing business was due to a decrease of $ 1.5 million resulting from a decrease in volumes sold and a decrease of $ 0.1 million due to our inability to fully pass on the increase in the cost of our propane sales . operating expenses . operating expenses of our retail propane segment increased $ 9.4 million during the six months ended march 31 , 2011 as compared to operating expenses of $ 4.1 million during the six months ended march 31 , 2010. this increase is due primarily to the acquisition of hicksgas in october 2010. hicksgas had total operating expenses of $ 9.9 million during the six months ended march 31 , 2011. excluding the impact of the hicksgas acquisition , the operating expenses of our pre-existing business decreased approximately $ 0.5 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 , due primarily to a decrease of approximately $ 0.3 million in compensation costs resulting from a decrease in bonus expense , and a decrease of $ 0.3 million in insurance expenses . general and administrative expenses . general and administrative expenses of our retail propane segment increased approximately $ 1.5 million during the six months ended march 31 , 2011 as compared to general and administrative expenses of $ 0.6 million during the six months ended march 31 , 2010. this increase is due primarily to the acquisition of hicksgas in october 2010. depreciation and amortization . depreciation and amortization expense of our retail propane segment increased $ 2.0 million during the six months ended march 31 , 2011 as compared to depreciation and amortization expense of $ 0.9 million during the six months ended march 31 , 2010. the increase is due to the acquisition of hicksgas in october 2010. hicksgas had depreciation and amortization expense of $ 2.0 million during the six months ended march 31 , 2011. operating income . operating income of our retail propane segment increased $ 4.5 million during the six months ended march 31 , 2011 as compared to operating income of $ 2.9 million during the six months ended march 31 , 2010 , primarily as a result of the hicksgas acquisition in october 2010. hicksgas had operating income of $ 5.7 million during the six months ended march 31 , 2011. excluding the impact of the hicksgas acquisition , operating income of our pre-existing business decreased $ 1.3 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010. this decrease is due to a decrease of $ 1.8 million in the gross margin of our pre-existing business , offset by a decrease of $ 0.5 million in the operating expenses of our pre-existing business . wholesale supply and marketing the following table compares the operating results of our wholesale supply and marketing segment for the periods indicated : 47 replace_table_token_11_th revenues . wholesale sales increased $ 37.2 million during the six months ended march 31 , 2011 as compared to wholesale sales of $ 531.3 million during the six months ended march 31 , 2010. the wholesale sales volume decreased approximately 18.5 million gallons during the six months ended march 31 , 2011 as compared to sales of 440.4 million gallons during the six months ended march 31 , 2010 , as discussed above . the decrease in sales volume resulted in a decrease in sales revenue of $ 22.3 million during the six months ended march 31 , 2011. our average sales price during the six months ended march 31 , 2011 increased $ 0.14 per gallon as compared to $ 1.21 per gallon during the six months ended march 31 , 2010 , which resulted in an increase in sales revenues of $ 59.5 million during the six months ended march 31 , 2011. the increase in price is due to the overall increase in the spot propane price during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010. cost of sales . wholesale cost of sales increased $ 36.0 million during the six months ended march 31 , 2011 as compared to wholesale cost of sales of $ 522.7 million during the six months ended march 31 , 2010. the increase is due primarily to the effect of an increase in our cost of propane during the six months ended march 31 2011. our average cost of propane during the six months ended march 31 , 2011 increased $ 0.14 per gallon as compared to our average cost of $ 1.19 per gallon during the six months ended march 31 , 2010. this increase in cost per gallon resulted in an increase of $ 57.9 million on cost of sales . this increase was offset by a reduction in cost of sales of $ 21.9 million as a result of the decrease in sales volume of 18.5 million gallons . gross margin . gross margin of our wholesale supply and marketing segment increased $ 1.2 million during the six months ended march 31 , 2011 as compared to gross margin of $ 9.8 million during the six months ended march 31 , 2010. the increase in gross margin is due primarily to our ability to fully pass on our increased cost of propane during the six months ended march 31 2011. operating expenses . operating expenses of our wholesale supply and marketing segment decreased $ 0.6 million during the six months ended march 31 , 2011 as compared to operating expenses of $ 2.9 million during the six months ended march 31

cash flows the following summarizes the sources of our cash flows for the periods indicated : replace_table_token_23_th operating activities . the seasonality of our retail propane business , and to an extent , our wholesale supply and marketing business , has a significant effect on our cash flows from operating activities . the changes in our operating assets and liabilities caused by the seasonality of our retail and wholesale propane business also have a significant impact on our net cash flows from operating activities , as is demonstrated in the table above . increases in propane prices will tend to result in reduced operating cash flows due to the need to use more cash to fund increases in propane inventories , and propane price decreases tend to increase our operating cash flow due to lower cash requirements to fund increases in propane inventories . in general , our operating cash flows are greatest during our third and fourth fiscal quarters , or the six months ending march 31 , when our operating income levels are highest and customers pay for propane consumed during the heating season months . conversely , our operating cash flows are generally at their lowest levels during our first and second fiscal quarters , or the six months ending september 30 , when we are building our inventory levels for the upcoming heating season . we will generally borrow under our working capital facility to supplement our operating cash flows as necessary during our first and second quarters . the table above reflects the general trend in each of the periods .

the allowance is based on two principles of accounting : ( 1 ) financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 450 “ contingencies , ” which requires that losses be accrued when they are probable of occurring and are estimable and ( 2 ) fasb asc 310 “ receivables , ” which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , is determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows and values observable in the secondary markets . the allowance for loan loss balance is an estimate based upon management 's evaluation of the loan portfolio . the allowance is comprised of a specific and a general component . the specific component consists of management 's evaluation of certain classified and non-accrual loans and their underlying collateral . management assesses the ability of the borrower to repay the loan based upon all information available . loans are examined to determine a specific allowance based upon the borrower 's payment history , economic conditions specific to the loan or borrower and other factors that would impact the borrower 's ability to repay the loan on its contractual basis . depending on the assessment of the borrower 's ability to pay and the type , condition and value of collateral , management will establish an allowance amount specific to the loan . 40 management uses a risk scale to assign grades to commercial real estate , construction and land development , commercial loans and commercial equipment loans . commercial loan relationships with an aggregate exposure to the bank of $ 750,000 or greater are risk rated . residential first mortgages , home equity and second mortgages and consumer loans are monitored on an ongoing basis based on borrower payment history . consumer loans and residential real estate loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are troubled debt restructures or nonperforming loans with an other assets especially mentioned or higher risk rating due to a delinquent payment history . the company 's commercial loan portfolio is periodically reviewed by regulators and independent consultants engaged by management . in establishing the general component of the allowance , management analyzes non-impaired loans in the portfolio including changes in the amount and type of loans . this analysis reviews trends by portfolio segment in charge-offs , delinquency , classified loans , loan concentrations and the rate of portfolio segment growth . qualitative factors also include an assessment of the current regulatory environment , the quality of credit administration and loan portfolio management and national and local economic trends . based upon this analysis a loss factor is applied to each loan category and the bank adjusts the loan loss allowance by increasing or decreasing the provision for loan losses . management has significant discretion in making the judgments inherent in the determination of the allowance for loan losses , including the valuation of collateral , assessing a borrower 's prospects of repayment and in establishing loss factors on the general component of the allowance . changes in loss factors have a direct impact on the amount of the provision and on net income . errors in management 's assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio , and may result in additional provisions . at december 31 , 2015 , the allowance for loan losses was $ 8.5 million or 0.93 % of total loans . an increase or decrease in the allowance could result in a charge or credit to income before income taxes that materially impacts earnings . for additional information regarding the allowance for loan losses , refer to notes 1 and 6 of the consolidated financial statements and the discussion under the caption “ provision for loan losses ” below . other-than-temporary-impairment ( “ otti ” ) debt securities are evaluated quarterly to determine whether a decline in their value is other-than-temporary . the term “ other-than-temporary ” is not necessarily intended to indicate a permanent decline in value . it means that the prospects for near-term recovery of value are not necessarily favorable , or that there is a lack of evidence to support fair values equal to , or greater than , the carrying value of the investment . accounting guidance indicates that the amount of other-than-temporary impairment that is recognized through earnings for debt securities is determined by comparing the present value of the expected cash flows to the amortized cost of the security . the discount rate used to determine the credit loss is the expected book yield on the security . the company does not evaluate declines in the value of securities of government sponsored enterprises ( “ gses ” ) or investments backed by the full faith and credit of the united states government ( e.g . us treasury bills ) , for other-than-temporary impairment . for additional information regarding otti , refer to notes 1 and 5 of the consolidated financial statements . other real estate owned ( “ oreo ” ) the company maintains a valuation allowance on its other real estate owned . as with the allowance for loan losses , the valuation allowance on oreo is based on fasb asc 450 “ contingencies , ” as well as the accounting guidance on impairment of long-lived assets . these statements require that the company establish a valuation allowance when it has determined that the carrying amount of a foreclosed asset exceeds its fair value . story_separator_special_tag the company 's noninterest expenses for 2015 , excluding oreo charges and the title insurance settlement claim adjustment , were $ 27.2 million which represents a $ 1.3 million , or 5.1 % , increase over the comparable $ 25.9 million for the year ended december 31 , 2014. with these adjustments , noninterest expense as a percentage of average assets decreased three basis points from 2.52 % for the year ended december 31 , 2014 to 2.49 % for the year ended december 31 , 2015. the increased expenses were partially offset by the following positive increases to revenues : · net interest income was $ 36.5 million in 2015 an increase of $ 1.5 million , or 4.2 % , compared to 2014. o interest income increased $ 2.1 million . the increase was driven by increased loan average balances . the bank increased average net loan balances $ 54.8 million to $ 874.2 million in 2015 from $ 819.4 million in 2014. loan volume was partially offset by yield declines . o interest expense increased $ 647,000 which partially offset increased interest income . the primary reason for the increase related to the $ 23.0 million 6.25 % subordinated notes issued during the first quarter of 2015. continued progress in continuing to add transaction deposits mitigated some of the impact of the increased interest expense associated with the subordinated notes . overall deposit cost decreased by eight basis points to 0.48 % compared to the prior year . · the provision for loan losses decreased $ 1.2 million to $ 1.4 million in 2015 due primarily to improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in other qualitative factors , such as reductions in classified assets . a more detailed analysis comparing the results of operations for the years ended december 31 , 2015 and 2014 follows . 45 net interest income the primary component of the company 's net income is its net interest income , which is the difference between income earned on assets and interest paid on the deposits and borrowings used to fund them . net interest income is affected by the difference between the yields earned on the company 's interest-earning assets and the rates paid on interest-bearing liabilities , as well as the relative amounts of such assets and liabilities . net interest income , divided by average interest-earning assets , represents the company 's net interest margin . net interest income increased to $ 36.5 million for the year ended december 31 , 2015 compared to $ 35.1 million for the year ended december 31 , 2014. the net interest margin was 3.60 % for the year ended december 31 , 2015 , an eight basis point decrease from 3.68 % for the year ended december 31 , 2014. the decrease in net interest margin was largely the result of additional interest expense related to the subordinated notes issued during the first quarter of 2015. the following table shows the components of net interest income and the dollar and percentage changes for the periods presented . replace_table_token_17_th interest and dividend income increased by $ 2.1 million to $ 43.9 million for the year ended december 31 , 2015 compared to $ 41.8 million for the year ended december 31 , 2014 , primarily due to increased income from the growth in the average balance of loans . interest and dividend income on loans increased $ 2.6 million due to growth of $ 54.8 million in the average balance of loans from $ 819.4 million for the year ended december 31 , 2014 to $ 874.2 million for the year ended december 31 , 2015. interest and dividend income on investments increased $ 203,000 during 2015 compared to the prior year as average interest-earning investment balances increased $ 4.7 million and average yields increased from 1.70 % to 1.79 % . these increases to interest income were partially offset by decreased income from reduced yields on loans . average loan yields declined nine basis points from 4.82 % for the year ended december 31 , 2014 to 4.73 % for the year ended december 31 , 2015 , which resulted in a decrease in interest income of $ 684,000. interest expense increased $ 647,000 to $ 7.3 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 due primarily to an increase in interest expense related to the subordinated notes issued during the first quarter of 2015. the average cost of total interest-bearing liabilities was 0.85 % for the year ended december 31 , 2015 compared to 0.83 % for the year ended december 31 , 2014. during the year ended december 31 , 2015 , interest expense increased $ 1.3 million due to the subordinated note issuance and larger short-term debt balances and $ 119,000 due to increased average balances of interest-bearing transaction deposit accounts compared to the same twelve months of 2014. additionally , interest expense increased $ 35,000 on money market accounts , as rates increased modestly from 0.27 % to 0.28 % . the increases to interest expense were partially offset by reductions of $ 228,000 due to lower average balances of long-term debt and time deposits and $ 594,000 due to net decreases in rates paid on time deposits and long-term debt . the average rate paid on debt , which includes long-term debt , trups , subordinated notes , and short-term borrowings , increased from 2.32 % for the year ended december 31 , 2014 to 2.77 % for the year ended december 31 , 2015 . 46 the company continued to make progress in reducing overall deposit costs by increasing transaction deposits as a percentage of overall deposits . average transaction accounts as a percentage of average deposits increased from 52.0 % for the year ended december 31 , 2014 to 56.4 % for

cash flows the following summarizes the sources of our cash flows for the periods indicated : replace_table_token_23_th operating activities . the seasonality of our retail propane business , and to an extent , our wholesale supply and marketing business , has a significant effect on our cash flows from operating activities . the changes in our operating assets and liabilities caused by the seasonality of our retail and wholesale propane business also have a significant impact on our net cash flows from operating activities , as is demonstrated in the table above . increases in propane prices will tend to result in reduced operating cash flows due to the need to use more cash to fund increases in propane inventories , and propane price decreases tend to increase our operating cash flow due to lower cash requirements to fund increases in propane inventories . in general , our operating cash flows are greatest during our third and fourth fiscal quarters , or the six months ending march 31 , when our operating income levels are highest and customers pay for propane consumed during the heating season months . conversely , our operating cash flows are generally at their lowest levels during our first and second fiscal quarters , or the six months ending september 30 , when we are building our inventory levels for the upcoming heating season . we will generally borrow under our working capital facility to supplement our operating cash flows as necessary during our first and second quarters . the table above reflects the general trend in each of the periods .

the allowance is based on two principles of accounting : ( 1 ) financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 450 “ contingencies , ” which requires that losses be accrued when they are probable of occurring and are estimable and ( 2 ) fasb asc 310 “ receivables , ” which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , is determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows and values observable in the secondary markets . the allowance for loan loss balance is an estimate based upon management 's evaluation of the loan portfolio . the allowance is comprised of a specific and a general component . the specific component consists of management 's evaluation of certain classified and non-accrual loans and their underlying collateral . management assesses the ability of the borrower to repay the loan based upon all information available . loans are examined to determine a specific allowance based upon the borrower 's payment history , economic conditions specific to the loan or borrower and other factors that would impact the borrower 's ability to repay the loan on its contractual basis . depending on the assessment of the borrower 's ability to pay and the type , condition and value of collateral , management will establish an allowance amount specific to the loan . 40 management uses a risk scale to assign grades to commercial real estate , construction and land development , commercial loans and commercial equipment loans . commercial loan relationships with an aggregate exposure to the bank of $ 750,000 or greater are risk rated . residential first mortgages , home equity and second mortgages and consumer loans are monitored on an ongoing basis based on borrower payment history . consumer loans and residential real estate loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are troubled debt restructures or nonperforming loans with an other assets especially mentioned or higher risk rating due to a delinquent payment history . the company 's commercial loan portfolio is periodically reviewed by regulators and independent consultants engaged by management . in establishing the general component of the allowance , management analyzes non-impaired loans in the portfolio including changes in the amount and type of loans . this analysis reviews trends by portfolio segment in charge-offs , delinquency , classified loans , loan concentrations and the rate of portfolio segment growth . qualitative factors also include an assessment of the current regulatory environment , the quality of credit administration and loan portfolio management and national and local economic trends . based upon this analysis a loss factor is applied to each loan category and the bank adjusts the loan loss allowance by increasing or decreasing the provision for loan losses . management has significant discretion in making the judgments inherent in the determination of the allowance for loan losses , including the valuation of collateral , assessing a borrower 's prospects of repayment and in establishing loss factors on the general component of the allowance . changes in loss factors have a direct impact on the amount of the provision and on net income . errors in management 's assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio , and may result in additional provisions . at december 31 , 2015 , the allowance for loan losses was $ 8.5 million or 0.93 % of total loans . an increase or decrease in the allowance could result in a charge or credit to income before income taxes that materially impacts earnings . for additional information regarding the allowance for loan losses , refer to notes 1 and 6 of the consolidated financial statements and the discussion under the caption “ provision for loan losses ” below . other-than-temporary-impairment ( “ otti ” ) debt securities are evaluated quarterly to determine whether a decline in their value is other-than-temporary . the term “ other-than-temporary ” is not necessarily intended to indicate a permanent decline in value . it means that the prospects for near-term recovery of value are not necessarily favorable , or that there is a lack of evidence to support fair values equal to , or greater than , the carrying value of the investment . accounting guidance indicates that the amount of other-than-temporary impairment that is recognized through earnings for debt securities is determined by comparing the present value of the expected cash flows to the amortized cost of the security . the discount rate used to determine the credit loss is the expected book yield on the security . the company does not evaluate declines in the value of securities of government sponsored enterprises ( “ gses ” ) or investments backed by the full faith and credit of the united states government ( e.g . us treasury bills ) , for other-than-temporary impairment . for additional information regarding otti , refer to notes 1 and 5 of the consolidated financial statements . other real estate owned ( “ oreo ” ) the company maintains a valuation allowance on its other real estate owned . as with the allowance for loan losses , the valuation allowance on oreo is based on fasb asc 450 “ contingencies , ” as well as the accounting guidance on impairment of long-lived assets . these statements require that the company establish a valuation allowance when it has determined that the carrying amount of a foreclosed asset exceeds its fair value . story_separator_special_tag the company 's noninterest expenses for 2015 , excluding oreo charges and the title insurance settlement claim adjustment , were $ 27.2 million which represents a $ 1.3 million , or 5.1 % , increase over the comparable $ 25.9 million for the year ended december 31 , 2014. with these adjustments , noninterest expense as a percentage of average assets decreased three basis points from 2.52 % for the year ended december 31 , 2014 to 2.49 % for the year ended december 31 , 2015. the increased expenses were partially offset by the following positive increases to revenues : · net interest income was $ 36.5 million in 2015 an increase of $ 1.5 million , or 4.2 % , compared to 2014. o interest income increased $ 2.1 million . the increase was driven by increased loan average balances . the bank increased average net loan balances $ 54.8 million to $ 874.2 million in 2015 from $ 819.4 million in 2014. loan volume was partially offset by yield declines . o interest expense increased $ 647,000 which partially offset increased interest income . the primary reason for the increase related to the $ 23.0 million 6.25 % subordinated notes issued during the first quarter of 2015. continued progress in continuing to add transaction deposits mitigated some of the impact of the increased interest expense associated with the subordinated notes . overall deposit cost decreased by eight basis points to 0.48 % compared to the prior year . · the provision for loan losses decreased $ 1.2 million to $ 1.4 million in 2015 due primarily to improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in other qualitative factors , such as reductions in classified assets . a more detailed analysis comparing the results of operations for the years ended december 31 , 2015 and 2014 follows . 45 net interest income the primary component of the company 's net income is its net interest income , which is the difference between income earned on assets and interest paid on the deposits and borrowings used to fund them . net interest income is affected by the difference between the yields earned on the company 's interest-earning assets and the rates paid on interest-bearing liabilities , as well as the relative amounts of such assets and liabilities . net interest income , divided by average interest-earning assets , represents the company 's net interest margin . net interest income increased to $ 36.5 million for the year ended december 31 , 2015 compared to $ 35.1 million for the year ended december 31 , 2014. the net interest margin was 3.60 % for the year ended december 31 , 2015 , an eight basis point decrease from 3.68 % for the year ended december 31 , 2014. the decrease in net interest margin was largely the result of additional interest expense related to the subordinated notes issued during the first quarter of 2015. the following table shows the components of net interest income and the dollar and percentage changes for the periods presented . replace_table_token_17_th interest and dividend income increased by $ 2.1 million to $ 43.9 million for the year ended december 31 , 2015 compared to $ 41.8 million for the year ended december 31 , 2014 , primarily due to increased income from the growth in the average balance of loans . interest and dividend income on loans increased $ 2.6 million due to growth of $ 54.8 million in the average balance of loans from $ 819.4 million for the year ended december 31 , 2014 to $ 874.2 million for the year ended december 31 , 2015. interest and dividend income on investments increased $ 203,000 during 2015 compared to the prior year as average interest-earning investment balances increased $ 4.7 million and average yields increased from 1.70 % to 1.79 % . these increases to interest income were partially offset by decreased income from reduced yields on loans . average loan yields declined nine basis points from 4.82 % for the year ended december 31 , 2014 to 4.73 % for the year ended december 31 , 2015 , which resulted in a decrease in interest income of $ 684,000. interest expense increased $ 647,000 to $ 7.3 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 due primarily to an increase in interest expense related to the subordinated notes issued during the first quarter of 2015. the average cost of total interest-bearing liabilities was 0.85 % for the year ended december 31 , 2015 compared to 0.83 % for the year ended december 31 , 2014. during the year ended december 31 , 2015 , interest expense increased $ 1.3 million due to the subordinated note issuance and larger short-term debt balances and $ 119,000 due to increased average balances of interest-bearing transaction deposit accounts compared to the same twelve months of 2014. additionally , interest expense increased $ 35,000 on money market accounts , as rates increased modestly from 0.27 % to 0.28 % . the increases to interest expense were partially offset by reductions of $ 228,000 due to lower average balances of long-term debt and time deposits and $ 594,000 due to net decreases in rates paid on time deposits and long-term debt . the average rate paid on debt , which includes long-term debt , trups , subordinated notes , and short-term borrowings , increased from 2.32 % for the year ended december 31 , 2014 to 2.77 % for the year ended december 31 , 2015 . 46 the company continued to make progress in reducing overall deposit costs by increasing transaction deposits as a percentage of overall deposits . average transaction accounts as a percentage of average deposits increased from 52.0 % for the year ended december 31 , 2014 to 56.4 % for

liquidity liquidity is our ability to meet cash demands as they arise . such needs can develop from loan demand , deposit withdrawals or acquisition opportunities . potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs . many of these obligations and commitments are expected to expire without being drawn upon ; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position . asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future . liquid assets include cash , federal funds sold , and short-term investments in cash deposits with other banks . liquidity is also provided by access to funding sources , which include core depositors and brokered deposits . other sources of funds include our ability to borrow , such as purchasing federal funds from correspondent banks , sales of securities under agreements to repurchase and advances from the fhlb . at december 31 , 2015 and 2014 , the bank had $ 73.5 million and $ 36.3 million , respectively , in loan commitments outstanding . certificates of deposit due within one year of december 31 , 2015 and 2014 totaled $ 230.6 million or 61.4 % and $ 240.6 million or 62.4 % , respectively , of total certificates of deposit outstanding . if maturing deposits do not remain , the bank will be required to seek other sources of funds , including other certificates of deposit and borrowings . depending on market conditions , we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposits . we believe , however , based on past experience that a significant portion of our certificates of deposit will remain with us . we have the ability to attract and retain deposits by adjusting the interest rates offered . the company 's principal sources of liquidity are cash on hand and dividends received from the bank .

critical accounting policies and estimates revenue recognition — the company 's two primary business segments include photovoltaic installation , integration and sales , and cable , wire and mechanical assemblies . photovoltaic installation , integration and sales — in our photovoltaic systems installation , integration and sales segment , there are two revenue streams . revenue on product sales is recognized when there is evidence of an arrangement , title and risk of ownership have passed ( generally upon delivery ) , the price to the buyer is fixed or determinable and collectability is reasonably assured . customers do not have a general right of return on products shipped therefore we make no provisions for returns . revenue on photovoltaic system construction contracts is generally recognized using the percentage of completion method of accounting . at the end of each period , the company measures the cost incurred on each project and compares the result against its estimated total costs at completion . the percent of cost incurred determines the amount of revenue to be recognized . payment terms are generally defined by the contract and as a result may not match the timing of the costs incurred by the company and the related recognition of revenue . such differences are recorded as costs and estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts . the company determines its customer 's credit worthiness at the time the order is accepted . sudden and unexpected changes in customer 's financial condition could put recoverability at risk . the percentage-of-completion method requires the use of various estimates including among others , the extent of progress towards completion , contract revenues and contract completion costs . contract revenues and contract costs to be recognized are dependent on the accuracy of estimates , including direct material and labor costs and those indirect costs related to contract performance , such as indirect labor , supplies , tools , repairs , and depreciation costs . we have a history of making reasonable estimates of the extent of progress towards completion , contract revenues and contract completion costs . however , due to uncertainties inherent in the estimation process , it is possible that actual contract revenues and completion costs may vary from estimates . 21 for those projects where the company is considered to be the owner , the project is accounted for under the rules of real estate accounting . in the event of a sale , the method of revenue recognition is determined by considering the extent of the buyer 's initial and continuing investment and the nature and the extent of the company 's continuing involvement . generally , revenue is recognized at the time of title transfer if the buyers investment is sufficient to demonstrate a commitment to pay for the property and the company does not have a substantial continuing involvement with the property . when continuing involvement is substantial and not temporary , the company applies the financing method , whereby the asset remains on the balance sheet and the proceeds received are recorded as a financing obligation . when a sale is not recognized due to continuing involvement and the financing method is applied the company records revenue and expenses related to the underlying operations of the asset in the company 's consolidated financial statements . the asset , “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed . the liability , “billings in excess of costs and estimated earnings on uncompleted contracts , ” represents billings in excess of revenues recognized . cable , wire and mechanical assemblies — in our cable , wire and mechanical assemblies business the company recognizes the sales of goods when there is evidence of an arrangement , title and risk of ownership have passed , the price to the buyer is fixed or determinable and collectability is reasonably assured . there are no formal customer acceptance requirements or further obligations related to our assembly services once we ship our products . customers do not have a general right of return on products shipped therefore we make no provisions for returns . we make determination of our customer 's credit worthiness at the time we accept their order . product and performance warranties — the company offers the industry standard of 25 years for our solar modules and industry standard five ( 5 ) years on inverter and balance of system components . due to the warranty period , we bear the risk of extensive warranty claims long after we have shipped product and recognized revenue . in our cable , wire and mechanical assemblies business , historically our warranty claims have not been material . in our solar photovoltaic business , our greatest warranty exposure is in the form of product replacement . until the third quarter of 2007 , the company purchased its solar panels from third-party suppliers and since the third-party warranties are consistent with industry standards we considered our financial exposure to warranty claims immaterial . certain photovoltaic construction contracts entered into during the year ended december 31 , 2007 included provisions under which the company agreed to provide warranties to the buyer , and during the quarter ended september 30 , 2007 and continuing through the fourth quarter of 2010 , the company installed its own manufactured solar panels . as a result , the company recorded the provision for the estimated warranty exposure on these contracts within cost of sales . since the company does not have sufficient historical data to estimate its exposure , we have looked to our own historical data in combination with historical data reported by other solar system installers and manufacturers . story_separator_special_tag $ 983,000 of imputed interest on a real estate sales transaction accounted for under the financing method , $ 188,000 paid on the loan securing our power generating facility at aerojet , $ 29,000 paid on our installment loans and capital leases and $ 233,000 of finance charges on trade accounts payable . other income / expense — other expense , net was $ 469,000 and $ 1,138,000 for the years ended december 31 , 2011 and 2010 , respectively . the decrease was primarily related to large exchange losses due to decline in value of the euro in 2010 as it related to the collection of euro denominated accounts receivable . in 2010 , other income , net consisted primarily of income related to a government stimulus of $ 70,000 from the chinese government , other income of $ 6,000 and expenses of $ 1,000 related to the sub-lease of the company 's retail outlet , $ 142,000 of costs related to the preliminary design of a new factory facility and currency exchange losses of $ 1,071,000. income tax expense / benefit — the company provided income tax expense of $ 259,000 for the year ended december 31 , 2011 and an income tax benefit of $ 141,000 for the year ended december 31 , 2010. the company is currently in a net cumulative loss position and has significant net operating loss carry forwards . the income tax expense for the year ended december 31 , 2011 consisted of $ 150,000 for federal alternative minimum tax , not covered by the company 's deferred tax assets , $ 207,000 of state income tax for california and new jersey and $ 1,000 of tax expense related to our china support entity . there is a moratorium imposed by the state of california that prevents the use of operating losses to offset future tax liability until the state budget crisis is resolved resulting in income tax expense related to our california earnings . the income tax benefit for the year ended december 31 , 2010 was primarily due to a decrease in tax liability for one of our foreign subsidiaries . 26 story_separator_special_tag equivalents , $ 670,000 of restricted cash held in our name consisting of $ 400,000 as a reserve pursuant to our guarantees of solar tax partners 1 , llc with the bank providing the debt financing on the aerojet 1 solar generating facility ( see note 15 of the consolidated financial statements ) , $ 250,000 as a reserve pursuant to our loan agreement with the bank providing the debt financing for the solar generating facility owned by our subsidiary , solar tax partners 2 , llc and $ 20,000 held by our bank as collateral for our corporate credit card , net accounts receivable of $ 77,115,000 and costs and estimated earnings in excess of billings on uncompleted contracts of $ 9,245,000. our focus will be to continue development of large-scale photovoltaic solar energy facilities . 28 pricing of solar modules has significantly decreased over the last year primarily due to the overcapacity of chinese solar manufacturers . coupled with continuous solar incentives provided by the us , european and other countries , the adoption of solar systems worldwide has been on the rise . while it is still a challenging economic environment , we anticipate our sales pipeline to grow both domestically and internationally . while our sales pipeline of solar system construction projects continues to grow , such projects encumber associated working capital until project completion or earlier customer payment , and our revenues are highly dependent on third party financing for these projects . as a result , revenues remain difficult to predict and we can not assure shareholders and potential investors that we will be successful in generating positive cash from operations . knowing that revenues are unpredictable , our strategy has been to manage spending tightly , and to outsource the majority of our construction workforce . over the past three years we have sustained losses from operations and have relied on equity financing to provide working capital . we have been actively working with additional potential investors to ensure that we have additional equity available to us as needed . in addition , we are working on sources of project financing as well as asset backed credit facilities . the issues involved with receiving payment on two major projects ( aerojet 1 and aerojet 2 ) have severely hindered the company 's ability to create and leverage working capital . the impact of waiting for that working capital required the company to optimize cash on hand and negotiate extended terms with our suppliers resulting in increased accounts payable . the limits on available working capital caused by these events and inability to obtain additional credit from our suppliers impacted the company 's ability to start and complete projects per original schedules . the company received payment for the outstanding receivable due on aerojet 1 from stp in august 2010 , allowing the company to satisfy obligations to suppliers and enabling more effective management of working capital . the inability of our customer to complete its purchase of the aerojet 2 project , resulting in the company taking possession of the project and recording it as an asset held for sale , caused further constraints on our working capital . to mitigate future impact on working capital requirements the company is planning to finance future projects through construction financing or payment terms from the end customer . we have extended payment terms for one of our major customers up to 310 days and 364 days respectively for 40 % and 50 % of the receivable that amounted to $ 42 million as of december 31 , 2011. payments terms also include a 5 % interest rate per year from the date that is thirty days after the date that title passes from us to this customer until the date such amount is

liquidity liquidity is our ability to meet cash demands as they arise . such needs can develop from loan demand , deposit withdrawals or acquisition opportunities . potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs . many of these obligations and commitments are expected to expire without being drawn upon ; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position . asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future . liquid assets include cash , federal funds sold , and short-term investments in cash deposits with other banks . liquidity is also provided by access to funding sources , which include core depositors and brokered deposits . other sources of funds include our ability to borrow , such as purchasing federal funds from correspondent banks , sales of securities under agreements to repurchase and advances from the fhlb . at december 31 , 2015 and 2014 , the bank had $ 73.5 million and $ 36.3 million , respectively , in loan commitments outstanding . certificates of deposit due within one year of december 31 , 2015 and 2014 totaled $ 230.6 million or 61.4 % and $ 240.6 million or 62.4 % , respectively , of total certificates of deposit outstanding . if maturing deposits do not remain , the bank will be required to seek other sources of funds , including other certificates of deposit and borrowings . depending on market conditions , we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposits . we believe , however , based on past experience that a significant portion of our certificates of deposit will remain with us . we have the ability to attract and retain deposits by adjusting the interest rates offered . the company 's principal sources of liquidity are cash on hand and dividends received from the bank .

critical accounting policies and estimates revenue recognition — the company 's two primary business segments include photovoltaic installation , integration and sales , and cable , wire and mechanical assemblies . photovoltaic installation , integration and sales — in our photovoltaic systems installation , integration and sales segment , there are two revenue streams . revenue on product sales is recognized when there is evidence of an arrangement , title and risk of ownership have passed ( generally upon delivery ) , the price to the buyer is fixed or determinable and collectability is reasonably assured . customers do not have a general right of return on products shipped therefore we make no provisions for returns . revenue on photovoltaic system construction contracts is generally recognized using the percentage of completion method of accounting . at the end of each period , the company measures the cost incurred on each project and compares the result against its estimated total costs at completion . the percent of cost incurred determines the amount of revenue to be recognized . payment terms are generally defined by the contract and as a result may not match the timing of the costs incurred by the company and the related recognition of revenue . such differences are recorded as costs and estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts . the company determines its customer 's credit worthiness at the time the order is accepted . sudden and unexpected changes in customer 's financial condition could put recoverability at risk . the percentage-of-completion method requires the use of various estimates including among others , the extent of progress towards completion , contract revenues and contract completion costs . contract revenues and contract costs to be recognized are dependent on the accuracy of estimates , including direct material and labor costs and those indirect costs related to contract performance , such as indirect labor , supplies , tools , repairs , and depreciation costs . we have a history of making reasonable estimates of the extent of progress towards completion , contract revenues and contract completion costs . however , due to uncertainties inherent in the estimation process , it is possible that actual contract revenues and completion costs may vary from estimates . 21 for those projects where the company is considered to be the owner , the project is accounted for under the rules of real estate accounting . in the event of a sale , the method of revenue recognition is determined by considering the extent of the buyer 's initial and continuing investment and the nature and the extent of the company 's continuing involvement . generally , revenue is recognized at the time of title transfer if the buyers investment is sufficient to demonstrate a commitment to pay for the property and the company does not have a substantial continuing involvement with the property . when continuing involvement is substantial and not temporary , the company applies the financing method , whereby the asset remains on the balance sheet and the proceeds received are recorded as a financing obligation . when a sale is not recognized due to continuing involvement and the financing method is applied the company records revenue and expenses related to the underlying operations of the asset in the company 's consolidated financial statements . the asset , “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed . the liability , “billings in excess of costs and estimated earnings on uncompleted contracts , ” represents billings in excess of revenues recognized . cable , wire and mechanical assemblies — in our cable , wire and mechanical assemblies business the company recognizes the sales of goods when there is evidence of an arrangement , title and risk of ownership have passed , the price to the buyer is fixed or determinable and collectability is reasonably assured . there are no formal customer acceptance requirements or further obligations related to our assembly services once we ship our products . customers do not have a general right of return on products shipped therefore we make no provisions for returns . we make determination of our customer 's credit worthiness at the time we accept their order . product and performance warranties — the company offers the industry standard of 25 years for our solar modules and industry standard five ( 5 ) years on inverter and balance of system components . due to the warranty period , we bear the risk of extensive warranty claims long after we have shipped product and recognized revenue . in our cable , wire and mechanical assemblies business , historically our warranty claims have not been material . in our solar photovoltaic business , our greatest warranty exposure is in the form of product replacement . until the third quarter of 2007 , the company purchased its solar panels from third-party suppliers and since the third-party warranties are consistent with industry standards we considered our financial exposure to warranty claims immaterial . certain photovoltaic construction contracts entered into during the year ended december 31 , 2007 included provisions under which the company agreed to provide warranties to the buyer , and during the quarter ended september 30 , 2007 and continuing through the fourth quarter of 2010 , the company installed its own manufactured solar panels . as a result , the company recorded the provision for the estimated warranty exposure on these contracts within cost of sales . since the company does not have sufficient historical data to estimate its exposure , we have looked to our own historical data in combination with historical data reported by other solar system installers and manufacturers . story_separator_special_tag $ 983,000 of imputed interest on a real estate sales transaction accounted for under the financing method , $ 188,000 paid on the loan securing our power generating facility at aerojet , $ 29,000 paid on our installment loans and capital leases and $ 233,000 of finance charges on trade accounts payable . other income / expense — other expense , net was $ 469,000 and $ 1,138,000 for the years ended december 31 , 2011 and 2010 , respectively . the decrease was primarily related to large exchange losses due to decline in value of the euro in 2010 as it related to the collection of euro denominated accounts receivable . in 2010 , other income , net consisted primarily of income related to a government stimulus of $ 70,000 from the chinese government , other income of $ 6,000 and expenses of $ 1,000 related to the sub-lease of the company 's retail outlet , $ 142,000 of costs related to the preliminary design of a new factory facility and currency exchange losses of $ 1,071,000. income tax expense / benefit — the company provided income tax expense of $ 259,000 for the year ended december 31 , 2011 and an income tax benefit of $ 141,000 for the year ended december 31 , 2010. the company is currently in a net cumulative loss position and has significant net operating loss carry forwards . the income tax expense for the year ended december 31 , 2011 consisted of $ 150,000 for federal alternative minimum tax , not covered by the company 's deferred tax assets , $ 207,000 of state income tax for california and new jersey and $ 1,000 of tax expense related to our china support entity . there is a moratorium imposed by the state of california that prevents the use of operating losses to offset future tax liability until the state budget crisis is resolved resulting in income tax expense related to our california earnings . the income tax benefit for the year ended december 31 , 2010 was primarily due to a decrease in tax liability for one of our foreign subsidiaries . 26 story_separator_special_tag equivalents , $ 670,000 of restricted cash held in our name consisting of $ 400,000 as a reserve pursuant to our guarantees of solar tax partners 1 , llc with the bank providing the debt financing on the aerojet 1 solar generating facility ( see note 15 of the consolidated financial statements ) , $ 250,000 as a reserve pursuant to our loan agreement with the bank providing the debt financing for the solar generating facility owned by our subsidiary , solar tax partners 2 , llc and $ 20,000 held by our bank as collateral for our corporate credit card , net accounts receivable of $ 77,115,000 and costs and estimated earnings in excess of billings on uncompleted contracts of $ 9,245,000. our focus will be to continue development of large-scale photovoltaic solar energy facilities . 28 pricing of solar modules has significantly decreased over the last year primarily due to the overcapacity of chinese solar manufacturers . coupled with continuous solar incentives provided by the us , european and other countries , the adoption of solar systems worldwide has been on the rise . while it is still a challenging economic environment , we anticipate our sales pipeline to grow both domestically and internationally . while our sales pipeline of solar system construction projects continues to grow , such projects encumber associated working capital until project completion or earlier customer payment , and our revenues are highly dependent on third party financing for these projects . as a result , revenues remain difficult to predict and we can not assure shareholders and potential investors that we will be successful in generating positive cash from operations . knowing that revenues are unpredictable , our strategy has been to manage spending tightly , and to outsource the majority of our construction workforce . over the past three years we have sustained losses from operations and have relied on equity financing to provide working capital . we have been actively working with additional potential investors to ensure that we have additional equity available to us as needed . in addition , we are working on sources of project financing as well as asset backed credit facilities . the issues involved with receiving payment on two major projects ( aerojet 1 and aerojet 2 ) have severely hindered the company 's ability to create and leverage working capital . the impact of waiting for that working capital required the company to optimize cash on hand and negotiate extended terms with our suppliers resulting in increased accounts payable . the limits on available working capital caused by these events and inability to obtain additional credit from our suppliers impacted the company 's ability to start and complete projects per original schedules . the company received payment for the outstanding receivable due on aerojet 1 from stp in august 2010 , allowing the company to satisfy obligations to suppliers and enabling more effective management of working capital . the inability of our customer to complete its purchase of the aerojet 2 project , resulting in the company taking possession of the project and recording it as an asset held for sale , caused further constraints on our working capital . to mitigate future impact on working capital requirements the company is planning to finance future projects through construction financing or payment terms from the end customer . we have extended payment terms for one of our major customers up to 310 days and 364 days respectively for 40 % and 50 % of the receivable that amounted to $ 42 million as of december 31 , 2011. payments terms also include a 5 % interest rate per year from the date that is thirty days after the date that title passes from us to this customer until the date such amount is

liquidity a summary of the sources and uses of cash and cash equivalents is as follows : replace_table_token_3_th as of december 31 , 2011 , we had $ 23,855,000 in cash and cash equivalents and as of december 31 , 2010 , we had $ 1,441,000 in cash and cash equivalents . this change in cash and cash equivalents is primarily attributable to cash generated from financing activities offset by cash used in operating activities . operating activities – net cash used in operating activities of $ 30,439,000 for the year ended december 31 , 2011 was a result of a net loss of $ 461,000 , offset by non-cash items included in net loss , consisting of depreciation of $ 999,000 , amortization of loan fees of $ ( 14,000 ) , impairment charge of $ 400,000 , stock-based compensation expense and stock issued for services of $ 517,000 , bad debt expense of $ 819,000 , provision for obsolete inventory of $ 253,000 , operating income from solar system subject to financing obligation of $ ( 749,000 ) , and loss on disposal of fixed assets of $ 4,000. cash used in operations also included an increase in accounts and related notes receivable of $ 77,980,000 primarily related to a number of large scale development projects where milestones have been met and invoices issued , including $ 18,201,000 due from our parent company ldk relating to two epc contracts between spi and ldk ; an increase in costs and estimated earnings in excess of billings on uncompleted projects of $ 7,020,000 related to the construction projects , of which $ 360,000 is related to two epc contracts entered into between the company and ldk ; increases in inventories of $ 3,044,000 primarily due to increases in raw material and finished goods inventory ; decreases in prepaid expenses and other current assets of $ 135,000 due to decreased supplier deposits at our manufacturing facility in the people 's republic of china ( “prc” ) ; an increase in accounts payable of $ 47,806,000 of which $ 46,125,000 is to ldk for solar panel purchases ; increases in

the products and related services consist primarily of : ( i ) capital and consumable products sold to the pressure pumping , hydraulic fracturing and flowback services markets , including hydraulic fracturing pumps , pump consumables , cooling systems and flow iron as well as wireline cable , and pressure control equipment used in the well completion and intervention service markets ; and ( ii ) coiled tubing strings and coiled line pipe and related services . production . this segment designs , manufactures and supplies products and provides related equipment and services for production and infrastructure markets . the products and related services consist primarily of : ( i ) engineered process systems , production equipment , as well as specialty separation equipment ; and ( ii ) a wide 35 range of industrial valves focused on serving upstream , midstream , and downstream oil and natural gas customers as well as power and other general industries . market conditions the level of demand for our products is directly related to the activity levels and the capital and operating budgets of our customers , which in turn are heavily influenced by energy prices and expectations as to future price trends . in addition , the availability of existing capital equipment adequate to serve exploration and production requirements , or lack thereof , drives demand for our capital equipment products . the probability of changes in energy prices and their extent and duration are difficult to predict . oil prices fluctuated throughout 2019 and were on average lower compared to 2018. the volume of rigs drilling for oil and natural gas in north america and the level of hydraulic fracturing and other well completion activities are drivers for our revenue from this region . in the second half of 2019 , activity levels significantly slowed in the north america market , which caused a material reduction in demand for many of our products and thus , our revenue . in addition to oil prices , other factors contributed to this slowdown in activity . publicly traded exploration and production and oilfield services companies are under pressure from investors to reduce capital spending , generate positive free cash flow and return capital to investors . this has led service companies to reduce capital expenditures on new equipment and defer maintenance on existing fleets by utilizing equipment from idle fleets . increases in activity in international regions , as well as global offshore and subsea activity , have seen a modest recovery in 2019. as a result , we have seen an increase in international demand for our drilling and subsea capital equipment offerings , especially in the middle east market . however , revenue levels remain far below the level achieved during the last newbuild cycle due to the oversupply of relatively new or recently upgraded equipment . revenue for our valve solutions product line is also influenced by energy prices , but to a lesser extent compared to our other product lines , resulting in more stable operating and financial results over the long-term . demand for valves from the oil and natural gas industry worldwide is driven by planned investments in global refinery and petrochemical projects , as well as the construction of additional pipeline capacity . our valve distribution customers have also been under pressure to generate positive free cash flow . this has led them to decrease the amount of valves in their inventories , causing a decrease in orders from our valve distribution customers until their inventories reach targeted levels . this was particularly evident in the second half of 2019 when our valve solutions product line experienced a material slowdown in bookings and overall customer demand . the u.s. government has imposed tariffs on imports of selected products , including those sourced from china . in response , china and other countries have imposed retaliatory tariffs on a wide range of u.s. products , including those containing steel and aluminum . these tariffs have caused our cost of raw materials to increase , primarily in our coiled tubing and valve solutions product lines . in response , we are taking actions to mitigate the impact , including through the pricing of our products , diversification of our supply chain and applying for tariff exemptions for certain products . the table below shows average crude oil and natural gas prices for west texas intermediate crude oil ( wti ) , united kingdom brent crude oil ( brent ) , and henry hub natural gas : replace_table_token_3_th average wti and brent oil prices were 12 % and 10 % lower , respectively , for the year ended december 31 , 2019 compared to 2018 . the spot wti and brent oil price closed at $ 61.14 and $ 67.77 per barrel , respectively , as of december 31 , 2019 versus $ 45.15 and $ 50.57 , respectively , as of december 31 , 2018 . average natural gas prices were 19 % lower in 2019 than 2018 . concerns about the coronavirus and its potential impact on the chinese and global economy are creating uncertainty about the overall demand for hydrocarbons resulting in lower prices for oil and natural gas in early 2020 . 36 the table below shows the average number of active drilling rigs operating by geographic area and drilling for different purposes based on the weekly rig count information published by baker hughes company . replace_table_token_4_th a substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed . the average u.s. and canadian rig counts in 2019 decreased 9 % and 30 % , respectively , as compared to 2018 , while the international rig count increased 11 % compared to 2018 . story_separator_special_tag refer to note 4 acquisitions & dispositions for additional information . revenue from sales of our drilling products increased $ 9.4 million , primarily due to higher sales of capital equipment to international markets in 2018. these increases were partially offset by a $ 14.9 million decline in revenue for our subsea product line primarily due to the contribution of our subsea rentals business to ashtead in exchange for a 40 % interest in the combined business . completions segment — revenue was $ 373.1 million for the year ended december 31 , 2018 , an increase of $ 188.9 million , or 102.6 % , compared to the year ended december 31 , 2017 . this change includes a $ 108.8 million increase in revenue from global tubing which was acquired and fully consolidated in our financial statements beginning in the fourth quarter of 2017. the remaining increase was driven by an $ 80.1 million increase in sales of our well stimulation and intervention products due to higher sales volumes of pressure pumping products attributable to higher completions spending by exploration and production companies in the u.s. market and revenue contributed by the acquisition of ght in the fourth quarter of 2018. production segment — revenue was $ 361.4 million for the year ended december 31 , 2018 , an increase of $ 34.1 million , or 10.4 % , compared to the year ended december 31 , 2017 . the increase in oil and natural gas operators budgets and resulting infrastructure spending have led to increased sales of our valve products and surface production equipment . approximately $ 17.3 million of the increase is due to higher sales volumes of valve products , particularly sales into the north america oil and natural gas market . the remaining $ 16.8 million increase is attributable to higher sales volumes of our activity-based surface production equipment to exploration and production operators . segment operating income ( loss ) and segment operating margin percentage segment operating loss for the year ended december 31 , 2018 improved $ 33.5 million , to a loss of $ 30.5 million from a loss of $ 63.9 million for the year ended december 31 , 2017 . the operating margin percentage improved to ( 2.9 ) % for the year ended december 31 , 2018 from ( 7.8 ) % for the year ended december 31 , 2017 . the segment operating margin percentage is calculated by dividing segment operating income ( loss ) by revenue for the period . the change in operating margin percentage for each segment is explained as follows : drilling & downhole segment — the operating margin percentage was ( 10.0 ) % for the year ended december 31 , 2018 compared to ( 15.2 ) % for the year ended december 31 , 2017 . the improvement in operating margin percentage is due to a more favorable sales mix and a decrease in employee related costs resulting from cost reduction actions . this improvement was partially offset by an increase in restructuring charges and inventory write downs totaling approximately $ 18.5 million and $ 12.9 million for the years ended december 31 , 2018 and 2017 , respectively . completions segment — the operating margin percentage improved to 8.6 % for the year ended december 31 , 2018 from 4.8 % for the year ended december 31 , 2017 . the improvement in operating margin percentage is due to increased operating leverage on higher volumes , especially on higher sales of our well stimulation and intervention products as discussed above . in addition , operating margin was positively impacted by the late 2017 acquisition of the remaining ownership interest of global tubing , which was previously reported as an equity method investment for the first nine months of 2017 and was fully consolidated in our financial statements beginning in the fourth quarter of 2017. the improvement in operating margins was partially offset by $ 12.5 million of charges to write-down inventory for the year ended december 31 , 2018 . production segment — the operating margin percentage was 1.7 % for the year ended december 31 , 2018 compared to 2.4 % for the year ended december 31 , 2017 . the slight decline in operating margin percentage was driven by $ 9.9 million of charges to write-down inventory for the year ended december 31 , 2018 compared to $ 4.3 million for the year ended december 31 , 2017 . corporate — selling , general and administrative expenses for corporate increased $ 1.7 million , or 4.9 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to an increase in employee severance and payroll costs , partially offset by a decrease in share based compensation expense . corporate costs 43 include , among other items , payroll related costs for general management and management of finance and administration , legal , human resources ; professional fees for legal , accounting and related services ; and marketing costs . other items not included in segment operating loss several items are not included in segment operating loss , but are included in total operating loss . these items include goodwill and intangible asset impairments , transaction expenses , and loss ( gain ) on the disposal of assets . transaction expenses relate to legal and other advisory costs incurred in acquiring and disposing of businesses and are not considered to be part of segment operating loss . these costs were $ 3.4 million and $ 6.5 million for the years ended december 31 , 2018 and 2017 , respectively , with these costs primarily related to the acquisitions of ght and espct in 2018 and global tubing and multilift in 2017. for the years ended december 31 , 2018 and 2017 , we recognized material impairments of goodwill and intangible assets primarily as a result of substantial declines

liquidity a summary of the sources and uses of cash and cash equivalents is as follows : replace_table_token_3_th as of december 31 , 2011 , we had $ 23,855,000 in cash and cash equivalents and as of december 31 , 2010 , we had $ 1,441,000 in cash and cash equivalents . this change in cash and cash equivalents is primarily attributable to cash generated from financing activities offset by cash used in operating activities . operating activities – net cash used in operating activities of $ 30,439,000 for the year ended december 31 , 2011 was a result of a net loss of $ 461,000 , offset by non-cash items included in net loss , consisting of depreciation of $ 999,000 , amortization of loan fees of $ ( 14,000 ) , impairment charge of $ 400,000 , stock-based compensation expense and stock issued for services of $ 517,000 , bad debt expense of $ 819,000 , provision for obsolete inventory of $ 253,000 , operating income from solar system subject to financing obligation of $ ( 749,000 ) , and loss on disposal of fixed assets of $ 4,000. cash used in operations also included an increase in accounts and related notes receivable of $ 77,980,000 primarily related to a number of large scale development projects where milestones have been met and invoices issued , including $ 18,201,000 due from our parent company ldk relating to two epc contracts between spi and ldk ; an increase in costs and estimated earnings in excess of billings on uncompleted projects of $ 7,020,000 related to the construction projects , of which $ 360,000 is related to two epc contracts entered into between the company and ldk ; increases in inventories of $ 3,044,000 primarily due to increases in raw material and finished goods inventory ; decreases in prepaid expenses and other current assets of $ 135,000 due to decreased supplier deposits at our manufacturing facility in the people 's republic of china ( “prc” ) ; an increase in accounts payable of $ 47,806,000 of which $ 46,125,000 is to ldk for solar panel purchases ; increases in

the products and related services consist primarily of : ( i ) capital and consumable products sold to the pressure pumping , hydraulic fracturing and flowback services markets , including hydraulic fracturing pumps , pump consumables , cooling systems and flow iron as well as wireline cable , and pressure control equipment used in the well completion and intervention service markets ; and ( ii ) coiled tubing strings and coiled line pipe and related services . production . this segment designs , manufactures and supplies products and provides related equipment and services for production and infrastructure markets . the products and related services consist primarily of : ( i ) engineered process systems , production equipment , as well as specialty separation equipment ; and ( ii ) a wide 35 range of industrial valves focused on serving upstream , midstream , and downstream oil and natural gas customers as well as power and other general industries . market conditions the level of demand for our products is directly related to the activity levels and the capital and operating budgets of our customers , which in turn are heavily influenced by energy prices and expectations as to future price trends . in addition , the availability of existing capital equipment adequate to serve exploration and production requirements , or lack thereof , drives demand for our capital equipment products . the probability of changes in energy prices and their extent and duration are difficult to predict . oil prices fluctuated throughout 2019 and were on average lower compared to 2018. the volume of rigs drilling for oil and natural gas in north america and the level of hydraulic fracturing and other well completion activities are drivers for our revenue from this region . in the second half of 2019 , activity levels significantly slowed in the north america market , which caused a material reduction in demand for many of our products and thus , our revenue . in addition to oil prices , other factors contributed to this slowdown in activity . publicly traded exploration and production and oilfield services companies are under pressure from investors to reduce capital spending , generate positive free cash flow and return capital to investors . this has led service companies to reduce capital expenditures on new equipment and defer maintenance on existing fleets by utilizing equipment from idle fleets . increases in activity in international regions , as well as global offshore and subsea activity , have seen a modest recovery in 2019. as a result , we have seen an increase in international demand for our drilling and subsea capital equipment offerings , especially in the middle east market . however , revenue levels remain far below the level achieved during the last newbuild cycle due to the oversupply of relatively new or recently upgraded equipment . revenue for our valve solutions product line is also influenced by energy prices , but to a lesser extent compared to our other product lines , resulting in more stable operating and financial results over the long-term . demand for valves from the oil and natural gas industry worldwide is driven by planned investments in global refinery and petrochemical projects , as well as the construction of additional pipeline capacity . our valve distribution customers have also been under pressure to generate positive free cash flow . this has led them to decrease the amount of valves in their inventories , causing a decrease in orders from our valve distribution customers until their inventories reach targeted levels . this was particularly evident in the second half of 2019 when our valve solutions product line experienced a material slowdown in bookings and overall customer demand . the u.s. government has imposed tariffs on imports of selected products , including those sourced from china . in response , china and other countries have imposed retaliatory tariffs on a wide range of u.s. products , including those containing steel and aluminum . these tariffs have caused our cost of raw materials to increase , primarily in our coiled tubing and valve solutions product lines . in response , we are taking actions to mitigate the impact , including through the pricing of our products , diversification of our supply chain and applying for tariff exemptions for certain products . the table below shows average crude oil and natural gas prices for west texas intermediate crude oil ( wti ) , united kingdom brent crude oil ( brent ) , and henry hub natural gas : replace_table_token_3_th average wti and brent oil prices were 12 % and 10 % lower , respectively , for the year ended december 31 , 2019 compared to 2018 . the spot wti and brent oil price closed at $ 61.14 and $ 67.77 per barrel , respectively , as of december 31 , 2019 versus $ 45.15 and $ 50.57 , respectively , as of december 31 , 2018 . average natural gas prices were 19 % lower in 2019 than 2018 . concerns about the coronavirus and its potential impact on the chinese and global economy are creating uncertainty about the overall demand for hydrocarbons resulting in lower prices for oil and natural gas in early 2020 . 36 the table below shows the average number of active drilling rigs operating by geographic area and drilling for different purposes based on the weekly rig count information published by baker hughes company . replace_table_token_4_th a substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed . the average u.s. and canadian rig counts in 2019 decreased 9 % and 30 % , respectively , as compared to 2018 , while the international rig count increased 11 % compared to 2018 . story_separator_special_tag refer to note 4 acquisitions & dispositions for additional information . revenue from sales of our drilling products increased $ 9.4 million , primarily due to higher sales of capital equipment to international markets in 2018. these increases were partially offset by a $ 14.9 million decline in revenue for our subsea product line primarily due to the contribution of our subsea rentals business to ashtead in exchange for a 40 % interest in the combined business . completions segment — revenue was $ 373.1 million for the year ended december 31 , 2018 , an increase of $ 188.9 million , or 102.6 % , compared to the year ended december 31 , 2017 . this change includes a $ 108.8 million increase in revenue from global tubing which was acquired and fully consolidated in our financial statements beginning in the fourth quarter of 2017. the remaining increase was driven by an $ 80.1 million increase in sales of our well stimulation and intervention products due to higher sales volumes of pressure pumping products attributable to higher completions spending by exploration and production companies in the u.s. market and revenue contributed by the acquisition of ght in the fourth quarter of 2018. production segment — revenue was $ 361.4 million for the year ended december 31 , 2018 , an increase of $ 34.1 million , or 10.4 % , compared to the year ended december 31 , 2017 . the increase in oil and natural gas operators budgets and resulting infrastructure spending have led to increased sales of our valve products and surface production equipment . approximately $ 17.3 million of the increase is due to higher sales volumes of valve products , particularly sales into the north america oil and natural gas market . the remaining $ 16.8 million increase is attributable to higher sales volumes of our activity-based surface production equipment to exploration and production operators . segment operating income ( loss ) and segment operating margin percentage segment operating loss for the year ended december 31 , 2018 improved $ 33.5 million , to a loss of $ 30.5 million from a loss of $ 63.9 million for the year ended december 31 , 2017 . the operating margin percentage improved to ( 2.9 ) % for the year ended december 31 , 2018 from ( 7.8 ) % for the year ended december 31 , 2017 . the segment operating margin percentage is calculated by dividing segment operating income ( loss ) by revenue for the period . the change in operating margin percentage for each segment is explained as follows : drilling & downhole segment — the operating margin percentage was ( 10.0 ) % for the year ended december 31 , 2018 compared to ( 15.2 ) % for the year ended december 31 , 2017 . the improvement in operating margin percentage is due to a more favorable sales mix and a decrease in employee related costs resulting from cost reduction actions . this improvement was partially offset by an increase in restructuring charges and inventory write downs totaling approximately $ 18.5 million and $ 12.9 million for the years ended december 31 , 2018 and 2017 , respectively . completions segment — the operating margin percentage improved to 8.6 % for the year ended december 31 , 2018 from 4.8 % for the year ended december 31 , 2017 . the improvement in operating margin percentage is due to increased operating leverage on higher volumes , especially on higher sales of our well stimulation and intervention products as discussed above . in addition , operating margin was positively impacted by the late 2017 acquisition of the remaining ownership interest of global tubing , which was previously reported as an equity method investment for the first nine months of 2017 and was fully consolidated in our financial statements beginning in the fourth quarter of 2017. the improvement in operating margins was partially offset by $ 12.5 million of charges to write-down inventory for the year ended december 31 , 2018 . production segment — the operating margin percentage was 1.7 % for the year ended december 31 , 2018 compared to 2.4 % for the year ended december 31 , 2017 . the slight decline in operating margin percentage was driven by $ 9.9 million of charges to write-down inventory for the year ended december 31 , 2018 compared to $ 4.3 million for the year ended december 31 , 2017 . corporate — selling , general and administrative expenses for corporate increased $ 1.7 million , or 4.9 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to an increase in employee severance and payroll costs , partially offset by a decrease in share based compensation expense . corporate costs 43 include , among other items , payroll related costs for general management and management of finance and administration , legal , human resources ; professional fees for legal , accounting and related services ; and marketing costs . other items not included in segment operating loss several items are not included in segment operating loss , but are included in total operating loss . these items include goodwill and intangible asset impairments , transaction expenses , and loss ( gain ) on the disposal of assets . transaction expenses relate to legal and other advisory costs incurred in acquiring and disposing of businesses and are not considered to be part of segment operating loss . these costs were $ 3.4 million and $ 6.5 million for the years ended december 31 , 2018 and 2017 , respectively , with these costs primarily related to the acquisitions of ght and espct in 2018 and global tubing and multilift in 2017. for the years ended december 31 , 2018 and 2017 , we recognized material impairments of goodwill and intangible assets primarily as a result of substantial declines

net cash provided by operating activities was $ 104.1 million for the year ended december 31 , 2019 compared to $ 2.4 million for the year ended december 31 , 2018 . this improvement is primarily attributable to changes in working capital which provided cash of $ 63.5 million for the year ended december 31 , 2019 compared to a $ 75.3 million use of cash in 2018 . 2018 vs. 2017 . net cash provided by operating activities was $ 2.4 million for the year ended december 31 , 2018 compared to $ 40.0 million of net cash used in operating activities for the year ended december 31 , 2017 . due to improved operating results , net income adjusted for non-cash items provided $ 77.7 million of cash for the year ended december 31 , 2018 as compared to $ 1.7 million of cash used for the same period in 2017 . however , higher investments in working capital used $ 75.3 million of cash for the year ended december 31 , 2018 compared to $ 38.4 million for the same period in 2017 . the increase in working capital in 2018 was primarily due to increases in inventory . our operating cash flows are sensitive to a number of variables , the most significant of which is the level of drilling and production activity for oil and natural gas reserves . these activity levels are in turn impacted by the volatility of oil and natural gas prices , regional and worldwide economic activity , weather , infrastructure capacity to reach markets and other various factors . these factors are beyond our control and are difficult to predict . 45 net cash provided by ( used in ) investing activities 2019 vs. 2018 . net cash provided by investing activities was $ 28.1 million for the year ended december 31 , 2019 compared to $ 75.4 million of net cash used in investing activities for the year ended december 31 , 2018 .

gross profit margin decreased to 28.7 percent from 29.3 percent in 2010 and 30.1 percent in 2009 mostly due to the increase in raw material costs . cash flow generated from operating activities was $ 102.5 million in 2011 as compared to $ 74.1 million in 2010 and $ 71.4 million in 2009. we repurchased the 20 percent non-controlling interest that sekisui chemical held in our china entities for $ 8.6 million . we acquired the principal assets and certain liabilities of liquamelt corp. on april 15 , 2011 for $ 6.0 million . 17 the global economic conditions showed little or no improvement in 2011. our total year organic sales growth increased 11.4 percent for 2011 compared to 2010. both our product pricing and sales volume increased in 2011 as compared to 2010 , however the increase in raw material costs contributed to a decrease in gross profit margin compared to 2010. in 2011 our diluted earnings per share increased to $ 1.79 per share from $ 1.43 per share in 2010 and $ 1.70 per share in 2009. the most significant factors affecting 2011 results were the 14.9 percent increase in net revenue and the continuing increase in raw material costs . we incurred special charges in 2011 of $ 7.5 million for costs related to the pending acquisition of the global industrial adhesives business of forbo group , the eimea operating segment transformation project and a foreign exchange option to hedge a portion of the acquisition price . on an after-tax basis , the special charges resulted in a $ 5.8 million negative impact on net income and a negative $ 0.11 effect on diluted earnings per share . in 2010 we had exit costs and impairment charges to exit our polysulfide-based insulating glass product line , which resulted in a pre-tax loss of $ 11.4 million . on an after-tax basis , this was a negative $ 8.4 million impact on net income and a $ 0.17 negative effect on diluted earnings per share . in 2009 we settled a lawsuit with the former owners of the roanoke companies group , a business we acquired in 2006. the settlement resulted in a pre-tax gain of $ 18.8 million which was $ 11.8 million after tax or $ 0.24 per diluted share . in 2011 we continued to invest to make h.b . fuller a stronger company . investments made in 2011 included additional resources in our sales and technical organizations , strengthening our management team , the construction of a manufacturing facility in india , the acquisition of liquamelt corp. and the repurchase of the 20 percent holding that sekisui chemical held in our china entities . 2012 outlook for 2012 , we expect to capitalize on the investments we have made and we expect net revenue to continue to grow . the coming quarters may prove to be difficult as economic activity remains uncertain . we expect our cost of raw materials in 2012 to be similar to 2011. despite the continued high cost of raw materials , our gross margin should improve as we continue to manage pricing actions , reformulations and product substitutions . we also expect operating expenses to be leveraged to enhance our operating margin in 2012. our capital spending plans for 2012 are higher than actual spending in previous years , reflecting our confidence in our business and the opportunities we see to improve the productivity of our business and our prospects for growth , especially in the emerging markets . on december 21 , 2011 we entered into an agreement to purchase the global industrial adhesives business of forbo group for approximately $ 394 million . in conjunction with the pending acquisition of forbo , we entered into a foreign exchange forward contract to purchase swiss francs . prior to closing the acquisition transaction , we intend to raise permanent financing through the private placement and syndicated bank loan markets . the transaction is expected to close as soon as march , 2012. we expect to incur additional non-recurring costs associated with the proposed forbo acquisition and the eimea transformation project . critical accounting policies and significant estimates : management 's discussion and analysis of our results of operations and financial condition are based upon consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( u.s. gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . we believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are pension and other postretirement plan assumptions ; goodwill impairment assessment ; long-lived assets recoverability ; share-based compensation accounting ; product , environmental and other litigation liabilities ; and income tax accounting . pension and other postretirement plan assumptions : we sponsor defined-benefit pension plans in both the u.s. and non-u.s. entities . also in the u.s. we sponsor other postretirement plans for health care and life insurance costs . expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated . these calculations are based on our assumptions related to the discount rate , expected return on assets , projected salary increases and health care cost trend rates . note 10 to the consolidated financial statements includes disclosure of assumptions employed in these measurements for both the non-u.s. and u.s. plans . 18 the discount rate assumption is determined using an actuarial yield curve approach , which enables us to select a discount rate that reflects the characteristics of the plan . the approach identifies a broad universe of corporate bonds that meet the quality and size criteria for the particular plan . story_separator_special_tag all six of our operating segments had positive organic sales growth in 2010 compared to 2009. the organic sales growth was driven by double-digit growth in both the eimea and the latin america adhesives operating segments and nearly double-digit growth in the asia pacific operating segment . north america adhesives and construction products operating segments both had over 5.0 percent organic sales growth compared to 2009. the net revenue variances from acquisitions were due to the revertex finewaters acquisition in the third quarter of 2010 and the acquisition of nordic adhesive technology during the second quarter of 2009. cost of sales : replace_table_token_9_th the cost of sales increased 15.8 percent in 2011 compared to 2010. the increase was driven primarily by the increases in raw material costs due to supply shortages . each of our six operating segments was impacted by the rising raw material costs . the shortages were driven by refineries reducing the supply of the by-products that are used as raw materials in the production of adhesives and increased demand in adjacent industries . the 2010 cost of sales included $ 1.8 million of charges related to the exit of the window polysulfide-based product line in our eimea operating segment . cost of sales as a percent of net revenue increased to 71.3 percent in 2011 compared to 70.7 percent in 2010. cost of sales in 2010 increased 11.1 percent compared to 2009. the increase was driven primarily by the 7.4 percent increase in sales volume in 2010 , the increases in raw material costs due to supply shortages and the charges related to the exit of the window polysulfide-based product line in eimea . the supply shortages impacted each of our six operating segments . 22 gross profit : replace_table_token_10_th our gross profit margin decreased to 28.7 percent in 2011 from 29.3 percent in 2010. the lower gross profit margin for 2011 as compared to 2010 was due to the increases in raw material costs which were not completely offset by our price increases implemented in 2011. the lower gross profit margin for 2010 as compared to 2009 was primarily driven by the higher raw material costs which more than offset the benefits from increased sales volume and product pricing . selling , general and administrative ( sg & a ) expenses : replace_table_token_11_th sg & a expenses increased $ 25.2 million in 2011 compared to 2010 , but decreased as a percent of revenue to 20.4 percent in 2011 from 21.6 percent in 2010. the increased expense in 2011 was largely due to higher costs associated with adding resources to our sales and technical organizations , currency effects and a full year of the revertex finewaters business costs , which we acquired in 2010. we continue to invest in growth despite the sluggish economic environment . sg & a expenses increased $ 28.7 million or 10.9 percent in 2010 compared to 2009. the increased expense compared to 2009 was primarily due to investments made in the sales and technical organizations to support future growth and the costs added from the nordic and revertex finewaters acquisitions . in 2010 , we recorded $ 2.5 million for the severance agreement ( net of the expense reversal of forfeited equity compensation awards ) for our former ceo . as a percent of net revenue , sg & a expense was 21.6 percent in 2010 and 21.4 percent in 2009. special charges replace_table_token_12_th the 2011 special charges consist of $ 4.4 million for costs related to the pending acquisition of the global industrial adhesives business of forbo group and the eimea operating segment transformation project and $ 3.1 million for a foreign exchange option to hedge a portion of the acquisition price . asset impairment charges : replace_table_token_13_th during 2011 , we discontinued production of the polymer used in certain resin products that had been produced in our eimea operating segment . in accordance with accounting standards , we determined that the carrying amount of the trademarks and trade names used in these resin products was impaired . we calculated the fair value using a discounted cash flow approach . as a result of this analysis , we recorded pre-tax asset impairment charges of $ 0.3 million related to the impairment of trademarks and trade names used in the abandoned resin products . 23 in 2010 we exited our polysulfide-based insulating glass product line in europe . in accordance with accounting standards , we determined that the carrying amount of this asset group was not recoverable and was therefore impaired . we calculated the fair value of the asset group using a discounted cash flow approach . as a result of this analysis , we recorded pre-tax asset impairment charges of $ 8.8 million to write-down the value of intangible assets . in 2008 an $ 85.0 million impairment charge was taken as a reduction of the goodwill balance of the construction products operating segment . final valuation work completed in 2009 resulted in an additional pre-tax charge of $ 0.8 million . other income ( expense ) , net : replace_table_token_14_th interest income was $ 2.1 million in 2011 compared to $ 0.6 million in 2010 and $ 1.1 million in 2009. higher interest rates in eimea and slightly higher average cash balances both contributed to the increased interest income in 2011 as compared to 2010 and 2009. the $ 18.8 million pre-tax gain from the roanoke litigation settlement was recorded as other income in 2009. currency transaction and remeasurement losses were $ 1.5 million , $ 0.1 million and $ 3.6 million in 2011 , 2010 and 2009 , respectively . gains on disposal of fixed assets were $ 2.4 million , $ 1.6 million and $ 0.4 million in 2011 , 2010 and 2009 , respectively . interest expense : replace_table_token_15_th interest expense was slightly higher in 2011 compared to 2010 due to higher interest rates partially offset by lower average debt levels . the higher

net cash provided by operating activities was $ 104.1 million for the year ended december 31 , 2019 compared to $ 2.4 million for the year ended december 31 , 2018 . this improvement is primarily attributable to changes in working capital which provided cash of $ 63.5 million for the year ended december 31 , 2019 compared to a $ 75.3 million use of cash in 2018 . 2018 vs. 2017 . net cash provided by operating activities was $ 2.4 million for the year ended december 31 , 2018 compared to $ 40.0 million of net cash used in operating activities for the year ended december 31 , 2017 . due to improved operating results , net income adjusted for non-cash items provided $ 77.7 million of cash for the year ended december 31 , 2018 as compared to $ 1.7 million of cash used for the same period in 2017 . however , higher investments in working capital used $ 75.3 million of cash for the year ended december 31 , 2018 compared to $ 38.4 million for the same period in 2017 . the increase in working capital in 2018 was primarily due to increases in inventory . our operating cash flows are sensitive to a number of variables , the most significant of which is the level of drilling and production activity for oil and natural gas reserves . these activity levels are in turn impacted by the volatility of oil and natural gas prices , regional and worldwide economic activity , weather , infrastructure capacity to reach markets and other various factors . these factors are beyond our control and are difficult to predict . 45 net cash provided by ( used in ) investing activities 2019 vs. 2018 . net cash provided by investing activities was $ 28.1 million for the year ended december 31 , 2019 compared to $ 75.4 million of net cash used in investing activities for the year ended december 31 , 2018 .

gross profit margin decreased to 28.7 percent from 29.3 percent in 2010 and 30.1 percent in 2009 mostly due to the increase in raw material costs . cash flow generated from operating activities was $ 102.5 million in 2011 as compared to $ 74.1 million in 2010 and $ 71.4 million in 2009. we repurchased the 20 percent non-controlling interest that sekisui chemical held in our china entities for $ 8.6 million . we acquired the principal assets and certain liabilities of liquamelt corp. on april 15 , 2011 for $ 6.0 million . 17 the global economic conditions showed little or no improvement in 2011. our total year organic sales growth increased 11.4 percent for 2011 compared to 2010. both our product pricing and sales volume increased in 2011 as compared to 2010 , however the increase in raw material costs contributed to a decrease in gross profit margin compared to 2010. in 2011 our diluted earnings per share increased to $ 1.79 per share from $ 1.43 per share in 2010 and $ 1.70 per share in 2009. the most significant factors affecting 2011 results were the 14.9 percent increase in net revenue and the continuing increase in raw material costs . we incurred special charges in 2011 of $ 7.5 million for costs related to the pending acquisition of the global industrial adhesives business of forbo group , the eimea operating segment transformation project and a foreign exchange option to hedge a portion of the acquisition price . on an after-tax basis , the special charges resulted in a $ 5.8 million negative impact on net income and a negative $ 0.11 effect on diluted earnings per share . in 2010 we had exit costs and impairment charges to exit our polysulfide-based insulating glass product line , which resulted in a pre-tax loss of $ 11.4 million . on an after-tax basis , this was a negative $ 8.4 million impact on net income and a $ 0.17 negative effect on diluted earnings per share . in 2009 we settled a lawsuit with the former owners of the roanoke companies group , a business we acquired in 2006. the settlement resulted in a pre-tax gain of $ 18.8 million which was $ 11.8 million after tax or $ 0.24 per diluted share . in 2011 we continued to invest to make h.b . fuller a stronger company . investments made in 2011 included additional resources in our sales and technical organizations , strengthening our management team , the construction of a manufacturing facility in india , the acquisition of liquamelt corp. and the repurchase of the 20 percent holding that sekisui chemical held in our china entities . 2012 outlook for 2012 , we expect to capitalize on the investments we have made and we expect net revenue to continue to grow . the coming quarters may prove to be difficult as economic activity remains uncertain . we expect our cost of raw materials in 2012 to be similar to 2011. despite the continued high cost of raw materials , our gross margin should improve as we continue to manage pricing actions , reformulations and product substitutions . we also expect operating expenses to be leveraged to enhance our operating margin in 2012. our capital spending plans for 2012 are higher than actual spending in previous years , reflecting our confidence in our business and the opportunities we see to improve the productivity of our business and our prospects for growth , especially in the emerging markets . on december 21 , 2011 we entered into an agreement to purchase the global industrial adhesives business of forbo group for approximately $ 394 million . in conjunction with the pending acquisition of forbo , we entered into a foreign exchange forward contract to purchase swiss francs . prior to closing the acquisition transaction , we intend to raise permanent financing through the private placement and syndicated bank loan markets . the transaction is expected to close as soon as march , 2012. we expect to incur additional non-recurring costs associated with the proposed forbo acquisition and the eimea transformation project . critical accounting policies and significant estimates : management 's discussion and analysis of our results of operations and financial condition are based upon consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( u.s. gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . we believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are pension and other postretirement plan assumptions ; goodwill impairment assessment ; long-lived assets recoverability ; share-based compensation accounting ; product , environmental and other litigation liabilities ; and income tax accounting . pension and other postretirement plan assumptions : we sponsor defined-benefit pension plans in both the u.s. and non-u.s. entities . also in the u.s. we sponsor other postretirement plans for health care and life insurance costs . expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated . these calculations are based on our assumptions related to the discount rate , expected return on assets , projected salary increases and health care cost trend rates . note 10 to the consolidated financial statements includes disclosure of assumptions employed in these measurements for both the non-u.s. and u.s. plans . 18 the discount rate assumption is determined using an actuarial yield curve approach , which enables us to select a discount rate that reflects the characteristics of the plan . the approach identifies a broad universe of corporate bonds that meet the quality and size criteria for the particular plan . story_separator_special_tag all six of our operating segments had positive organic sales growth in 2010 compared to 2009. the organic sales growth was driven by double-digit growth in both the eimea and the latin america adhesives operating segments and nearly double-digit growth in the asia pacific operating segment . north america adhesives and construction products operating segments both had over 5.0 percent organic sales growth compared to 2009. the net revenue variances from acquisitions were due to the revertex finewaters acquisition in the third quarter of 2010 and the acquisition of nordic adhesive technology during the second quarter of 2009. cost of sales : replace_table_token_9_th the cost of sales increased 15.8 percent in 2011 compared to 2010. the increase was driven primarily by the increases in raw material costs due to supply shortages . each of our six operating segments was impacted by the rising raw material costs . the shortages were driven by refineries reducing the supply of the by-products that are used as raw materials in the production of adhesives and increased demand in adjacent industries . the 2010 cost of sales included $ 1.8 million of charges related to the exit of the window polysulfide-based product line in our eimea operating segment . cost of sales as a percent of net revenue increased to 71.3 percent in 2011 compared to 70.7 percent in 2010. cost of sales in 2010 increased 11.1 percent compared to 2009. the increase was driven primarily by the 7.4 percent increase in sales volume in 2010 , the increases in raw material costs due to supply shortages and the charges related to the exit of the window polysulfide-based product line in eimea . the supply shortages impacted each of our six operating segments . 22 gross profit : replace_table_token_10_th our gross profit margin decreased to 28.7 percent in 2011 from 29.3 percent in 2010. the lower gross profit margin for 2011 as compared to 2010 was due to the increases in raw material costs which were not completely offset by our price increases implemented in 2011. the lower gross profit margin for 2010 as compared to 2009 was primarily driven by the higher raw material costs which more than offset the benefits from increased sales volume and product pricing . selling , general and administrative ( sg & a ) expenses : replace_table_token_11_th sg & a expenses increased $ 25.2 million in 2011 compared to 2010 , but decreased as a percent of revenue to 20.4 percent in 2011 from 21.6 percent in 2010. the increased expense in 2011 was largely due to higher costs associated with adding resources to our sales and technical organizations , currency effects and a full year of the revertex finewaters business costs , which we acquired in 2010. we continue to invest in growth despite the sluggish economic environment . sg & a expenses increased $ 28.7 million or 10.9 percent in 2010 compared to 2009. the increased expense compared to 2009 was primarily due to investments made in the sales and technical organizations to support future growth and the costs added from the nordic and revertex finewaters acquisitions . in 2010 , we recorded $ 2.5 million for the severance agreement ( net of the expense reversal of forfeited equity compensation awards ) for our former ceo . as a percent of net revenue , sg & a expense was 21.6 percent in 2010 and 21.4 percent in 2009. special charges replace_table_token_12_th the 2011 special charges consist of $ 4.4 million for costs related to the pending acquisition of the global industrial adhesives business of forbo group and the eimea operating segment transformation project and $ 3.1 million for a foreign exchange option to hedge a portion of the acquisition price . asset impairment charges : replace_table_token_13_th during 2011 , we discontinued production of the polymer used in certain resin products that had been produced in our eimea operating segment . in accordance with accounting standards , we determined that the carrying amount of the trademarks and trade names used in these resin products was impaired . we calculated the fair value using a discounted cash flow approach . as a result of this analysis , we recorded pre-tax asset impairment charges of $ 0.3 million related to the impairment of trademarks and trade names used in the abandoned resin products . 23 in 2010 we exited our polysulfide-based insulating glass product line in europe . in accordance with accounting standards , we determined that the carrying amount of this asset group was not recoverable and was therefore impaired . we calculated the fair value of the asset group using a discounted cash flow approach . as a result of this analysis , we recorded pre-tax asset impairment charges of $ 8.8 million to write-down the value of intangible assets . in 2008 an $ 85.0 million impairment charge was taken as a reduction of the goodwill balance of the construction products operating segment . final valuation work completed in 2009 resulted in an additional pre-tax charge of $ 0.8 million . other income ( expense ) , net : replace_table_token_14_th interest income was $ 2.1 million in 2011 compared to $ 0.6 million in 2010 and $ 1.1 million in 2009. higher interest rates in eimea and slightly higher average cash balances both contributed to the increased interest income in 2011 as compared to 2010 and 2009. the $ 18.8 million pre-tax gain from the roanoke litigation settlement was recorded as other income in 2009. currency transaction and remeasurement losses were $ 1.5 million , $ 0.1 million and $ 3.6 million in 2011 , 2010 and 2009 , respectively . gains on disposal of fixed assets were $ 2.4 million , $ 1.6 million and $ 0.4 million in 2011 , 2010 and 2009 , respectively . interest expense : replace_table_token_15_th interest expense was slightly higher in 2011 compared to 2010 due to higher interest rates partially offset by lower average debt levels . the higher

cash flows from operating activities : replace_table_token_39_th net income including non-controlling interest was $ 89.0 million in 2011 , $ 70.4 million in 2010 and $ 83.7 million in 2009. changes in net working capital ( trade receivables , inventory and accounts payable ) accounted for a use of cash of $ 21.5 million in 2011 , a use of cash of $ 31.4 million in 2010 and a source of cash of $ 19.5 million in 2009. following is an assessment of each of the net working capital components : trade receivables , net - changes in trade receivables resulted in a $ 21.9 million use of cash in 2011 as compared to a $ 17.5 million use of cash in 2010 and a $ 15.7 million source of cash in 2009. the higher sales activity was the primary reason for the increase in trade receivables in 2011. the dso was 54 days at december 3 , 2011 , 55 days at november 27 , 2010 and 53 days at november 28 , 2009. inventory – changes in inventory resulted in a $ 13.0 million use of cash in 2011 as compared to a use of cash of $ 5.2 million in 2010 and a source of cash of $ 35.7 million in 2009. inventory days on hand were 45 days at the end of 2011 as compared to 44 days and 46 days at the end of 2010 and 2009 , respectively . through the first three quarters of 2011 inventory increases had resulted in a use of cash of $ 46.5 million driven by higher raw material costs and purchasing certain raw materials based on availability rather than on forecasted usage . in the fourth quarter inventories were managed down , providing a strong boost to the fourth quarter cash flow . trade payables – changes in trade payables resulted in a source of cash of $ 13.3 million in 2011 and a use of cash of $ 8.8 million and $ 31.9 million in 2010 and 2009 , respectively .

management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business , determine how we are performing versus our internal goals and targets , and against the performance of our competitors and other benchmarks in the marketplace in which we operate . senior executives hold meetings twice per quarter with officers , managers and staff to discuss and analyze operating results and address significant variances to budget and prior year in an effort to identify trends and changes in our business . we focus on many operating metrics including changes in revenue , oibda , adjusted oibda and adjusted oibda margin , as defined and discussed in “ notes to the selected historical financial and operating data ” above , as some of our primary measurement metrics . in addition , we monitor our monthly advertising performance measurements , including advertising inventory utilization , national and local advertising pricing ( cpm ) , local/regional advertising rate per screen per week , local/regional and total advertising revenue per attendee , as well as , our free cash flow , dividend coverage ratio , financial leverage ( net debt divided by adjusted oibda ) and cash balances and revolving credit facility availability to ensure debt covenant compliance and that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our board of directors . recent transactions on december 26 , 2013 , ncm llc sold its fathom events business to a newly formed limited liability company ( ac jv , llc ) owned 32 % by each of the founding members and 4 % by ncm llc . the fathom events business focused on the marketing and distribution of live and pre-recorded entertainment programming to theatre operators to provide additional programs to augment their feature film schedule . in consideration for the sale , ncm llc received a total of $ 25.0 million in promissory notes from its founding members ( one-third from each founding member ) . refer to note 2 to the audited consolidated financial statements included elsewhere in this document . on may 5 , 2014 , ncm , inc. entered into an agreement and plan of merger ( the “ merger agreement ” ) to merge with screenvision . on november 3 , 2014 , the department of justice filed a lawsuit seeking to enjoin the merger . on march 16 , 2015 , the company announced the termination of the merger agreement and the lawsuit was dismissed . after the merger agreement was terminated , ncm llc reimbursed ncm , inc. for certain expenses pursuant to an indemnification agreement 37 among ncm llc , ncm , inc. and the founding memb ers . on march 17 , 2015 , ncm llc paid screenvision an approximate $ 26.8 million termination payment on behalf of ncm , inc. this payment was $ 2 million lower than the reverse termination fee contemplated by the merger agreement . during the year ended decem ber 31 , 2015 , ncm llc also either paid directly or reimbursed ncm , inc. for the legal and other merger-related costs of approximately $ 15.0 million ( $ 7.5 million incurred by ncm , inc. during the year ended january 1 , 2015 and approximately $ 7.5 million inc urred by ncm llc during the year ended december 31 , 2015 ) . the company and the founding members each bore a pro rata portion of the termination fee and the related merger expenses based on their aggregate ownership percentages in ncm llc when the expenses were incurred . our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “ risk factors ” in this form 10-k. summary historical and operating data you should read this information in conjunction with the other information contained in this document , and our audited historical financial statements and the notes thereto included elsewhere in this document . the following table presents operating data and adjusted oibda ( dollars in millions , except share and margin data ) . refer to “ item 6. selected financial data—notes to the selected historical financial and operating data ” for a discussion of the calculation of adjusted oibda and reconciliation to consolidated net income . replace_table_token_9_th nm = not meaningful . ( 1 ) merger termination fee and related merger costs primarily include the merger termination payment and legal , accounting , advisory and other professional fees associated with the terminated merger with screenvision . ( 2 ) represents the total attendance within ncm llc 's advertising network . ( 3 ) excludes screens and attendance associated with certain amc rave and cinemark rave theatres for all periods presented . refer to note 5 to the audited consolidated financial statements included elsewhere in this document . 38 basis of presentation prior to the completion of the ipo , ncm llc was wholly-owned by its founding members . in connection with the offering , ncm , inc. purchased newly issued common membership units from ncm llc and common membership units from ncm llc 's founding members , and became a member of and the sole manager of ncm llc . we entered into several agreements to effect the reorganization and the financing transaction and certain amendments were made to the existing esas to govern the relationships among ncm llc and ncm llc 's founding members after the completion of these transactions . the results of operations data discussed herein were derived from the audited consolidated financial statements and accounting records of ncm , inc. and should be read in conjunction with the notes thereto . we have a 52-week or 53-week fiscal year ending on the first thursday after december 25. fiscal year 2014 contained 53 weeks . fiscal years 2013 and 2015 contained 52 weeks . story_separator_special_tag an additional week in 2014. theatre access fees—founding members . theatre access fees increased $ 1.2 million , or 1.7 % , from $ 69.4 million for the year ended december 26 , 2013 to $ 70.6 million for the year ended january 1 , 2015. the increase was due to a $ 2.0 million increase in theatre access fees due to an increase in the number of digital screens ( connected to dcn ) , including higher quality digital cinema projectors and related equipment , partially offset by a $ 0.8 million decrease related to the 1.6 % decrease in founding member attendance in 2014 compared to 2013. the fees for digital screens and equipment increased $ 1.2 million related to an annual 5 % rate increase specified in the esas and $ 0.8 million from an increase of 2.5 % in the average number of founding member digital screens and an increase of 3.8 % in the average number of founding member theatres equipped with the higher quality digital cinema equipment year-over-year . the increases in digital screens and theatres with digital cinema equipment were due primarily to acquisitions by the founding members . selling and marketing costs . selling and marketing costs decreased $ 3.9 million , or 6.3 % , from $ 61.5 million for the year ended december 26 , 2013 to $ 57.6 million for the year ended january 1 , 2015. this decrease was primarily due to a decrease in bad debt expense of $ 2.2 million as actual advertising accounts receivable write-offs were lower than estimated , a decrease of $ 1.6 million in non-cash barter expense related to timing of barter transactions and a decrease of $ 0.6 million in certain discretionary marketing expenses . these decreases to selling and marketing costs were partially offset by an increase of $ 0.3 million in personnel expense due primarily to higher share-based compensation expense and local commissions , partially offset by lower salaries , bonuses and related taxes ( related to lower performance against internal targets ) and lower benefit costs . administrative and other costs . other administrative and other costs increased $ 0.1 million , or 0.3 % , from $ 29.4 million for the year ended december 26 , 2013 to $ 29.5 million for the year ended january 1 , 2015 due primarily to a $ 0.9 million increase in personnel expense due primarily to lower capitalized labor , higher share-based compensation expense and the impact of an additional week in 2014 , partially offset by lower bonus expense and related taxes ( related to lower performance against internal targets ) and lower benefit costs , partially offset by a decrease in legal and professional fees of approximately $ 0.5 million . depreciation and amortization . depreciation and amortization expense increased $ 5.8 million , or 21.8 % , from $ 26.6 million for the year ended december 26 , 2013 to $ 32.4 million for the year ended january 1 , 2015. the increase was primarily due to higher amortization of intangible assets related to new affiliate agreements and ncm llc founding member common unit adjustments , primarily related to founding member theatre acquisitions and the impact of an additional week in 2014. merger-related administrative costs . merger-related administrative costs were $ 7.5 million for the year ended january 1 , 2015 due primarily to legal and accounting fees associated with the terminated screenvision merger . non-operating expenses . total non-operating expenses increased $ 24.2 million , or 46.5 % , from $ 52.0 million for the year ended december 26 , 2013 to $ 76.2 million for the year ended january 1 , 2015. the following table shows the changes in non-operating expense for the years ended january 1 , 2015 and december 26 , 2013 ( in millions ) : replace_table_token_17_th nm = not meaningful . 44 the increase in non-operating expense was due primarily to the absence of the gain recorded in 2013 of $ 25.4 million , net of direct expenses , related to the sale of our fathom events business on december 26 , 2013. in addition , interest on borrowings increased $ 1.0 millio n due to an additional week in our 53-week year , compared to a 52-week year in 2013. interest due to ncm llc 's founding members under the tax receivable agreement increased $ 0.7 million due primarily to changes in tax rates and ncm llc ownership rates pe riod over period . the increase in non-operating expense was partially offset by an increase in interest income of $ 1.4 million due primarily to interest accrued on the notes receivable from ncm llc 's founding members from the sale of fathom events and the absence of a $ 0.8 million impairment of an investment recorded in 2013. net income . net income decreased $ 27.8 million from $ 41.2 million for the year ended december 26 , 2013 to $ 13.4 million for the year ended january 1 , 2015. the decrease in net income was due to a decrease in operating income of $ 50.3 million that was due primarily to the decrease in our national advertising revenue and was negatively impacted by the sale of the fathom events business and $ 7.5 million of merger-related expenses , and an increase of $ 24.2 million in non-operating expense , as described further above , partially offset by a $ 36.4 million decrease in income attributable to noncontrolling interests and a decrease in income tax expense of $ 10.3 million , due primarily to lower net income before taxes in the period . known trends and uncertainties trends and uncertainties related to our business , industry and corporate structure changes in the current macro-economic environment and changes in the national , regional and local advertising markets , including increased competition related to the expansion of online and mobile advertising platforms , present uncertainties that could impact our results of

cash flows from operating activities : replace_table_token_39_th net income including non-controlling interest was $ 89.0 million in 2011 , $ 70.4 million in 2010 and $ 83.7 million in 2009. changes in net working capital ( trade receivables , inventory and accounts payable ) accounted for a use of cash of $ 21.5 million in 2011 , a use of cash of $ 31.4 million in 2010 and a source of cash of $ 19.5 million in 2009. following is an assessment of each of the net working capital components : trade receivables , net - changes in trade receivables resulted in a $ 21.9 million use of cash in 2011 as compared to a $ 17.5 million use of cash in 2010 and a $ 15.7 million source of cash in 2009. the higher sales activity was the primary reason for the increase in trade receivables in 2011. the dso was 54 days at december 3 , 2011 , 55 days at november 27 , 2010 and 53 days at november 28 , 2009. inventory – changes in inventory resulted in a $ 13.0 million use of cash in 2011 as compared to a use of cash of $ 5.2 million in 2010 and a source of cash of $ 35.7 million in 2009. inventory days on hand were 45 days at the end of 2011 as compared to 44 days and 46 days at the end of 2010 and 2009 , respectively . through the first three quarters of 2011 inventory increases had resulted in a use of cash of $ 46.5 million driven by higher raw material costs and purchasing certain raw materials based on availability rather than on forecasted usage . in the fourth quarter inventories were managed down , providing a strong boost to the fourth quarter cash flow . trade payables – changes in trade payables resulted in a source of cash of $ 13.3 million in 2011 and a use of cash of $ 8.8 million and $ 31.9 million in 2010 and 2009 , respectively .

management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business , determine how we are performing versus our internal goals and targets , and against the performance of our competitors and other benchmarks in the marketplace in which we operate . senior executives hold meetings twice per quarter with officers , managers and staff to discuss and analyze operating results and address significant variances to budget and prior year in an effort to identify trends and changes in our business . we focus on many operating metrics including changes in revenue , oibda , adjusted oibda and adjusted oibda margin , as defined and discussed in “ notes to the selected historical financial and operating data ” above , as some of our primary measurement metrics . in addition , we monitor our monthly advertising performance measurements , including advertising inventory utilization , national and local advertising pricing ( cpm ) , local/regional advertising rate per screen per week , local/regional and total advertising revenue per attendee , as well as , our free cash flow , dividend coverage ratio , financial leverage ( net debt divided by adjusted oibda ) and cash balances and revolving credit facility availability to ensure debt covenant compliance and that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our board of directors . recent transactions on december 26 , 2013 , ncm llc sold its fathom events business to a newly formed limited liability company ( ac jv , llc ) owned 32 % by each of the founding members and 4 % by ncm llc . the fathom events business focused on the marketing and distribution of live and pre-recorded entertainment programming to theatre operators to provide additional programs to augment their feature film schedule . in consideration for the sale , ncm llc received a total of $ 25.0 million in promissory notes from its founding members ( one-third from each founding member ) . refer to note 2 to the audited consolidated financial statements included elsewhere in this document . on may 5 , 2014 , ncm , inc. entered into an agreement and plan of merger ( the “ merger agreement ” ) to merge with screenvision . on november 3 , 2014 , the department of justice filed a lawsuit seeking to enjoin the merger . on march 16 , 2015 , the company announced the termination of the merger agreement and the lawsuit was dismissed . after the merger agreement was terminated , ncm llc reimbursed ncm , inc. for certain expenses pursuant to an indemnification agreement 37 among ncm llc , ncm , inc. and the founding memb ers . on march 17 , 2015 , ncm llc paid screenvision an approximate $ 26.8 million termination payment on behalf of ncm , inc. this payment was $ 2 million lower than the reverse termination fee contemplated by the merger agreement . during the year ended decem ber 31 , 2015 , ncm llc also either paid directly or reimbursed ncm , inc. for the legal and other merger-related costs of approximately $ 15.0 million ( $ 7.5 million incurred by ncm , inc. during the year ended january 1 , 2015 and approximately $ 7.5 million inc urred by ncm llc during the year ended december 31 , 2015 ) . the company and the founding members each bore a pro rata portion of the termination fee and the related merger expenses based on their aggregate ownership percentages in ncm llc when the expenses were incurred . our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “ risk factors ” in this form 10-k. summary historical and operating data you should read this information in conjunction with the other information contained in this document , and our audited historical financial statements and the notes thereto included elsewhere in this document . the following table presents operating data and adjusted oibda ( dollars in millions , except share and margin data ) . refer to “ item 6. selected financial data—notes to the selected historical financial and operating data ” for a discussion of the calculation of adjusted oibda and reconciliation to consolidated net income . replace_table_token_9_th nm = not meaningful . ( 1 ) merger termination fee and related merger costs primarily include the merger termination payment and legal , accounting , advisory and other professional fees associated with the terminated merger with screenvision . ( 2 ) represents the total attendance within ncm llc 's advertising network . ( 3 ) excludes screens and attendance associated with certain amc rave and cinemark rave theatres for all periods presented . refer to note 5 to the audited consolidated financial statements included elsewhere in this document . 38 basis of presentation prior to the completion of the ipo , ncm llc was wholly-owned by its founding members . in connection with the offering , ncm , inc. purchased newly issued common membership units from ncm llc and common membership units from ncm llc 's founding members , and became a member of and the sole manager of ncm llc . we entered into several agreements to effect the reorganization and the financing transaction and certain amendments were made to the existing esas to govern the relationships among ncm llc and ncm llc 's founding members after the completion of these transactions . the results of operations data discussed herein were derived from the audited consolidated financial statements and accounting records of ncm , inc. and should be read in conjunction with the notes thereto . we have a 52-week or 53-week fiscal year ending on the first thursday after december 25. fiscal year 2014 contained 53 weeks . fiscal years 2013 and 2015 contained 52 weeks . story_separator_special_tag an additional week in 2014. theatre access fees—founding members . theatre access fees increased $ 1.2 million , or 1.7 % , from $ 69.4 million for the year ended december 26 , 2013 to $ 70.6 million for the year ended january 1 , 2015. the increase was due to a $ 2.0 million increase in theatre access fees due to an increase in the number of digital screens ( connected to dcn ) , including higher quality digital cinema projectors and related equipment , partially offset by a $ 0.8 million decrease related to the 1.6 % decrease in founding member attendance in 2014 compared to 2013. the fees for digital screens and equipment increased $ 1.2 million related to an annual 5 % rate increase specified in the esas and $ 0.8 million from an increase of 2.5 % in the average number of founding member digital screens and an increase of 3.8 % in the average number of founding member theatres equipped with the higher quality digital cinema equipment year-over-year . the increases in digital screens and theatres with digital cinema equipment were due primarily to acquisitions by the founding members . selling and marketing costs . selling and marketing costs decreased $ 3.9 million , or 6.3 % , from $ 61.5 million for the year ended december 26 , 2013 to $ 57.6 million for the year ended january 1 , 2015. this decrease was primarily due to a decrease in bad debt expense of $ 2.2 million as actual advertising accounts receivable write-offs were lower than estimated , a decrease of $ 1.6 million in non-cash barter expense related to timing of barter transactions and a decrease of $ 0.6 million in certain discretionary marketing expenses . these decreases to selling and marketing costs were partially offset by an increase of $ 0.3 million in personnel expense due primarily to higher share-based compensation expense and local commissions , partially offset by lower salaries , bonuses and related taxes ( related to lower performance against internal targets ) and lower benefit costs . administrative and other costs . other administrative and other costs increased $ 0.1 million , or 0.3 % , from $ 29.4 million for the year ended december 26 , 2013 to $ 29.5 million for the year ended january 1 , 2015 due primarily to a $ 0.9 million increase in personnel expense due primarily to lower capitalized labor , higher share-based compensation expense and the impact of an additional week in 2014 , partially offset by lower bonus expense and related taxes ( related to lower performance against internal targets ) and lower benefit costs , partially offset by a decrease in legal and professional fees of approximately $ 0.5 million . depreciation and amortization . depreciation and amortization expense increased $ 5.8 million , or 21.8 % , from $ 26.6 million for the year ended december 26 , 2013 to $ 32.4 million for the year ended january 1 , 2015. the increase was primarily due to higher amortization of intangible assets related to new affiliate agreements and ncm llc founding member common unit adjustments , primarily related to founding member theatre acquisitions and the impact of an additional week in 2014. merger-related administrative costs . merger-related administrative costs were $ 7.5 million for the year ended january 1 , 2015 due primarily to legal and accounting fees associated with the terminated screenvision merger . non-operating expenses . total non-operating expenses increased $ 24.2 million , or 46.5 % , from $ 52.0 million for the year ended december 26 , 2013 to $ 76.2 million for the year ended january 1 , 2015. the following table shows the changes in non-operating expense for the years ended january 1 , 2015 and december 26 , 2013 ( in millions ) : replace_table_token_17_th nm = not meaningful . 44 the increase in non-operating expense was due primarily to the absence of the gain recorded in 2013 of $ 25.4 million , net of direct expenses , related to the sale of our fathom events business on december 26 , 2013. in addition , interest on borrowings increased $ 1.0 millio n due to an additional week in our 53-week year , compared to a 52-week year in 2013. interest due to ncm llc 's founding members under the tax receivable agreement increased $ 0.7 million due primarily to changes in tax rates and ncm llc ownership rates pe riod over period . the increase in non-operating expense was partially offset by an increase in interest income of $ 1.4 million due primarily to interest accrued on the notes receivable from ncm llc 's founding members from the sale of fathom events and the absence of a $ 0.8 million impairment of an investment recorded in 2013. net income . net income decreased $ 27.8 million from $ 41.2 million for the year ended december 26 , 2013 to $ 13.4 million for the year ended january 1 , 2015. the decrease in net income was due to a decrease in operating income of $ 50.3 million that was due primarily to the decrease in our national advertising revenue and was negatively impacted by the sale of the fathom events business and $ 7.5 million of merger-related expenses , and an increase of $ 24.2 million in non-operating expense , as described further above , partially offset by a $ 36.4 million decrease in income attributable to noncontrolling interests and a decrease in income tax expense of $ 10.3 million , due primarily to lower net income before taxes in the period . known trends and uncertainties trends and uncertainties related to our business , industry and corporate structure changes in the current macro-economic environment and changes in the national , regional and local advertising markets , including increased competition related to the expansion of online and mobile advertising platforms , present uncertainties that could impact our results of

financial condition and liquidity liquidity our cash balances can fluctuate due to the seasonality of our business and related timing of collections of accounts receivable balances and operating expenditure payments , as well as , available cash payments ( as defined in the ncm llc operating agreement ) to ncm llc 's founding members , interest or principal payments on our term loan and the senior secured notes and senior unsecured notes , income tax payments , tax receivable agreement payments to ncm llc 's founding members and amount of quarterly dividends to ncm , inc. 's common stockholders ( including special dividends ) . a summary of our financial liquidity is as follows ( in millions ) : replace_table_token_19_th ( 1 ) included in cash and cash equivalents as of december 31 , 2015 , january 1 , 2015 and december 26 , 2013 there was $ 3.0 million , $ 10.2 million and $ 13.3 million of cash held by ncm llc which is not available to satisfy ncm , inc. 's dividend payments and other ncm , inc. obligations . ( 2 ) the revolving credit facility portion of ncm llc 's total borrowings is available , subject to certain conditions , for general corporate purposes of ncm llc in the ordinary course of business and for other transactions permitted under the senior secured credit facility , and a portion is available for letters of credit . ncm llc 's total availability under the revolving credit facility is $ 135.0 million .

pursuant to the additional forward purchaser subscription agreement , immediately prior to the effective time , the forward 56 purchaser purchased from the company 5,000,000 shares of common stock at a purchase price of $ 10.00 per share . as consideration for the additional investment , 25 % of mosaic sponsor llc 's shares of the company 's class f common stock , par value $ 0.0001 per share ( the “founder shares” ) and private placement warrants ( the “private placement warrants” ) were forfeited to the company and the company issued to the forward purchaser an equal number of shares of common stock and warrants concurrently with the closing . in connection with the closing , the registrant changed its name from mosaic acquisition corp. to vivint smart home , inc. the audited financial statements included herein are those of the company prior to the merger . prior to the merger , the company neither engaged in any operations nor generated any revenue . until the merger , based on the company 's business activities , it was a “shell company” as defined under the securities exchange act of 1934 , as amended ( the “exchange act” ) . the audited consolidated financial statements of legacy vivint smart home , which is considered the company 's accounting predecessor , are included in amendment no . 2 to the company 's current report on form 8-k , which is anticipated to be filed with the securities and exchange commission ( the “sec” ) on or about march 13 , 2020. following the merger , we are a smart home technology company . our purpose-built platform has all the components required to deliver on the promise of a true smart home experience . our smart home platform is comprised of the following five pillars : ( 1 ) our smart home operating system , ( 2 ) our ai-driven smart home automation and assistance software , vivint assist , ( 3 ) our portfolio of proprietary , internally developed smart devices , ( 4 ) our curated yet extensible partner-neutral ecosystem , and ( 5 ) our people delivering tech-enabled premium services , including consultative selling , professional installation , and support . legacy vivint smart home was founded by our ceo todd pedersen in 1999 and has grown to become one of the largest smart home solutions providers in north america with over 1.5 million subscribers as of december 31 , 2019 , managing over 20 million devices and processing over 1.5 billion home-related events on a daily basis . our nationwide sales and service footprint covers 98 % of u.s. zip codes . our culture and our history are characterized by a spirit of continuous innovation , resulting in the development of cutting-edge proprietary smart home devices and tech-enabled services for the smart home . consistent with our vivint brand name , which represents ‘to live intelligently ' , our solution allows subscribers to live intelligently and to enjoy the benefits of a smart home . our approach has focused on putting the subscriber experience first , which we do by presenting our subscribers with the right combination of technology and support , delivered by people who care . our go-to-market strategy is based on directly educating consumers about the value and benefits of a smart home experience . we reach consumers through a variety of efficient customer acquisition channels , including our direct-to-home , national inside sales , and retail partnership programs . we continue to scale these efforts through our proprietary operations technology , by launching new and innovative products and services , and by building out our consultative sales channels . we continue to strengthen our relationships with existing subscribers by offering them the ability to use vivint flex pay to finance an upgrade of their existing system and to add new devices and features to their smart homes as our portfolio of offerings expands . as of december 31 , 2019 and 2018 , mosaic acquisition corp. had net income of $ 4.2 million and $ 5.3 million , respectively . as of december 31 , 2019 and 2018 , legacy vivint smart home had over 1.5 million and 1.4 million subscribers , respectively , representing year-over-year growth of 7 % . in 2019 and 2018 , legacy vivint smart home generated revenue of $ 1.2 billion and $ 1.1 billion , respectively along with a net loss of $ 395.9 million and $ 472.6 million , respectively . as of december 31 , 2019 and 2018 , legacy vivint smart home had approximately $ 3.3 billion and $ 3.0 billion of total debt outstanding , respectively . 57 recent developments refinancing transactions on february 14 , 2020 , apx completed its offering of $ 600.0 million aggregate principal amount of 6.75 % senior secured notes due 2027 ( the “2027 notes” ) in a private placement . concurrently with the 2027 notes offering , apx amended and restated the credit agreements governing our existing revolving credit facility and existing term loan credit facility ( the “concurrent refinancing transactions” ) . in connection therewith , apx , among other things , ( i ) extended the maturity date with respect to certain commitments under the revolving credit facility and increased the aggregate commitments in respect of the revolving credit facility to $ 350.0 million and ( ii ) extended the maturity date with respect to the loans outstanding under the term loan facility and increased the aggregate principal amount of term loans outstanding under the term loan credit facility to $ 950.0 million . story_separator_special_tag expansion of platform monetization as smart home technology develops , we will continue expanding the breadth and depth of our offerings to reflect the growing needs of our subscriber base and focus on expanding our platform through the addition of new smart home experiences and use cases . as a result of legacy vivint smart home 's investments to date , our smart home platform is active in over 1.5 million households . we will continue to develop our smart home operating system to include new complex automation capabilities , use case scenarios , and comprehensive device integrations . the legacy vivint smart home platform supports over 20 million connected devices , as of december 31 , 2019. with each new product , service , or feature we add to our platform , we create an opportunity to generate revenue , either through sales to our existing subscribers or through the acquisition of new subscribers . as a result , we anticipate that offering a broader range of smart home experiences will allow us to grow revenue , because it improves our ability to offer tailored service packages to subscribers with different needs . this is the rationale behind our addition of carguard , a service that expands our smart home experience beyond the four walls of the home . we believe this expansion of our product and service offerings will allow us to build our subscriber base , while maintaining or improving margins . whether we upsell existing subscribers or acquire new ones , expansion of our platform and corresponding monetization strategies directly impacts our revenue growth and our average revenue per user , and therefore , our operating results . subscribers who contract for a smart home are signing up for our combined proprietary smart home devices and tech-enabled service offerings . at the time of signing , subscribers choose the subscription-based service that matches their smart home needs . because our revenue and operating margins are determined by which package a subscriber signs up for , ensuring that new subscribers choose the appropriate service offering is a major determinant of our operating success . additionally , because we cover 98 % of us zip codes , our service costs greatly impact our operating margins . over time , as our organization grows , we achieve economies of scale on our service costs . while we anticipate that our service costs per subscriber will decline over time , an unanticipated increase in service costs could negatively impact our profitability moving forward . 62 investment in future projects legacy vivint smart home has made significant investments in the development of our organization , and we expect to leverage these investments to continue expanding our product and service offerings over time , including integration with third party products to drive future revenue . our ability to expand our smart home platform and to monetize the platform as it develops will significantly impact our operating performance and profitability in the future . we believe that the smart home of the future will be an ecosystem in which businesses will seek to deliver products and services to subscribers in a way that addresses the individual subscriber 's lifestyle and needs . as the smart home becomes the setting for the delivery of a wide range of these products and services , including healthcare , entertainment , home maintenance , elder care , beauty , and consumer goods , we hope to become the hub of this ecosystem and the strategic partner of choice for the businesses delivering these products and services . our success in connecting with business partners who integrate with our smart home operating system in order to reach and interact with our subscriber base will be a key determinant of our continued operating success . we expect that additional partnerships will generate incremental revenue , because we will share in the revenue generated by each partner-provided product or service sale that occurs as a result of integration with our smart home platform . if we are able to continue expanding our curated set of partnerships with influential companies , as we already have with google , amazon , and philips , we believe that this will help us to increase our revenue and resulting profitability . our ability to introduce a full suite of high-quality innovative new offerings that further expands our existing smart home platform will affect our ability to retain , grow and further monetize our subscriber base . furthermore , we believe that by vertically integrating the development and design of our products and services with our existing sales and subscriber service activities allows us to more quickly respond to market needs , and better understand our subscribers ' interactions and engagement with our products and services . this provides critical data that we expect to enable us to continue improving the power , usability and intelligence of these products and services . we expect to continue investing in technologies that will make our platform more valuable and engaging for subscribers . key performance measures after the merger in evaluating our results , we review several key performance measures discussed below . we believe that the presentation of such metrics is useful to our investors and lenders because they are used to measure the value of companies such as ours with recurring revenue streams . after the merger , our management uses these metrics to analyze its continuing operations and to monitor , assess , and identify meaningful trends in the operating and financial performance of the company . total subscribers total subscribers is the aggregate number of active smart home and security subscribers at the end of a given period . total monthly revenue total monthly revenue , or total mr , is the average monthly total revenue recognized during the period . average monthly revenue per user average monthly revenue per user , or amru , is total mr divided by average monthly total

financial condition and liquidity liquidity our cash balances can fluctuate due to the seasonality of our business and related timing of collections of accounts receivable balances and operating expenditure payments , as well as , available cash payments ( as defined in the ncm llc operating agreement ) to ncm llc 's founding members , interest or principal payments on our term loan and the senior secured notes and senior unsecured notes , income tax payments , tax receivable agreement payments to ncm llc 's founding members and amount of quarterly dividends to ncm , inc. 's common stockholders ( including special dividends ) . a summary of our financial liquidity is as follows ( in millions ) : replace_table_token_19_th ( 1 ) included in cash and cash equivalents as of december 31 , 2015 , january 1 , 2015 and december 26 , 2013 there was $ 3.0 million , $ 10.2 million and $ 13.3 million of cash held by ncm llc which is not available to satisfy ncm , inc. 's dividend payments and other ncm , inc. obligations . ( 2 ) the revolving credit facility portion of ncm llc 's total borrowings is available , subject to certain conditions , for general corporate purposes of ncm llc in the ordinary course of business and for other transactions permitted under the senior secured credit facility , and a portion is available for letters of credit . ncm llc 's total availability under the revolving credit facility is $ 135.0 million .

pursuant to the additional forward purchaser subscription agreement , immediately prior to the effective time , the forward 56 purchaser purchased from the company 5,000,000 shares of common stock at a purchase price of $ 10.00 per share . as consideration for the additional investment , 25 % of mosaic sponsor llc 's shares of the company 's class f common stock , par value $ 0.0001 per share ( the “founder shares” ) and private placement warrants ( the “private placement warrants” ) were forfeited to the company and the company issued to the forward purchaser an equal number of shares of common stock and warrants concurrently with the closing . in connection with the closing , the registrant changed its name from mosaic acquisition corp. to vivint smart home , inc. the audited financial statements included herein are those of the company prior to the merger . prior to the merger , the company neither engaged in any operations nor generated any revenue . until the merger , based on the company 's business activities , it was a “shell company” as defined under the securities exchange act of 1934 , as amended ( the “exchange act” ) . the audited consolidated financial statements of legacy vivint smart home , which is considered the company 's accounting predecessor , are included in amendment no . 2 to the company 's current report on form 8-k , which is anticipated to be filed with the securities and exchange commission ( the “sec” ) on or about march 13 , 2020. following the merger , we are a smart home technology company . our purpose-built platform has all the components required to deliver on the promise of a true smart home experience . our smart home platform is comprised of the following five pillars : ( 1 ) our smart home operating system , ( 2 ) our ai-driven smart home automation and assistance software , vivint assist , ( 3 ) our portfolio of proprietary , internally developed smart devices , ( 4 ) our curated yet extensible partner-neutral ecosystem , and ( 5 ) our people delivering tech-enabled premium services , including consultative selling , professional installation , and support . legacy vivint smart home was founded by our ceo todd pedersen in 1999 and has grown to become one of the largest smart home solutions providers in north america with over 1.5 million subscribers as of december 31 , 2019 , managing over 20 million devices and processing over 1.5 billion home-related events on a daily basis . our nationwide sales and service footprint covers 98 % of u.s. zip codes . our culture and our history are characterized by a spirit of continuous innovation , resulting in the development of cutting-edge proprietary smart home devices and tech-enabled services for the smart home . consistent with our vivint brand name , which represents ‘to live intelligently ' , our solution allows subscribers to live intelligently and to enjoy the benefits of a smart home . our approach has focused on putting the subscriber experience first , which we do by presenting our subscribers with the right combination of technology and support , delivered by people who care . our go-to-market strategy is based on directly educating consumers about the value and benefits of a smart home experience . we reach consumers through a variety of efficient customer acquisition channels , including our direct-to-home , national inside sales , and retail partnership programs . we continue to scale these efforts through our proprietary operations technology , by launching new and innovative products and services , and by building out our consultative sales channels . we continue to strengthen our relationships with existing subscribers by offering them the ability to use vivint flex pay to finance an upgrade of their existing system and to add new devices and features to their smart homes as our portfolio of offerings expands . as of december 31 , 2019 and 2018 , mosaic acquisition corp. had net income of $ 4.2 million and $ 5.3 million , respectively . as of december 31 , 2019 and 2018 , legacy vivint smart home had over 1.5 million and 1.4 million subscribers , respectively , representing year-over-year growth of 7 % . in 2019 and 2018 , legacy vivint smart home generated revenue of $ 1.2 billion and $ 1.1 billion , respectively along with a net loss of $ 395.9 million and $ 472.6 million , respectively . as of december 31 , 2019 and 2018 , legacy vivint smart home had approximately $ 3.3 billion and $ 3.0 billion of total debt outstanding , respectively . 57 recent developments refinancing transactions on february 14 , 2020 , apx completed its offering of $ 600.0 million aggregate principal amount of 6.75 % senior secured notes due 2027 ( the “2027 notes” ) in a private placement . concurrently with the 2027 notes offering , apx amended and restated the credit agreements governing our existing revolving credit facility and existing term loan credit facility ( the “concurrent refinancing transactions” ) . in connection therewith , apx , among other things , ( i ) extended the maturity date with respect to certain commitments under the revolving credit facility and increased the aggregate commitments in respect of the revolving credit facility to $ 350.0 million and ( ii ) extended the maturity date with respect to the loans outstanding under the term loan facility and increased the aggregate principal amount of term loans outstanding under the term loan credit facility to $ 950.0 million . story_separator_special_tag expansion of platform monetization as smart home technology develops , we will continue expanding the breadth and depth of our offerings to reflect the growing needs of our subscriber base and focus on expanding our platform through the addition of new smart home experiences and use cases . as a result of legacy vivint smart home 's investments to date , our smart home platform is active in over 1.5 million households . we will continue to develop our smart home operating system to include new complex automation capabilities , use case scenarios , and comprehensive device integrations . the legacy vivint smart home platform supports over 20 million connected devices , as of december 31 , 2019. with each new product , service , or feature we add to our platform , we create an opportunity to generate revenue , either through sales to our existing subscribers or through the acquisition of new subscribers . as a result , we anticipate that offering a broader range of smart home experiences will allow us to grow revenue , because it improves our ability to offer tailored service packages to subscribers with different needs . this is the rationale behind our addition of carguard , a service that expands our smart home experience beyond the four walls of the home . we believe this expansion of our product and service offerings will allow us to build our subscriber base , while maintaining or improving margins . whether we upsell existing subscribers or acquire new ones , expansion of our platform and corresponding monetization strategies directly impacts our revenue growth and our average revenue per user , and therefore , our operating results . subscribers who contract for a smart home are signing up for our combined proprietary smart home devices and tech-enabled service offerings . at the time of signing , subscribers choose the subscription-based service that matches their smart home needs . because our revenue and operating margins are determined by which package a subscriber signs up for , ensuring that new subscribers choose the appropriate service offering is a major determinant of our operating success . additionally , because we cover 98 % of us zip codes , our service costs greatly impact our operating margins . over time , as our organization grows , we achieve economies of scale on our service costs . while we anticipate that our service costs per subscriber will decline over time , an unanticipated increase in service costs could negatively impact our profitability moving forward . 62 investment in future projects legacy vivint smart home has made significant investments in the development of our organization , and we expect to leverage these investments to continue expanding our product and service offerings over time , including integration with third party products to drive future revenue . our ability to expand our smart home platform and to monetize the platform as it develops will significantly impact our operating performance and profitability in the future . we believe that the smart home of the future will be an ecosystem in which businesses will seek to deliver products and services to subscribers in a way that addresses the individual subscriber 's lifestyle and needs . as the smart home becomes the setting for the delivery of a wide range of these products and services , including healthcare , entertainment , home maintenance , elder care , beauty , and consumer goods , we hope to become the hub of this ecosystem and the strategic partner of choice for the businesses delivering these products and services . our success in connecting with business partners who integrate with our smart home operating system in order to reach and interact with our subscriber base will be a key determinant of our continued operating success . we expect that additional partnerships will generate incremental revenue , because we will share in the revenue generated by each partner-provided product or service sale that occurs as a result of integration with our smart home platform . if we are able to continue expanding our curated set of partnerships with influential companies , as we already have with google , amazon , and philips , we believe that this will help us to increase our revenue and resulting profitability . our ability to introduce a full suite of high-quality innovative new offerings that further expands our existing smart home platform will affect our ability to retain , grow and further monetize our subscriber base . furthermore , we believe that by vertically integrating the development and design of our products and services with our existing sales and subscriber service activities allows us to more quickly respond to market needs , and better understand our subscribers ' interactions and engagement with our products and services . this provides critical data that we expect to enable us to continue improving the power , usability and intelligence of these products and services . we expect to continue investing in technologies that will make our platform more valuable and engaging for subscribers . key performance measures after the merger in evaluating our results , we review several key performance measures discussed below . we believe that the presentation of such metrics is useful to our investors and lenders because they are used to measure the value of companies such as ours with recurring revenue streams . after the merger , our management uses these metrics to analyze its continuing operations and to monitor , assess , and identify meaningful trends in the operating and financial performance of the company . total subscribers total subscribers is the aggregate number of active smart home and security subscribers at the end of a given period . total monthly revenue total monthly revenue , or total mr , is the average monthly total revenue recognized during the period . average monthly revenue per user average monthly revenue per user , or amru , is total mr divided by average monthly total

cash flows from financing activities historically , legacy vivint smart home 's cash flows provided by financing activities primarily related to the issuance of debt , all to fund the portion of upfront costs associated with generating new subscribers that were not covered through its operating cash flows or through its vivint flex pay program . uses of cash for financing activities are generally associated with the return of capital to our stockholders , the repayment of debt and the payment of financing costs associated with the issuance of debt . long-term debt we are a highly leveraged company with significant debt service requirements . as of december 31 , 2019 , legacy vivint smart home had $ 3,294.2 million of aggregate principal total debt outstanding , consisting of $ 454.3 million of outstanding 2020 notes , $ 270 million of outstanding 2022 private placement notes , $ 900.0 million of outstanding 2022 notes , $ 400.0 million of outstanding 2023 notes , $ 225.0 million of outstanding 2024 notes and $ 799.9 million of outstanding 2024 term loan b with $ 32.1 million of availability under legacy vivint smart home 's revolving credit facility ( after giving effect to $ 11.1 million of outstanding letters of credit and $ 245.0 million of borrowings ) . revolving credit facility on november 16 , 2012 , legacy vivint smart home entered into a $ 200.0 million senior secured revolving credit facility , with a five year maturity . in addition , we may request one or more term loan facilities , increased commitments under the revolving credit facility or new revolving credit commitments , in an aggregate amount not to exceed $ 225.0 million . on june 28 , 2013 , legacy vivint smart home amended and restated the credit agreement to provide for a new repriced tranche of revolving credit commitments with a lower interest rate . nearly all of the existing tranches of revolving credit commitments were terminated and converted into the repriced tranche , with the unterminated portion of the existing tranche continuing to accrue interest at the original higher rate .

44 financial overview financial results we reported losses from operations of approximately $ 55 million for 2017 , $ 14 million for 2016 and $ 31 million for 2015. we reported net losses of approximately $ 35 million for 2017 , $ 14 million for 2016 and $ 32 million for 2015. our revenue was approximately $ 330 million in 2017 , $ 253 million in 2016 and $ 249 million in 2015. our gross profit was approximately $ 201 million in 2017 , $ 168 million in 2016 and $ 162 million in 2015. our gross profit as a percentage of revenue ( `` total gross margin `` ) was approximately 61 % in 2017 , 66 % in 2016 and 65 % in 2015. our operating expenses were approximately $ 257 million in 2017 , compared to approximately $ 181 million in 2016 and approximately $ 193 million in 2015. our 2017 operating expenses included approximately $ 15 million of acquisition- and integration-related expenses , nearly all related to the merger , and approximately $ 9 million of restructuring expense . our 2017 restructuring expense was primarily related to severance and related costs . our 2016 operating expenses included approximately $ 1 million of acquisition- and integration-related costs for professional and services fees related to our acquisition of taqua and approximately $ 3 million of restructuring expense , primarily comprised of approximately $ 2 million related to our 2016 restructuring initiative and approximately $ 1 million related to our taqua restructuring initiative . our 2015 operating expenses included approximately $ 2 million of restructuring expense , comprised of approximately $ 4 million of expense related to our 2015 restructuring initiative , net of approximately $ 2 million of reversals of restructuring expense previously recorded in connection with our 2012 restructuring initiative . we recorded stock-based compensation expense of approximately $ 26 million in 2017 , $ 20 million in 2016 and $ 22 million in 2015. the expense recorded in 2017 includes approximately $ 9 million of incremental expense related to the acceleration of stock options and certain full value stock awards in connection with the merger . see `` results of operations `` in this management 's discussion and analysis of financial condition and results of operations ( `` md & a `` ) for additional discussion of our results of operations for the years ended december 31 , 2017 , 2016 and 2015. restructuring and cost reduction initiatives in connection with the merger , we implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies ( the `` merger restructuring initiative `` ) . accordingly , we recorded $ 8.5 million of restructuring expense in 2017 related to the merger restructuring initiative . we believe that the payments related to the amount accrued at december 31 , 2017 will be completed in 2018. we anticipate that we will record additional future expense in connection with this initiative for headcount and redundant facilities aggregating approximately $ 12 million . we believe that the payments related to this expected additional future expense will be completed by early 2019. we assumed genband 's restructuring liability aggregating approximately $ 4 million at the merger date ( the `` genband restructuring initiative `` ) , primarily related to headcount reductions . we do not expect to record additional expense in connection with this initiative except for adjustments for changes in estimated costs . we expect that the payments related to this assumed liability will be completed in 2018. in connection with the acquisition of taqua , we implemented a restructuring plan in the third quarter of 2016 to eliminate certain redundant positions within the combined companies . on october 24 , 2016 , the audit committee of our board of directors ( the `` audit committee `` ) approved a broader taqua restructuring plan related to headcount and redundant facilities ( collectively , the `` taqua restructuring initiative `` ) . in connection with this initiative , we have recorded approximately $ 2 million of restructuring expense for severance and related costs and estimated costs related to the elimination of redundant facilities , including adjustments recorded for changes in cost estimates for the planned restructuring activities . the actions under the taqua restructuring initiative have been implemented and accordingly , we do not expect to record additional expense in connection with this initiative . the amounts accrued for severance and related costs were fully paid by the end of the third quarter of 2017. we expect that the amounts accrued for facilities costs will be paid by the end of 2018 . 45 on july 25 , 2016 , we announced a program ( the `` 2016 restructuring initiative `` ) to further accelerate our investment in new technologies as the communications industry migrates to a cloud-based architecture and pursues new strategic initiatives , such as new products and an expanded go-to-market footprint in selected geographies and discrete vertical markets . we have recorded an aggregate of approximately $ 2 million of restructuring expense in connection with this initiative , primarily for severance and related costs . the amounts accrued for severance and related costs were fully paid by the end of the third quarter of 2017. we expect that the amounts accrued for facilities will be paid by the end of october 2019. to better align our cost structure to our then-current revenue expectations , in april 2015 , we announced a cost reduction review . on april 16 , 2015 , we initiated a restructuring plan to reduce our workforce by approximately 150 positions , or approximately 13 % of our worldwide workforce ( the `` 2015 restructuring initiative `` ) . we recorded nominal restructuring expense in 2016 and approximately $ 4 million in 2015 in connection with the 2015 restructuring initiative . story_separator_special_tag subsidiaries as of december 31 , 2017 , with the exception of the company 's irish subsidiary , as we do not plan to permanently reinvest these amounts outside the united states . the repatriation of the undistributed earnings would result in withholding taxes imposed on the repatriation . consequently , we have recorded a tax liability of $ 3.2 million , consisting primarily of withholding and distribution taxes , relating to undistributed earnings from these subsidiaries as of december 31 , 2017. had the earnings of the irish subsidiary been determined to not be permanently reinvested outside the u.s. , no additional deferred tax liability would be required due to no withholding taxes or income tax expense being imposed on such repatriation . we assess all material positions taken in any income tax return , including all significant uncertain positions , in all tax years that are still subject to assessment or challenge by relevant taxing authorities . assessing an uncertain tax position begins with the initial determination of the position 's sustainability and is measured at the largest amount of benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . as of each balance sheet date , unresolved uncertain tax positions must be reassessed , and we will determine whether ( i ) the factors underlying the sustainability assertion have changed and ( ii ) the amount of recognized tax benefit is still appropriate . the recognition and measurement of tax benefits require significant judgment . judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tax act `` ) . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to : reducing the u.s. federal corporate tax rate from 35 % to 21 % ; requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries ; generally eliminating u.s. federal income taxes on dividends from foreign subsidiaries ; requiring a current inclusion in u.s. federal taxable income of certain earnings ( global intangible low-taxed income ) of controlled foreign corporation ; eliminating the corporate alternative minimum tax ( `` amt `` ) and changing how existing amt credits can be realized ; creating the base erosion anti-abuse tax ; creating a new limitation on deductible interest expense ; changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 ; providing a tax deduction for foreign-derived intangible income ; and changing rules related to deductibility of compensation for certain officers . the impact of certain effects of the tax act has been recognized in the period in which the new legislation was enacted per guidance in staff accounting bulletin 118 , which allows for a measurement period to complete the accounting for certain elements of the tax reform . we have not yet completed a full evaluation of the impact of the tax act on our financial statements , however , we have provided a reasonable estimate for the impact related to remeasured deferred tax assets based on the new federal income tax rate of 21 % . we have also provided for the provisional impact related to the tax act 's change to the federal nol and amt carryovers . the total estimated impact of $ 5 million is reflected in income from continuing operations , and increased the tax benefit for the year ended december 31 , 2017. we will continue to make and refine our calculations as 49 additional analysis is completed . we can not predict with certainty how the tax act will affect the company 's financial position or results of operations . results of operations years ended december 31 , 2017 and 2016 revenue . revenue for the years ended december 31 , 2017 and 2016 was as follows ( in millions , except percentages ) : replace_table_token_6_th product revenue is comprised of sales of our network transformation , security and applications solutions . the increase in product revenue in 2017 compared to 2016 was primarily the result of the inclusion genband 's product revenue approximating $ 38 million for the period since the merger date , approximately $ 20 million of higher sales of our security and application products and the inclusion of approximately $ 4 million of 2017 product revenue from taqua . these increases were partially offset by net decreases in sales of certain other products , primarily our legacy gateway products . in 2017 , approximately 24 % of our product revenue was from indirect sales through our channel partner program , compared to approximately 26 % in 2016. in 2017 , approximately 20 % of our product revenue was attributable to sales to enterprise customers , compared to approximately 19 % in 2016. these sales were made through both our direct sales team and indirect sales channel partners . the timing of the completion of customer projects , revenue recognition criteria satisfaction and customer payments may cause our product revenue to fluctuate from one period to the next . service revenue is primarily comprised of hardware and software maintenance and support ( “ maintenance revenue ” ) and network design , installation and other professional services ( “ professional services revenue ” ) . service revenue for the years ended december 31 , 2017 and 2016 was comprised of the following ( in millions , except percentages ) : replace_table_token_7_th our maintenance revenue increased in 2017 compared to 2016 primarily due to the inclusion of approximately $ 21 million of revenue attributable to genband in 2017 for the period since the merger date and the inclusion of approximately $ 5 million of revenue attributable to taqua . the increase in

cash flows from financing activities historically , legacy vivint smart home 's cash flows provided by financing activities primarily related to the issuance of debt , all to fund the portion of upfront costs associated with generating new subscribers that were not covered through its operating cash flows or through its vivint flex pay program . uses of cash for financing activities are generally associated with the return of capital to our stockholders , the repayment of debt and the payment of financing costs associated with the issuance of debt . long-term debt we are a highly leveraged company with significant debt service requirements . as of december 31 , 2019 , legacy vivint smart home had $ 3,294.2 million of aggregate principal total debt outstanding , consisting of $ 454.3 million of outstanding 2020 notes , $ 270 million of outstanding 2022 private placement notes , $ 900.0 million of outstanding 2022 notes , $ 400.0 million of outstanding 2023 notes , $ 225.0 million of outstanding 2024 notes and $ 799.9 million of outstanding 2024 term loan b with $ 32.1 million of availability under legacy vivint smart home 's revolving credit facility ( after giving effect to $ 11.1 million of outstanding letters of credit and $ 245.0 million of borrowings ) . revolving credit facility on november 16 , 2012 , legacy vivint smart home entered into a $ 200.0 million senior secured revolving credit facility , with a five year maturity . in addition , we may request one or more term loan facilities , increased commitments under the revolving credit facility or new revolving credit commitments , in an aggregate amount not to exceed $ 225.0 million . on june 28 , 2013 , legacy vivint smart home amended and restated the credit agreement to provide for a new repriced tranche of revolving credit commitments with a lower interest rate . nearly all of the existing tranches of revolving credit commitments were terminated and converted into the repriced tranche , with the unterminated portion of the existing tranche continuing to accrue interest at the original higher rate .

44 financial overview financial results we reported losses from operations of approximately $ 55 million for 2017 , $ 14 million for 2016 and $ 31 million for 2015. we reported net losses of approximately $ 35 million for 2017 , $ 14 million for 2016 and $ 32 million for 2015. our revenue was approximately $ 330 million in 2017 , $ 253 million in 2016 and $ 249 million in 2015. our gross profit was approximately $ 201 million in 2017 , $ 168 million in 2016 and $ 162 million in 2015. our gross profit as a percentage of revenue ( `` total gross margin `` ) was approximately 61 % in 2017 , 66 % in 2016 and 65 % in 2015. our operating expenses were approximately $ 257 million in 2017 , compared to approximately $ 181 million in 2016 and approximately $ 193 million in 2015. our 2017 operating expenses included approximately $ 15 million of acquisition- and integration-related expenses , nearly all related to the merger , and approximately $ 9 million of restructuring expense . our 2017 restructuring expense was primarily related to severance and related costs . our 2016 operating expenses included approximately $ 1 million of acquisition- and integration-related costs for professional and services fees related to our acquisition of taqua and approximately $ 3 million of restructuring expense , primarily comprised of approximately $ 2 million related to our 2016 restructuring initiative and approximately $ 1 million related to our taqua restructuring initiative . our 2015 operating expenses included approximately $ 2 million of restructuring expense , comprised of approximately $ 4 million of expense related to our 2015 restructuring initiative , net of approximately $ 2 million of reversals of restructuring expense previously recorded in connection with our 2012 restructuring initiative . we recorded stock-based compensation expense of approximately $ 26 million in 2017 , $ 20 million in 2016 and $ 22 million in 2015. the expense recorded in 2017 includes approximately $ 9 million of incremental expense related to the acceleration of stock options and certain full value stock awards in connection with the merger . see `` results of operations `` in this management 's discussion and analysis of financial condition and results of operations ( `` md & a `` ) for additional discussion of our results of operations for the years ended december 31 , 2017 , 2016 and 2015. restructuring and cost reduction initiatives in connection with the merger , we implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies ( the `` merger restructuring initiative `` ) . accordingly , we recorded $ 8.5 million of restructuring expense in 2017 related to the merger restructuring initiative . we believe that the payments related to the amount accrued at december 31 , 2017 will be completed in 2018. we anticipate that we will record additional future expense in connection with this initiative for headcount and redundant facilities aggregating approximately $ 12 million . we believe that the payments related to this expected additional future expense will be completed by early 2019. we assumed genband 's restructuring liability aggregating approximately $ 4 million at the merger date ( the `` genband restructuring initiative `` ) , primarily related to headcount reductions . we do not expect to record additional expense in connection with this initiative except for adjustments for changes in estimated costs . we expect that the payments related to this assumed liability will be completed in 2018. in connection with the acquisition of taqua , we implemented a restructuring plan in the third quarter of 2016 to eliminate certain redundant positions within the combined companies . on october 24 , 2016 , the audit committee of our board of directors ( the `` audit committee `` ) approved a broader taqua restructuring plan related to headcount and redundant facilities ( collectively , the `` taqua restructuring initiative `` ) . in connection with this initiative , we have recorded approximately $ 2 million of restructuring expense for severance and related costs and estimated costs related to the elimination of redundant facilities , including adjustments recorded for changes in cost estimates for the planned restructuring activities . the actions under the taqua restructuring initiative have been implemented and accordingly , we do not expect to record additional expense in connection with this initiative . the amounts accrued for severance and related costs were fully paid by the end of the third quarter of 2017. we expect that the amounts accrued for facilities costs will be paid by the end of 2018 . 45 on july 25 , 2016 , we announced a program ( the `` 2016 restructuring initiative `` ) to further accelerate our investment in new technologies as the communications industry migrates to a cloud-based architecture and pursues new strategic initiatives , such as new products and an expanded go-to-market footprint in selected geographies and discrete vertical markets . we have recorded an aggregate of approximately $ 2 million of restructuring expense in connection with this initiative , primarily for severance and related costs . the amounts accrued for severance and related costs were fully paid by the end of the third quarter of 2017. we expect that the amounts accrued for facilities will be paid by the end of october 2019. to better align our cost structure to our then-current revenue expectations , in april 2015 , we announced a cost reduction review . on april 16 , 2015 , we initiated a restructuring plan to reduce our workforce by approximately 150 positions , or approximately 13 % of our worldwide workforce ( the `` 2015 restructuring initiative `` ) . we recorded nominal restructuring expense in 2016 and approximately $ 4 million in 2015 in connection with the 2015 restructuring initiative . story_separator_special_tag subsidiaries as of december 31 , 2017 , with the exception of the company 's irish subsidiary , as we do not plan to permanently reinvest these amounts outside the united states . the repatriation of the undistributed earnings would result in withholding taxes imposed on the repatriation . consequently , we have recorded a tax liability of $ 3.2 million , consisting primarily of withholding and distribution taxes , relating to undistributed earnings from these subsidiaries as of december 31 , 2017. had the earnings of the irish subsidiary been determined to not be permanently reinvested outside the u.s. , no additional deferred tax liability would be required due to no withholding taxes or income tax expense being imposed on such repatriation . we assess all material positions taken in any income tax return , including all significant uncertain positions , in all tax years that are still subject to assessment or challenge by relevant taxing authorities . assessing an uncertain tax position begins with the initial determination of the position 's sustainability and is measured at the largest amount of benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . as of each balance sheet date , unresolved uncertain tax positions must be reassessed , and we will determine whether ( i ) the factors underlying the sustainability assertion have changed and ( ii ) the amount of recognized tax benefit is still appropriate . the recognition and measurement of tax benefits require significant judgment . judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tax act `` ) . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to : reducing the u.s. federal corporate tax rate from 35 % to 21 % ; requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries ; generally eliminating u.s. federal income taxes on dividends from foreign subsidiaries ; requiring a current inclusion in u.s. federal taxable income of certain earnings ( global intangible low-taxed income ) of controlled foreign corporation ; eliminating the corporate alternative minimum tax ( `` amt `` ) and changing how existing amt credits can be realized ; creating the base erosion anti-abuse tax ; creating a new limitation on deductible interest expense ; changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 ; providing a tax deduction for foreign-derived intangible income ; and changing rules related to deductibility of compensation for certain officers . the impact of certain effects of the tax act has been recognized in the period in which the new legislation was enacted per guidance in staff accounting bulletin 118 , which allows for a measurement period to complete the accounting for certain elements of the tax reform . we have not yet completed a full evaluation of the impact of the tax act on our financial statements , however , we have provided a reasonable estimate for the impact related to remeasured deferred tax assets based on the new federal income tax rate of 21 % . we have also provided for the provisional impact related to the tax act 's change to the federal nol and amt carryovers . the total estimated impact of $ 5 million is reflected in income from continuing operations , and increased the tax benefit for the year ended december 31 , 2017. we will continue to make and refine our calculations as 49 additional analysis is completed . we can not predict with certainty how the tax act will affect the company 's financial position or results of operations . results of operations years ended december 31 , 2017 and 2016 revenue . revenue for the years ended december 31 , 2017 and 2016 was as follows ( in millions , except percentages ) : replace_table_token_6_th product revenue is comprised of sales of our network transformation , security and applications solutions . the increase in product revenue in 2017 compared to 2016 was primarily the result of the inclusion genband 's product revenue approximating $ 38 million for the period since the merger date , approximately $ 20 million of higher sales of our security and application products and the inclusion of approximately $ 4 million of 2017 product revenue from taqua . these increases were partially offset by net decreases in sales of certain other products , primarily our legacy gateway products . in 2017 , approximately 24 % of our product revenue was from indirect sales through our channel partner program , compared to approximately 26 % in 2016. in 2017 , approximately 20 % of our product revenue was attributable to sales to enterprise customers , compared to approximately 19 % in 2016. these sales were made through both our direct sales team and indirect sales channel partners . the timing of the completion of customer projects , revenue recognition criteria satisfaction and customer payments may cause our product revenue to fluctuate from one period to the next . service revenue is primarily comprised of hardware and software maintenance and support ( “ maintenance revenue ” ) and network design , installation and other professional services ( “ professional services revenue ” ) . service revenue for the years ended december 31 , 2017 and 2016 was comprised of the following ( in millions , except percentages ) : replace_table_token_7_th our maintenance revenue increased in 2017 compared to 2016 primarily due to the inclusion of approximately $ 21 million of revenue attributable to genband in 2017 for the period since the merger date and the inclusion of approximately $ 5 million of revenue attributable to taqua . the increase in

of cash . our investing activities provided approximately $ 21 million of cash in 2017 and used approximately $ 27 million of cash in 2016. in 2017 , net sales of our investments in marketable securities provided approximately $ 67 million of cash , of which we used approximately $ 43 million to pay the cash consideration for genband . we used approximately $ 4 million to purchase property and equipment . in 2016 , we used approximately $ 21 million of cash , net of cash acquired , for business acquisitions , approximately $ 5 million of cash used for the purchase of property and equipment and approximately $ 3 million for net investments in marketable securities . the amount used for business acquisitions was comprised of $ 20 million , net of cash acquired , for the acquisition of taqua and slightly under $ 1 million paid as the final consideration installment for the sdn business . our financing activities used approximately $ 4 million of cash in 2017 and approximately $ 10 million of cash in 2016. the 2017 amount was primarily comprised of approximately $ 8 million used to pay withholding obligations related to the net share settlement of restricted and performance-based stock grants upon vesting and $ 1 million to pay debt issuance costs related to our credit agreement , partially offset by approximately $ 2 million of net borrowings against our credit agreement , $ 1 million of proceeds from the sale of our common stock in connection with our amended and restated 2000 employee stock purchaseplan , as amended ( `` espp '' ) and approximately $ 1 million of proceeds from the exercise of stock options .

during 2019 , the company continued to focus on executing its strategic plan – known as “ expanding our reach ” – which focuses on the client experience and organic growth across all lines of business . the strategic plan called for expansion of the company 's wealth management business , organically and through wealth business acquisitions , and also expansion of the company 's commercial and industrial ( “ c & i ” ) lending platform , through the use of private bankers , who lead with deposit gathering and wealth management discussions . the following are select highlights for 2019 : at december 31 , 2019 , the market value of assets under management and or administration at peapack private was $ 7.5 billion , reflecting an increase of 29 percent from $ 5.8 billion at december 31 , 2018. fee income from peapack private totaled $ 38.4 million for 2019 , growing from $ 33.2 million for 2018. loans at december 31 , 2019 totaled $ 4.39 billion . this reflected net growth of $ 466.2 million , or 12 percent , from $ 3.93 billion at december 31 , 2018. total c & i loans ( including equipment finance ) at december 31 , 2019 totaled $ 1.76 billion . this reflected net growth of $ 364.7 million , or 26 percent , from $ 1.40 billion at december 31 , 2018. total “ customer ” deposits ( defined as deposits excluding brokered cds and brokered “ overnight ” interest-bearing demand deposits ) at december 31 , 2019 were $ 4.03 billion , reflecting an increase of $ 370.6 million , or 10 percent , when compared to $ 3.66 billion at december 31 , 2018. asset quality metrics continued to be strong at december 31 , 2019. nonperforming assets at december 31 , 2019 were $ 28.9 million , or 0.56 percent of total assets . total loans past due 30 through 89 days and still accruing were $ 1.9 million or 0.04 percent of total loans at december 31 , 2019. the company 's and bank 's capital ratios at december 31 , 2019 remain well above regulatory well capitalized standards . critical accounting policies and estimates : management 's discussion and analysis of financial condition and results of operations is based upon the company 's consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the company 's consolidated financial statements contains a summary of the company 's significant accounting policies . management believes that the company 's policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments , which often require assumptions or estimates about highly uncertain matters . changes in these judgments , assumptions or estimates could materially impact results of operations . these critical policies and their application are periodically reviewed with the audit committee and the board of directors . 24 the provision for loan losses is based upon management 's evaluation of the adequacy of the allowance , including an assessment of known and inherent risks in the portfolio , giving consideration to the si ze and composition of the loan portfolio , actual loan loss experience , level of delinquencies , detailed analysis of individual loans for which full collectability may not be assured , the existence and estimated fair value of any underlying collateral and g uarantees securing the loans , and current economic and market conditions . although management uses the best information available , the level of the allowance for loan losses remains an estimate , which is subject to significant judgment and change . various regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses . such agencies may require the company to make additional provisions for loan losses based upon information available to them at the time of their examination . furthermore , the majority of the company 's loans are secured by real estate in the state of new jersey and the new york city area . accordingly , the collectability of a substantial portion of the carrying value of the com pany 's loan portfolio is susceptible to changes in local market conditions and may experience adverse economic conditions . future adjustments to the provision for loan losses and allowance for loan losses may be necessary due to economic , operating , regula tory and other conditions beyond the company 's control . the company accounts for its securities in accordance with “ accounting for certain investments in debt and equity securities , ” which was codified into accounting standards codification ( “ asc ” ) 320. debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity . debt securities are classified as available for sale when they might be sold before maturity due to changes in interest rates , prepayment risk , liquidity or other factors . securities available for sale are carried at fair value , with unrealized holding gains and losses reported in other comprehensive income , net of tax . the company adopted asu 2016-01 “ financial instruments ” which resulted in the reclassification of the cra investment from available for sale to equity securities and a cumulative effect adjustment of $ 127,000 between retained earnings and accumulated other comprehensive income effective january 1 , 2018 . story_separator_special_tag goodwill : at december 31 , 2019 , goodwill totaled $ 30.2 million , an increase of $ 5.8 million from $ 24.4 million at december 31 , 2018. the increase in goodwill was due to the acquisition of point view in september 2019. the bank intends to continue to grow its wealth management business through acquisition , as well as organically . deposits : at december 31 , 2019 and 2018 , the company reported total deposits of $ 4.24 billion and $ 3.90 billion , an increase of $ 348.2 million , or 9 percent , year over year . the company 's strategy is to fund a majority of its loan growth with core deposits , which is an important factor in the generation of net interest income . the company 's average deposits for 2019 increased $ 370.7 million , or 10 percent , over 2018 average levels to $ 4.01 billion . on average , the company saw the largest dollar growth in interest-bearing checking , money market accounts and retail certificates of deposit balances . the company has successfully focused on : growth in deposits associated with its private banking activities , including lending activities ; and business and personal core deposit generation , particularly checking and certificates of deposit . the company continues to maintain brokered interest-bearing demand deposits matched to interest rate swaps , thereby extending their duration . such deposits are generally a more cost-effective alternative to wholesale borrowings and do not require pledging of collateral , as the borrowings do . these deposits remained flat at $ 180.0 million at both december 31 , 2019 and 2018 , respectively . the company ensures ample available collateralized liquidity as a backup to these short-term brokered deposits . at december 31 , 2019 , there were $ 180.0 million of notional principal interest rate swaps matched to these deposits for interest rate risk management purposes . average brokered certificates of deposit were reduced by $ 21.5 million in 2019. the majority of these deposits are longer term and were transacted as part of the company 's interest rate risk management strategy . the following table sets forth information concerning the composition of the company 's average deposit base and average interest rates paid for the following years : replace_table_token_21_th the company is a participant in the reich & tang demand deposit marketplace ( “ ddm ” ) program and the promontory program . the company uses these deposit sweep services to place customer funds into interest-bearing demand ( checking ) accounts issued by other participating banks . customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of fdic insurance . as a program participant , the company receives reciprocal amounts of deposits from other participating banks . reciprocal deposits of $ 423.8 million , $ 434.5 million and $ 359.9 million are included in the company 's interest-bearing checking deposits as of december 31 , 2019 , 2018 , and 2017 , respectively . 36 the following table shows the maturity for certificates of deposit of $ 100,000 or more as of december 31 , 2019 ( in thousands ) : three months or less $ 106,980 over three months through six months 129,700 over six months through twelve months 103,592 over twelve months 139,821 total $ 480,093 federal home loan bank advances and other borrowings : as part of our overall funding and liquidity management program , from time to time we borrow from the federal home loan bank . the following table provides a summary of our fhlb borrowings as of and for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_22_th at december 31 , 2019 , fhlb advances were secured by blanket pledges of certain 1-4 family residential mortgages totaling $ 347.5 million and multifamily mortgages totaling $ 773.1 million at december 31 , 2019 , while at december 31 , 2018 , the fixed rate advances were secured by 1-4 family residential mortgages totaling $ 496.1 million and multifamily mortgages totaling $ 1.0 billion . of the fhlb borrowings outstanding as of december 31 , 2019 , $ 113.1 million were short-term borrowings maturing within one year . at december 31 , 2019 , there was $ 113.1 million with a rate of 1.81 percent of overnight borrowings with the fhlb , including a one-month fhlb advance for $ 15 million with a rate of 1.79 percent , which is part of an interest rate swap designated as a cash flow hedge . at december 31 , 2018 , there were no overnight borrowings with the fhlb . at december 31 , 2019 , unused short-term or overnight borrowing commitments totaled $ 1.3 billion from the fhlb , $ 22.0 million from correspondent banks and $ 1.5 billion at the federal reserve bank . story_separator_special_tag style= `` font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > b ) home equity lines of credit . the bank provides revolving lines of credit against one to four family residences in the tri-state area . these loans are primarily in a second lien position , but may be used as a first lien , in lieu of a primary residential first mortgage . when reviewing home equity line of credit applications , the bank collects detailed verifiable information regarding income , assets , employment and a single merged credit report that will determine total monthly debt obligations . the bank uses an automated valuation model on all lines up to $ 250,000 and obtains an independent appraisal of the subject property on all applications exceeding $ 250,000. ltvs and combined ltvs are capped at 80 percent or as low as 55 percent depending on the loan amount and whether the property type is primary residence ,

of cash . our investing activities provided approximately $ 21 million of cash in 2017 and used approximately $ 27 million of cash in 2016. in 2017 , net sales of our investments in marketable securities provided approximately $ 67 million of cash , of which we used approximately $ 43 million to pay the cash consideration for genband . we used approximately $ 4 million to purchase property and equipment . in 2016 , we used approximately $ 21 million of cash , net of cash acquired , for business acquisitions , approximately $ 5 million of cash used for the purchase of property and equipment and approximately $ 3 million for net investments in marketable securities . the amount used for business acquisitions was comprised of $ 20 million , net of cash acquired , for the acquisition of taqua and slightly under $ 1 million paid as the final consideration installment for the sdn business . our financing activities used approximately $ 4 million of cash in 2017 and approximately $ 10 million of cash in 2016. the 2017 amount was primarily comprised of approximately $ 8 million used to pay withholding obligations related to the net share settlement of restricted and performance-based stock grants upon vesting and $ 1 million to pay debt issuance costs related to our credit agreement , partially offset by approximately $ 2 million of net borrowings against our credit agreement , $ 1 million of proceeds from the sale of our common stock in connection with our amended and restated 2000 employee stock purchaseplan , as amended ( `` espp '' ) and approximately $ 1 million of proceeds from the exercise of stock options .

during 2019 , the company continued to focus on executing its strategic plan – known as “ expanding our reach ” – which focuses on the client experience and organic growth across all lines of business . the strategic plan called for expansion of the company 's wealth management business , organically and through wealth business acquisitions , and also expansion of the company 's commercial and industrial ( “ c & i ” ) lending platform , through the use of private bankers , who lead with deposit gathering and wealth management discussions . the following are select highlights for 2019 : at december 31 , 2019 , the market value of assets under management and or administration at peapack private was $ 7.5 billion , reflecting an increase of 29 percent from $ 5.8 billion at december 31 , 2018. fee income from peapack private totaled $ 38.4 million for 2019 , growing from $ 33.2 million for 2018. loans at december 31 , 2019 totaled $ 4.39 billion . this reflected net growth of $ 466.2 million , or 12 percent , from $ 3.93 billion at december 31 , 2018. total c & i loans ( including equipment finance ) at december 31 , 2019 totaled $ 1.76 billion . this reflected net growth of $ 364.7 million , or 26 percent , from $ 1.40 billion at december 31 , 2018. total “ customer ” deposits ( defined as deposits excluding brokered cds and brokered “ overnight ” interest-bearing demand deposits ) at december 31 , 2019 were $ 4.03 billion , reflecting an increase of $ 370.6 million , or 10 percent , when compared to $ 3.66 billion at december 31 , 2018. asset quality metrics continued to be strong at december 31 , 2019. nonperforming assets at december 31 , 2019 were $ 28.9 million , or 0.56 percent of total assets . total loans past due 30 through 89 days and still accruing were $ 1.9 million or 0.04 percent of total loans at december 31 , 2019. the company 's and bank 's capital ratios at december 31 , 2019 remain well above regulatory well capitalized standards . critical accounting policies and estimates : management 's discussion and analysis of financial condition and results of operations is based upon the company 's consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the company 's consolidated financial statements contains a summary of the company 's significant accounting policies . management believes that the company 's policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments , which often require assumptions or estimates about highly uncertain matters . changes in these judgments , assumptions or estimates could materially impact results of operations . these critical policies and their application are periodically reviewed with the audit committee and the board of directors . 24 the provision for loan losses is based upon management 's evaluation of the adequacy of the allowance , including an assessment of known and inherent risks in the portfolio , giving consideration to the si ze and composition of the loan portfolio , actual loan loss experience , level of delinquencies , detailed analysis of individual loans for which full collectability may not be assured , the existence and estimated fair value of any underlying collateral and g uarantees securing the loans , and current economic and market conditions . although management uses the best information available , the level of the allowance for loan losses remains an estimate , which is subject to significant judgment and change . various regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses . such agencies may require the company to make additional provisions for loan losses based upon information available to them at the time of their examination . furthermore , the majority of the company 's loans are secured by real estate in the state of new jersey and the new york city area . accordingly , the collectability of a substantial portion of the carrying value of the com pany 's loan portfolio is susceptible to changes in local market conditions and may experience adverse economic conditions . future adjustments to the provision for loan losses and allowance for loan losses may be necessary due to economic , operating , regula tory and other conditions beyond the company 's control . the company accounts for its securities in accordance with “ accounting for certain investments in debt and equity securities , ” which was codified into accounting standards codification ( “ asc ” ) 320. debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity . debt securities are classified as available for sale when they might be sold before maturity due to changes in interest rates , prepayment risk , liquidity or other factors . securities available for sale are carried at fair value , with unrealized holding gains and losses reported in other comprehensive income , net of tax . the company adopted asu 2016-01 “ financial instruments ” which resulted in the reclassification of the cra investment from available for sale to equity securities and a cumulative effect adjustment of $ 127,000 between retained earnings and accumulated other comprehensive income effective january 1 , 2018 . story_separator_special_tag goodwill : at december 31 , 2019 , goodwill totaled $ 30.2 million , an increase of $ 5.8 million from $ 24.4 million at december 31 , 2018. the increase in goodwill was due to the acquisition of point view in september 2019. the bank intends to continue to grow its wealth management business through acquisition , as well as organically . deposits : at december 31 , 2019 and 2018 , the company reported total deposits of $ 4.24 billion and $ 3.90 billion , an increase of $ 348.2 million , or 9 percent , year over year . the company 's strategy is to fund a majority of its loan growth with core deposits , which is an important factor in the generation of net interest income . the company 's average deposits for 2019 increased $ 370.7 million , or 10 percent , over 2018 average levels to $ 4.01 billion . on average , the company saw the largest dollar growth in interest-bearing checking , money market accounts and retail certificates of deposit balances . the company has successfully focused on : growth in deposits associated with its private banking activities , including lending activities ; and business and personal core deposit generation , particularly checking and certificates of deposit . the company continues to maintain brokered interest-bearing demand deposits matched to interest rate swaps , thereby extending their duration . such deposits are generally a more cost-effective alternative to wholesale borrowings and do not require pledging of collateral , as the borrowings do . these deposits remained flat at $ 180.0 million at both december 31 , 2019 and 2018 , respectively . the company ensures ample available collateralized liquidity as a backup to these short-term brokered deposits . at december 31 , 2019 , there were $ 180.0 million of notional principal interest rate swaps matched to these deposits for interest rate risk management purposes . average brokered certificates of deposit were reduced by $ 21.5 million in 2019. the majority of these deposits are longer term and were transacted as part of the company 's interest rate risk management strategy . the following table sets forth information concerning the composition of the company 's average deposit base and average interest rates paid for the following years : replace_table_token_21_th the company is a participant in the reich & tang demand deposit marketplace ( “ ddm ” ) program and the promontory program . the company uses these deposit sweep services to place customer funds into interest-bearing demand ( checking ) accounts issued by other participating banks . customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of fdic insurance . as a program participant , the company receives reciprocal amounts of deposits from other participating banks . reciprocal deposits of $ 423.8 million , $ 434.5 million and $ 359.9 million are included in the company 's interest-bearing checking deposits as of december 31 , 2019 , 2018 , and 2017 , respectively . 36 the following table shows the maturity for certificates of deposit of $ 100,000 or more as of december 31 , 2019 ( in thousands ) : three months or less $ 106,980 over three months through six months 129,700 over six months through twelve months 103,592 over twelve months 139,821 total $ 480,093 federal home loan bank advances and other borrowings : as part of our overall funding and liquidity management program , from time to time we borrow from the federal home loan bank . the following table provides a summary of our fhlb borrowings as of and for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_22_th at december 31 , 2019 , fhlb advances were secured by blanket pledges of certain 1-4 family residential mortgages totaling $ 347.5 million and multifamily mortgages totaling $ 773.1 million at december 31 , 2019 , while at december 31 , 2018 , the fixed rate advances were secured by 1-4 family residential mortgages totaling $ 496.1 million and multifamily mortgages totaling $ 1.0 billion . of the fhlb borrowings outstanding as of december 31 , 2019 , $ 113.1 million were short-term borrowings maturing within one year . at december 31 , 2019 , there was $ 113.1 million with a rate of 1.81 percent of overnight borrowings with the fhlb , including a one-month fhlb advance for $ 15 million with a rate of 1.79 percent , which is part of an interest rate swap designated as a cash flow hedge . at december 31 , 2018 , there were no overnight borrowings with the fhlb . at december 31 , 2019 , unused short-term or overnight borrowing commitments totaled $ 1.3 billion from the fhlb , $ 22.0 million from correspondent banks and $ 1.5 billion at the federal reserve bank . story_separator_special_tag style= `` font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > b ) home equity lines of credit . the bank provides revolving lines of credit against one to four family residences in the tri-state area . these loans are primarily in a second lien position , but may be used as a first lien , in lieu of a primary residential first mortgage . when reviewing home equity line of credit applications , the bank collects detailed verifiable information regarding income , assets , employment and a single merged credit report that will determine total monthly debt obligations . the bank uses an automated valuation model on all lines up to $ 250,000 and obtains an independent appraisal of the subject property on all applications exceeding $ 250,000. ltvs and combined ltvs are capped at 80 percent or as low as 55 percent depending on the loan amount and whether the property type is primary residence ,

subordinated debt : in june 2016 , the company issued $ 50.0 million in aggregate principal amount of fixed-to-floating subordinated notes ( the “ 2016 notes ” ) to certain institutional investors . the 2016 notes are non-callable for five years , have a stated maturity of june 30 , 2026 , and bear interest at a fixed rate of 6.0 percent per year until june 30 , 2021. from june 30 , 2021 to the maturity date or early redemption date , the interest rate will reset quarterly to a level equal to the then current three-month libor rate plus 485 basis points , payable quarterly in arrears . debt issuance costs incurred totaled $ 1.3 million and are being amortized to maturity . approximately $ 40.0 million of the net proceeds from the sale of the 2016 notes were contributed by the company to the bank in the second quarter of 2016. the remaining funds ( approximately $ 10 million ) were retained by the company for operational purposes . in december 2017 , the company issued $ 35.0 million in aggregate principal amount of fixed-to-floating subordinated notes ( the “ 2017 notes ” ) to certain institutional investors . the 2017 notes are non-callable for five years , have a stated maturity of december 15 , 2027 , and bear interest at a fixed rate of 4.75 percent per year until december 15 , 2022. from december 16 , 2022 to the maturity date or early redemption date , the interest rate will reset quarterly to a level equal to the then current three-month libor rate plus 254 basis points , payable quarterly in arrears . debt issuance costs incurred totaled $ 875 thousand and are being amortized to maturity .

we opened four full-service branches in silverdale , bellingham , and bainbridge island , washington and a lending center in seattle , washington . through these new locations , we have realized growth in deposits and expanded our ability to secure customer relationships and lending opportunities outside of our historic market areas in the north olympic peninsula . we also utilize technology to expand our market presence and to service new and existing businesses and consumers . enhancing the loan portfolio . we have significantly increased the origination of commercial real estate , multi-family real estate , and construction and land loans as well as increased our portfolio of commercial business loans . this helped to increase overall net interest income . adding new servicing capabilities . in addition to traditional consumer and business deposit products , we offer remote deposit capture , consumer and small business digital banking , and commercial digital banking capabilities . at our branch locations in forks , port angeles-eastside , silverdale , bainbridge island , and bellingham , washington , and at our main administrative building and downtown locations in port angeles , washington , we have implemented interactive teller machines , allowing our customers to conduct business with a teller through a video monitor . enhancing our infrastructure . we have focused on upgrading our infrastructure , both in terms of equipment and personnel , in order to support our changing lending and deposit capabilities and position ourselves for growth . our objective is to be an independent , high performing bank focused on meeting the needs of individuals , small businesses and community organizations throughout our market areas with exceptional service and competitive products . we intend to implement these strategies to achieve our objective : increasing our portfolio of higher yielding commercial loans . through increased loan originations , we intend to increase our loan to deposit ratio and the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans . these loan categories offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate , one- to four-family residential loans . our commercial and multifamily real estate and commercial business loans have increased from $ 393.4 million , or 44.5 % of total loans , at december 31 , 2019 , to $ 559.2 million , or 48.5 % of total loans , at december 31 , 2020. the increase resulted in part from building the commercial team by adding talented lenders ; developing relationships with loan referral sources , including our board of directors and loan brokers ; pursuing loan purchase and participation opportunities ; competing successfully in new and existing markets ; and benefiting from the improvement of the economy in northwestern washington . increasing exposure to wholesale assets . we may purchase wholesale assets in order to augment our organic growth strategy . this may include continuing to participate in indirect auto lending and manufactured home programs . we may also purchase pools of residential mortgage loans and manufactured home loans . maintaining our focus on asset quality . we believe that strong asset quality is a key to our long-term financial success . we are focused on monitoring existing performing loans , resolving nonperforming loans , and selling foreclosed assets . nonperforming assets were $ 2.0 million at december 31 , 2019 and $ 2.3 million at december 31 , 2020. we have taken proactive steps to resolve our nonperforming loans , including negotiating repayment plans , forbearances , loan modifications and loan extensions with our borrowers when appropriate . we have also accepted short payoffs on delinquent loans , particularly when such payoffs result in a smaller loss to us than foreclosure . we also retain the services of independent firms to periodically review segments of our loan portfolio and provide comments regarding our loan policies and procedures . 76 attracting core deposits and other deposit products . our strategy is to emphasize relationship banking with our customers to obtain a greater share of their deposits , with specific emphasis on their primary transaction accounts . we believe this emphasis will help to increase our level of core deposits . in addition to our retail branches , we continually upgrade our digital delivery solutions , such as on-line personal financial management , business online banking , business remote deposit products , mobile remote deposit services through smartphones and tablets , account-to-account transfer services between first federal and other banks , and person-to-person funds transfer through smartphones and tablets , enabling us to compete effectively with banks of all sizes . we enhanced our integrated mobile banking platform by introducing applications for both smartphones and tablets , upgraded our business on-line banking platform , and extended banking hours through our interactive teller machines . in 2020 , we significantly increased our level of commercial demand deposits as we added a treasury management department . we intend to further build out this department in 2021 and beyond . expanding our market presence and capturing business opportunities resulting from changes in the competitive environment . by delivering high quality , customer-focused products and services , we believe we can attract additional borrowers and depositors and thus increase our market share and revenue generation in our market areas . we intend to continue our franchise growth . we expect that community bank consolidation will continue to take place and may consider acquiring individual branches or other banks . our primary focus for expansion will be in western washington ; however , we may offer digital delivery in other markets . hiring experienced employees with a customer sales and service focus . our goal is to compete by relying on the strength of our customer service and relationship building . story_separator_special_tag our focus will continue to be on increasing our customer deposits and maintaining a stable source of funding for our continued growth . borrowings decreased $ 3.0 million , or 2.6 % , to $ 110.0 million at december 31 , 2020 , from $ 112.9 million at december 31 , 2019 , as we continued to utilize brokered certificates of deposit during the year to manage our cost of funds and interest rate risk . at december 31 , 2020 , we had $ 50.0 million of long term fhlb advances and $ 60.0 million in short term advances maturing in three months or less . equity . total shareholders ' equity increased $ 9.5 million , or 5.4 % , to $ 186.4 million at december 31 , 2020 , from $ 176.9 million at december 31 , 2019. this increase during the year resulted from net income of $ 10.3 million , an increase of $ 7.0 million due to the change in accumulated other comprehensive loss related to the change in unrealized market value of available for sale securities , net of tax , and an increase of $ 1.3 million related to our stock-based compensation plans . these increases were partially offset by a decrease of $ 7.4 million related to our repurchase of shares and $ 2.2 million in dividends paid in 2020. during the year ended december 31 , 2020 , we repurchased 575,859 shares of common stock at an average cost of $ 12.87 per share , pursuant to the company 's 2017 , 2019 , and 2020 stock repurchase plans . 82 comparison of results of operations for the years ended december 31 , 2020 and 2019 general . the company had net income for the year ended december 31 , 2020 of $ 10.3 million , compared to net income of $ 9.0 million for the year ended december 31 , 2019 , an increase of $ 1.3 million , or 14.7 % . the increase in net income was primarily due to increases in net interest income and noninterest income . we earned $ 1.11 per common share and $ 1.10 per diluted share for the year ended december 31 , 2020 , compared to $ 0.92 per common share and $ 0.91 per diluted share for the year ended december 31 , 2019. the increase in earnings per share year-over-year was the result of an increase in net income combined with lower weighted-average common shares outstanding of 9,348,874 basic and 9,380,294 diluted shares in 2020 , compared to 9,845,021 basic and 9,923,110 diluted shares for the same period in 2019. the decrease in average shares year-over-year is due to our share repurchase program coupled with changes to our share-based compensation plans . net interest income . net interest income increased $ 6.1 million , or 16.1 % , to $ 44.0 million for the year ended december 31 , 2020 , from $ 37.9 million for the year ended december 31 , 2019 , mainly as the result of additional interest income related to the increase in the average balances of loans receivable and investment securities . the average balance of loans receivable increased $ 104.7 million , at an average yield of 4.44 % , for the year ended december 31 , 2020 compared to an average yield of 4.64 % , for the year ended december 31 , 2019. this increase in the volume of loans receivable and resulting interest income during 2020 , and a decrease in the interest-bearing liabilities to 0.70 % for the year ended december 31 , 2020 compared to 1.03 % for the year ended december 31 , 2019 , resulted in a 7 basis point improvement in our net interest margin of 3.27 % at december 31 , 2020 , and 3.20 % at december 31 , 2019. net interest income increased $ 6.1 million during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , of which $ 6.5 million was the result of an increase in volume , partially offset by a $ 435,000 decrease due to changes in rates . as noted above , loans receivable was the main contributor to the increase in net interest income with $ 4.8 million due to an increase in average volumes offset by a decrease of $ 2.0 million due to decreases in rates . the decrease to the cost of average interest-bearing liabilities for the year ended december 31 , 2020 was due primarily to lower rates paid on certificates of deposit and borrowings , the result of the utilization of brokered certificates of deposit and new long-term borrowing agreements during the year . interest income . interest income increased $ 2.4 million , or 4.8 % , to $ 51.7 million for the year ended december 31 , 2020 from $ 49.3 million for the comparable period in 2019 , primarily due to an increase in the average balance of loans receivable . interest and fees on loans receivable increased $ 2.9 million as a result . interest income on investment securities increased $ 1.6 million to $ 5.7 million for the year ended december 31 , 2020 compared to $ 4.0 million for the year ended december 31 , 2019. while the average balance of investment securities increased $ 106.3 million during the year to $ 227.3 million for the year ended december 31 , 2020 compared to $ 121.0 million for the year ended december 31 , 2019 , the average yield decreased 83 basis points , resulting in higher interest income from the investment securities portfolio . the change in average yields on investment securities does not include the benefit of nontaxable income from municipal bonds . interest income on mortgage-backed and related securities decreased $ 1.9 million to $ 2.7 million for the year ended december 31 , 2020 from $ 4.6 million for the year ended

subordinated debt : in june 2016 , the company issued $ 50.0 million in aggregate principal amount of fixed-to-floating subordinated notes ( the “ 2016 notes ” ) to certain institutional investors . the 2016 notes are non-callable for five years , have a stated maturity of june 30 , 2026 , and bear interest at a fixed rate of 6.0 percent per year until june 30 , 2021. from june 30 , 2021 to the maturity date or early redemption date , the interest rate will reset quarterly to a level equal to the then current three-month libor rate plus 485 basis points , payable quarterly in arrears . debt issuance costs incurred totaled $ 1.3 million and are being amortized to maturity . approximately $ 40.0 million of the net proceeds from the sale of the 2016 notes were contributed by the company to the bank in the second quarter of 2016. the remaining funds ( approximately $ 10 million ) were retained by the company for operational purposes . in december 2017 , the company issued $ 35.0 million in aggregate principal amount of fixed-to-floating subordinated notes ( the “ 2017 notes ” ) to certain institutional investors . the 2017 notes are non-callable for five years , have a stated maturity of december 15 , 2027 , and bear interest at a fixed rate of 4.75 percent per year until december 15 , 2022. from december 16 , 2022 to the maturity date or early redemption date , the interest rate will reset quarterly to a level equal to the then current three-month libor rate plus 254 basis points , payable quarterly in arrears . debt issuance costs incurred totaled $ 875 thousand and are being amortized to maturity .

we opened four full-service branches in silverdale , bellingham , and bainbridge island , washington and a lending center in seattle , washington . through these new locations , we have realized growth in deposits and expanded our ability to secure customer relationships and lending opportunities outside of our historic market areas in the north olympic peninsula . we also utilize technology to expand our market presence and to service new and existing businesses and consumers . enhancing the loan portfolio . we have significantly increased the origination of commercial real estate , multi-family real estate , and construction and land loans as well as increased our portfolio of commercial business loans . this helped to increase overall net interest income . adding new servicing capabilities . in addition to traditional consumer and business deposit products , we offer remote deposit capture , consumer and small business digital banking , and commercial digital banking capabilities . at our branch locations in forks , port angeles-eastside , silverdale , bainbridge island , and bellingham , washington , and at our main administrative building and downtown locations in port angeles , washington , we have implemented interactive teller machines , allowing our customers to conduct business with a teller through a video monitor . enhancing our infrastructure . we have focused on upgrading our infrastructure , both in terms of equipment and personnel , in order to support our changing lending and deposit capabilities and position ourselves for growth . our objective is to be an independent , high performing bank focused on meeting the needs of individuals , small businesses and community organizations throughout our market areas with exceptional service and competitive products . we intend to implement these strategies to achieve our objective : increasing our portfolio of higher yielding commercial loans . through increased loan originations , we intend to increase our loan to deposit ratio and the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans . these loan categories offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate , one- to four-family residential loans . our commercial and multifamily real estate and commercial business loans have increased from $ 393.4 million , or 44.5 % of total loans , at december 31 , 2019 , to $ 559.2 million , or 48.5 % of total loans , at december 31 , 2020. the increase resulted in part from building the commercial team by adding talented lenders ; developing relationships with loan referral sources , including our board of directors and loan brokers ; pursuing loan purchase and participation opportunities ; competing successfully in new and existing markets ; and benefiting from the improvement of the economy in northwestern washington . increasing exposure to wholesale assets . we may purchase wholesale assets in order to augment our organic growth strategy . this may include continuing to participate in indirect auto lending and manufactured home programs . we may also purchase pools of residential mortgage loans and manufactured home loans . maintaining our focus on asset quality . we believe that strong asset quality is a key to our long-term financial success . we are focused on monitoring existing performing loans , resolving nonperforming loans , and selling foreclosed assets . nonperforming assets were $ 2.0 million at december 31 , 2019 and $ 2.3 million at december 31 , 2020. we have taken proactive steps to resolve our nonperforming loans , including negotiating repayment plans , forbearances , loan modifications and loan extensions with our borrowers when appropriate . we have also accepted short payoffs on delinquent loans , particularly when such payoffs result in a smaller loss to us than foreclosure . we also retain the services of independent firms to periodically review segments of our loan portfolio and provide comments regarding our loan policies and procedures . 76 attracting core deposits and other deposit products . our strategy is to emphasize relationship banking with our customers to obtain a greater share of their deposits , with specific emphasis on their primary transaction accounts . we believe this emphasis will help to increase our level of core deposits . in addition to our retail branches , we continually upgrade our digital delivery solutions , such as on-line personal financial management , business online banking , business remote deposit products , mobile remote deposit services through smartphones and tablets , account-to-account transfer services between first federal and other banks , and person-to-person funds transfer through smartphones and tablets , enabling us to compete effectively with banks of all sizes . we enhanced our integrated mobile banking platform by introducing applications for both smartphones and tablets , upgraded our business on-line banking platform , and extended banking hours through our interactive teller machines . in 2020 , we significantly increased our level of commercial demand deposits as we added a treasury management department . we intend to further build out this department in 2021 and beyond . expanding our market presence and capturing business opportunities resulting from changes in the competitive environment . by delivering high quality , customer-focused products and services , we believe we can attract additional borrowers and depositors and thus increase our market share and revenue generation in our market areas . we intend to continue our franchise growth . we expect that community bank consolidation will continue to take place and may consider acquiring individual branches or other banks . our primary focus for expansion will be in western washington ; however , we may offer digital delivery in other markets . hiring experienced employees with a customer sales and service focus . our goal is to compete by relying on the strength of our customer service and relationship building . story_separator_special_tag our focus will continue to be on increasing our customer deposits and maintaining a stable source of funding for our continued growth . borrowings decreased $ 3.0 million , or 2.6 % , to $ 110.0 million at december 31 , 2020 , from $ 112.9 million at december 31 , 2019 , as we continued to utilize brokered certificates of deposit during the year to manage our cost of funds and interest rate risk . at december 31 , 2020 , we had $ 50.0 million of long term fhlb advances and $ 60.0 million in short term advances maturing in three months or less . equity . total shareholders ' equity increased $ 9.5 million , or 5.4 % , to $ 186.4 million at december 31 , 2020 , from $ 176.9 million at december 31 , 2019. this increase during the year resulted from net income of $ 10.3 million , an increase of $ 7.0 million due to the change in accumulated other comprehensive loss related to the change in unrealized market value of available for sale securities , net of tax , and an increase of $ 1.3 million related to our stock-based compensation plans . these increases were partially offset by a decrease of $ 7.4 million related to our repurchase of shares and $ 2.2 million in dividends paid in 2020. during the year ended december 31 , 2020 , we repurchased 575,859 shares of common stock at an average cost of $ 12.87 per share , pursuant to the company 's 2017 , 2019 , and 2020 stock repurchase plans . 82 comparison of results of operations for the years ended december 31 , 2020 and 2019 general . the company had net income for the year ended december 31 , 2020 of $ 10.3 million , compared to net income of $ 9.0 million for the year ended december 31 , 2019 , an increase of $ 1.3 million , or 14.7 % . the increase in net income was primarily due to increases in net interest income and noninterest income . we earned $ 1.11 per common share and $ 1.10 per diluted share for the year ended december 31 , 2020 , compared to $ 0.92 per common share and $ 0.91 per diluted share for the year ended december 31 , 2019. the increase in earnings per share year-over-year was the result of an increase in net income combined with lower weighted-average common shares outstanding of 9,348,874 basic and 9,380,294 diluted shares in 2020 , compared to 9,845,021 basic and 9,923,110 diluted shares for the same period in 2019. the decrease in average shares year-over-year is due to our share repurchase program coupled with changes to our share-based compensation plans . net interest income . net interest income increased $ 6.1 million , or 16.1 % , to $ 44.0 million for the year ended december 31 , 2020 , from $ 37.9 million for the year ended december 31 , 2019 , mainly as the result of additional interest income related to the increase in the average balances of loans receivable and investment securities . the average balance of loans receivable increased $ 104.7 million , at an average yield of 4.44 % , for the year ended december 31 , 2020 compared to an average yield of 4.64 % , for the year ended december 31 , 2019. this increase in the volume of loans receivable and resulting interest income during 2020 , and a decrease in the interest-bearing liabilities to 0.70 % for the year ended december 31 , 2020 compared to 1.03 % for the year ended december 31 , 2019 , resulted in a 7 basis point improvement in our net interest margin of 3.27 % at december 31 , 2020 , and 3.20 % at december 31 , 2019. net interest income increased $ 6.1 million during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , of which $ 6.5 million was the result of an increase in volume , partially offset by a $ 435,000 decrease due to changes in rates . as noted above , loans receivable was the main contributor to the increase in net interest income with $ 4.8 million due to an increase in average volumes offset by a decrease of $ 2.0 million due to decreases in rates . the decrease to the cost of average interest-bearing liabilities for the year ended december 31 , 2020 was due primarily to lower rates paid on certificates of deposit and borrowings , the result of the utilization of brokered certificates of deposit and new long-term borrowing agreements during the year . interest income . interest income increased $ 2.4 million , or 4.8 % , to $ 51.7 million for the year ended december 31 , 2020 from $ 49.3 million for the comparable period in 2019 , primarily due to an increase in the average balance of loans receivable . interest and fees on loans receivable increased $ 2.9 million as a result . interest income on investment securities increased $ 1.6 million to $ 5.7 million for the year ended december 31 , 2020 compared to $ 4.0 million for the year ended december 31 , 2019. while the average balance of investment securities increased $ 106.3 million during the year to $ 227.3 million for the year ended december 31 , 2020 compared to $ 121.0 million for the year ended december 31 , 2019 , the average yield decreased 83 basis points , resulting in higher interest income from the investment securities portfolio . the change in average yields on investment securities does not include the benefit of nontaxable income from municipal bonds . interest income on mortgage-backed and related securities decreased $ 1.9 million to $ 2.7 million for the year ended december 31 , 2020 from $ 4.6 million for the year ended

liquidity management liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature . our primary sources of funds consist of deposit inflows , loan repayments , maturities and sales of securities and borrowings from the fhlb . while maturities and scheduled amortization of loans and securities are usually predictable sources of funds , deposit flows , calls of investment securities and borrowed funds , and prepayments on loans and investment securities are greatly influenced by general interest rates , economic conditions and competition , which can cause those sources of funds to fluctuate . management regularly adjusts our investments in liquid assets based upon an assessment of expected loan demand , expected deposit flows , yields available on interest-earning deposits and securities , and objectives of our interest-rate risk and investment policies . our most liquid assets are cash and cash equivalents followed by available for sale securities . the levels of these assets depend on our operating , financing , lending and investing activities during any given period . at december 31 , 2020 , cash and cash equivalents totaled $ 65.2 million , and securities classified as available-for-sale , which provide additional potential sources of liquidity , had a market value of $ 364.3 million . we have pledged collateral to support borrowings from the fhlb of $ 110.0 million . we have also pledged collateral to the federal reserve bank of san francisco to secure discount window advances ; no funds were borrowed as of december 31 , 2020. at december 31 , 2020 , we had $ 1.6 million in loan commitments outstanding and an additional $ 212.1 million in undisbursed loans , including undisbursed construction commitments , and standby letters of credit . certificates of deposit due within one year of december 31 , 2020 totaled $ 185.8 million , or 60.2 % of certificates of deposit .

based on industry reports , we estimate annual worldwide sales in 2015 for fda-approved recombinant protease products for individuals with hemophilia a and b and an inhibitor were approximately $ 2.4 billion and approximately $ 3.6 billion when including prothrombin complex concentrate products used to treat individuals with hemophilia b with an inhibitor . on june 29 , 2009 we entered into a research and license agreement with wyeth pharmaceuticals , inc. , subsequently acquired by pfizer , whereby we and pfizer collaborated on the development of novel human factor viia products and we granted pfizer the exclusive rights to develop and commercialize the licensed products on a worldwide basis . as a result of this agreement , pfizer paid us an up-front non-refundable signing fee of $ 21.0 million , which was initially recognized as revenue ratably over the term of our continuing involvement in the research and development of products with pfizer . the term was determined to be five years ( covering the initial two-year research term plus potential extensions permitted under the applicable agreement ) . during the initial two years of the collaboration period pfizer reimbursed us for certain costs incurred in the development of the licensed products including fte-based research payments . following the conclusion of the initial collaboration , without extension by pfizer , we had no further substantive performance obligations to pfizer under the agreement and we recognized the remaining $ 12.6 million of deferred revenue related to the up-front fee in june 2011. subsequently , in august 2013 , we amended the pfizer agreement , in accordance with which pfizer made two $ 1.5 million non-refundable annual license maintenance payments to us in august 2013 and august 2014 and we agreed to certain performance obligations to pfizer for the period starting from the effective date of the amendment . pfizer was also obligated to pay to us contingent milestone-based payments upon the occurrence of certain defined development , commercialization , and sales-based milestones . collaboration and license revenue related to the pfizer agreement during the years ended december 31 , 2016 and 2015 was $ 0 and $ 1.3 million , respectively , reflecting the amortization of the annual license maintenance payments received over the estimated expected period of our performance obligations which was estimated to conclude in august 2015. on april 2 , 2015 , pfizer notified us that it was exercising its right to terminate the research and license agreement effective june 1 , 2015. accordingly , we revised the expected period of performance to end on june 1 , 2015 , and the deferred revenue balance was fully amortized as of that date . on december 8 , 2016 , we signed a definitive agreement related to the termination of the pfizer agreement . pursuant to this termination agreement , pfizer granted us an exclusive license to pfizer 's proprietary rights for manufacturing materials and processes that apply to factor viia variants , cb 813a and marzeptacog alfa ( activated ) . pfizer also transferred to us the ind application and documentation related to the development , manufacturing and testing of the factor viia products as well as the orphan drug designation . pursuant to this agreement , we agreed to make contingent cash payments to pfizer in an aggregate amount equal to up to $ 17.5 million , payable upon the achievement of clinical , regulatory and commercial milestones . following commercialization of any covered product , pfizer would also receive a single-digit royalty on net product sales on a country-by-country basis for a predefined royalty term . in september 2013 , we signed a license and collaboration agreement with isu abxis pursuant to which we licensed our proprietary human factor ix products to isu abxis for initial development in south korea . under the agreement , isu abxis is responsible for development and manufacturing of the licensed products through phase 1/2 clinical trials . until the completion of phase 1 development , isu abxis also has a right of first refusal with respect to commercialization rights for the licensed products in south korea . isu abxis paid us an up-front fee of $ 1.75 million and is obligated to pay to us contingent milestone-based payments on the occurrence of certain defined development events , none of which have been achieved as of december 31 , 2016. collaboration and license revenue related to the isu abxis agreement during the years ended december 31 , 2016 and 2015 was $ 0.4 million and $ 0.4 million , respectively , that reflect the amortization of the up-front fee over the estimated period of our performance 60 obligations , which are estimated to conclude in february 2018. we had a deferred revenue balance of $ 0.3 million as of december 31 , 2016 related to the isu abxis collaboration . we have no products approved for commercial sale and have not generated any revenue from product sales . from inception to december 31 , 2016 , we have raised net cash proceeds of approximately $ 220.9 million , primarily from private placements of convertible preferred stock and the proceeds from the merger in addition to issuances of shares of common stock and warrants and payments received from collaboration agreements . the cash proceeds raised do not include the redeemable convertible notes that are offset by 100 % restricted cash held in escrow to pay all possible redemptions . we have never been profitable and have incurred significant operating losses in each year since inception . our net losses were $ 16.9 million and $ 14.8 million for years ended december 31 , 2016 and 2015 , respectively . as of december 31 , 2016 , we had an accumulated deficit of $ 148.0 million . substantially all our operating losses resulted from expenses incurred in our research and development programs and from general and administrative costs associated with our operations . story_separator_special_tag 2016-02 , leases ( topic 842 ) , which replaces the existing guidance for leases . the new standard establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . asu 65 2016-02 will be effective for the company beginning in its first quarter of 2019 , but early adoption is permitted . we currently expect to adopt the new lease standard in the first quarter of 2018 and are currently evaluating the potential impact that this standard may have on our consolidated financial statements . in january 2016 , the fasb issued asu no . 2016-01 , financial instruments – overall ( topic 825-10 ) , which updates certain aspects of recognition , measurement , presentation and disclosure of financial instruments . asu 2016-01 will be effective for the company beginning in its first quarter of 2018 , and early adoption is not permitted . we are currently evaluating the potential impact that this standard may have on our consolidated financial statements . in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) , which amends the existing accounting standards for revenue recognition . asu 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers . asu 2014-09 will be effective for the company beginning in its first quarter of 2018 , and early adoption is permitted beginning in the first quarter of 2017. subsequently , the fasb has issued the following standards related to asu 2014-09 : asu no . 2016-08 , revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ; asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing ; and asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients . the company must adopt asu 2016-08 , asu 2016-10 and asu 2016-12 with asu 2014-09 ( collectively , the “ new revenue standards ” ) . the new revenue standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect recognized as of the date of adoption . we do not generate revenue outside of collaborations at this time . we currently expect to adopt the new revenue standards in the first quarter of 2018 and do not expect any impact of adopting the new revenue standard on our consolidated financial statements as we currently have an insignificant amount of revenue . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > cash provided by investing activities for the year ended december 31 , 2015 of $ 37.4 million primarily related to $ 23.9 million of net cash proceeds from the merger and $ 13.9 million of proceeds from maturities of investments , partially offset by $ 0.3 million related to the purchase of property and equipment and $ 0.1 million of increase of restricted cash related to facility deposit . 67 cash flows from financing activities cash provided by financing activities for the year ended december 31 , 2016 was $ 0.9 million , due primarily to $ 0.9 million in net proceeds from issuance of common stock in at-the-market transactions . cash provided by financing activities for the year ended december 31 , 2015 of $ 9.3 million was primarily related to net cash proceeds from the issuance of convertible preferred stock of $ 7.3 million , release of restricted cash of $ 3.2 million related to conversion and redemption of some of the redeemable convertible notes and net cash proceeds of $ 1.9 million from the issuance of convertible notes and warrants to related parties , partially offset by payments of $ 3.0 million related to redemption of some of the redeemable convertible notes and $ 0.1 million related to repurchase of common stock in connection with equity awards assumed . contractual obligations the following table summarizes our fixed contractual obligations as of december 31 , 2016 ( in thousands ) : replace_table_token_5_th ( 1 ) represents future minimum lease payments under the non-cancelable lease for our headquarters in south san francisco , california . the minimum lease payments above do not include any related common area maintenance charges or real estate taxes . ( 2 ) represents future payments due under our development and manufacturing services agreement initial statement of work , subject to the completion of applicable work stages , which we expect to occur in less than one year . ( 3 ) we may be obligated to pay isu abxis up to $ 2.0 million in potential milestone payments . as the achievement and timing of these milestones are uncertain and not estimable , such commitments have not been included in the contractual obligation disclosed above . we may be obligated to pay pfizer certain milestone payments up to $ 17.5 million . the achievement and timing of these milestones are uncertain and not estimable and have not been included in the contractual obligation disclosed above . ( 4 ) we had unrecognized tax benefits in the amount of $ 1.5 million as of december 31 , 2016 related to uncertain tax positions . however , there is uncertainty regarding when these benefits will require settlement so these amounts were not included in the contractual obligations table above . off-balance sheet arrangements we do not have any off-balance sheet arrangements . critical accounting polices and estimates the preparation of financial statements and related disclosures in conformity with u.s. generally accepted

liquidity management liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature . our primary sources of funds consist of deposit inflows , loan repayments , maturities and sales of securities and borrowings from the fhlb . while maturities and scheduled amortization of loans and securities are usually predictable sources of funds , deposit flows , calls of investment securities and borrowed funds , and prepayments on loans and investment securities are greatly influenced by general interest rates , economic conditions and competition , which can cause those sources of funds to fluctuate . management regularly adjusts our investments in liquid assets based upon an assessment of expected loan demand , expected deposit flows , yields available on interest-earning deposits and securities , and objectives of our interest-rate risk and investment policies . our most liquid assets are cash and cash equivalents followed by available for sale securities . the levels of these assets depend on our operating , financing , lending and investing activities during any given period . at december 31 , 2020 , cash and cash equivalents totaled $ 65.2 million , and securities classified as available-for-sale , which provide additional potential sources of liquidity , had a market value of $ 364.3 million . we have pledged collateral to support borrowings from the fhlb of $ 110.0 million . we have also pledged collateral to the federal reserve bank of san francisco to secure discount window advances ; no funds were borrowed as of december 31 , 2020. at december 31 , 2020 , we had $ 1.6 million in loan commitments outstanding and an additional $ 212.1 million in undisbursed loans , including undisbursed construction commitments , and standby letters of credit . certificates of deposit due within one year of december 31 , 2020 totaled $ 185.8 million , or 60.2 % of certificates of deposit .

based on industry reports , we estimate annual worldwide sales in 2015 for fda-approved recombinant protease products for individuals with hemophilia a and b and an inhibitor were approximately $ 2.4 billion and approximately $ 3.6 billion when including prothrombin complex concentrate products used to treat individuals with hemophilia b with an inhibitor . on june 29 , 2009 we entered into a research and license agreement with wyeth pharmaceuticals , inc. , subsequently acquired by pfizer , whereby we and pfizer collaborated on the development of novel human factor viia products and we granted pfizer the exclusive rights to develop and commercialize the licensed products on a worldwide basis . as a result of this agreement , pfizer paid us an up-front non-refundable signing fee of $ 21.0 million , which was initially recognized as revenue ratably over the term of our continuing involvement in the research and development of products with pfizer . the term was determined to be five years ( covering the initial two-year research term plus potential extensions permitted under the applicable agreement ) . during the initial two years of the collaboration period pfizer reimbursed us for certain costs incurred in the development of the licensed products including fte-based research payments . following the conclusion of the initial collaboration , without extension by pfizer , we had no further substantive performance obligations to pfizer under the agreement and we recognized the remaining $ 12.6 million of deferred revenue related to the up-front fee in june 2011. subsequently , in august 2013 , we amended the pfizer agreement , in accordance with which pfizer made two $ 1.5 million non-refundable annual license maintenance payments to us in august 2013 and august 2014 and we agreed to certain performance obligations to pfizer for the period starting from the effective date of the amendment . pfizer was also obligated to pay to us contingent milestone-based payments upon the occurrence of certain defined development , commercialization , and sales-based milestones . collaboration and license revenue related to the pfizer agreement during the years ended december 31 , 2016 and 2015 was $ 0 and $ 1.3 million , respectively , reflecting the amortization of the annual license maintenance payments received over the estimated expected period of our performance obligations which was estimated to conclude in august 2015. on april 2 , 2015 , pfizer notified us that it was exercising its right to terminate the research and license agreement effective june 1 , 2015. accordingly , we revised the expected period of performance to end on june 1 , 2015 , and the deferred revenue balance was fully amortized as of that date . on december 8 , 2016 , we signed a definitive agreement related to the termination of the pfizer agreement . pursuant to this termination agreement , pfizer granted us an exclusive license to pfizer 's proprietary rights for manufacturing materials and processes that apply to factor viia variants , cb 813a and marzeptacog alfa ( activated ) . pfizer also transferred to us the ind application and documentation related to the development , manufacturing and testing of the factor viia products as well as the orphan drug designation . pursuant to this agreement , we agreed to make contingent cash payments to pfizer in an aggregate amount equal to up to $ 17.5 million , payable upon the achievement of clinical , regulatory and commercial milestones . following commercialization of any covered product , pfizer would also receive a single-digit royalty on net product sales on a country-by-country basis for a predefined royalty term . in september 2013 , we signed a license and collaboration agreement with isu abxis pursuant to which we licensed our proprietary human factor ix products to isu abxis for initial development in south korea . under the agreement , isu abxis is responsible for development and manufacturing of the licensed products through phase 1/2 clinical trials . until the completion of phase 1 development , isu abxis also has a right of first refusal with respect to commercialization rights for the licensed products in south korea . isu abxis paid us an up-front fee of $ 1.75 million and is obligated to pay to us contingent milestone-based payments on the occurrence of certain defined development events , none of which have been achieved as of december 31 , 2016. collaboration and license revenue related to the isu abxis agreement during the years ended december 31 , 2016 and 2015 was $ 0.4 million and $ 0.4 million , respectively , that reflect the amortization of the up-front fee over the estimated period of our performance 60 obligations , which are estimated to conclude in february 2018. we had a deferred revenue balance of $ 0.3 million as of december 31 , 2016 related to the isu abxis collaboration . we have no products approved for commercial sale and have not generated any revenue from product sales . from inception to december 31 , 2016 , we have raised net cash proceeds of approximately $ 220.9 million , primarily from private placements of convertible preferred stock and the proceeds from the merger in addition to issuances of shares of common stock and warrants and payments received from collaboration agreements . the cash proceeds raised do not include the redeemable convertible notes that are offset by 100 % restricted cash held in escrow to pay all possible redemptions . we have never been profitable and have incurred significant operating losses in each year since inception . our net losses were $ 16.9 million and $ 14.8 million for years ended december 31 , 2016 and 2015 , respectively . as of december 31 , 2016 , we had an accumulated deficit of $ 148.0 million . substantially all our operating losses resulted from expenses incurred in our research and development programs and from general and administrative costs associated with our operations . story_separator_special_tag 2016-02 , leases ( topic 842 ) , which replaces the existing guidance for leases . the new standard establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . asu 65 2016-02 will be effective for the company beginning in its first quarter of 2019 , but early adoption is permitted . we currently expect to adopt the new lease standard in the first quarter of 2018 and are currently evaluating the potential impact that this standard may have on our consolidated financial statements . in january 2016 , the fasb issued asu no . 2016-01 , financial instruments – overall ( topic 825-10 ) , which updates certain aspects of recognition , measurement , presentation and disclosure of financial instruments . asu 2016-01 will be effective for the company beginning in its first quarter of 2018 , and early adoption is not permitted . we are currently evaluating the potential impact that this standard may have on our consolidated financial statements . in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) , which amends the existing accounting standards for revenue recognition . asu 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers . asu 2014-09 will be effective for the company beginning in its first quarter of 2018 , and early adoption is permitted beginning in the first quarter of 2017. subsequently , the fasb has issued the following standards related to asu 2014-09 : asu no . 2016-08 , revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ; asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing ; and asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients . the company must adopt asu 2016-08 , asu 2016-10 and asu 2016-12 with asu 2014-09 ( collectively , the “ new revenue standards ” ) . the new revenue standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect recognized as of the date of adoption . we do not generate revenue outside of collaborations at this time . we currently expect to adopt the new revenue standards in the first quarter of 2018 and do not expect any impact of adopting the new revenue standard on our consolidated financial statements as we currently have an insignificant amount of revenue . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > cash provided by investing activities for the year ended december 31 , 2015 of $ 37.4 million primarily related to $ 23.9 million of net cash proceeds from the merger and $ 13.9 million of proceeds from maturities of investments , partially offset by $ 0.3 million related to the purchase of property and equipment and $ 0.1 million of increase of restricted cash related to facility deposit . 67 cash flows from financing activities cash provided by financing activities for the year ended december 31 , 2016 was $ 0.9 million , due primarily to $ 0.9 million in net proceeds from issuance of common stock in at-the-market transactions . cash provided by financing activities for the year ended december 31 , 2015 of $ 9.3 million was primarily related to net cash proceeds from the issuance of convertible preferred stock of $ 7.3 million , release of restricted cash of $ 3.2 million related to conversion and redemption of some of the redeemable convertible notes and net cash proceeds of $ 1.9 million from the issuance of convertible notes and warrants to related parties , partially offset by payments of $ 3.0 million related to redemption of some of the redeemable convertible notes and $ 0.1 million related to repurchase of common stock in connection with equity awards assumed . contractual obligations the following table summarizes our fixed contractual obligations as of december 31 , 2016 ( in thousands ) : replace_table_token_5_th ( 1 ) represents future minimum lease payments under the non-cancelable lease for our headquarters in south san francisco , california . the minimum lease payments above do not include any related common area maintenance charges or real estate taxes . ( 2 ) represents future payments due under our development and manufacturing services agreement initial statement of work , subject to the completion of applicable work stages , which we expect to occur in less than one year . ( 3 ) we may be obligated to pay isu abxis up to $ 2.0 million in potential milestone payments . as the achievement and timing of these milestones are uncertain and not estimable , such commitments have not been included in the contractual obligation disclosed above . we may be obligated to pay pfizer certain milestone payments up to $ 17.5 million . the achievement and timing of these milestones are uncertain and not estimable and have not been included in the contractual obligation disclosed above . ( 4 ) we had unrecognized tax benefits in the amount of $ 1.5 million as of december 31 , 2016 related to uncertain tax positions . however , there is uncertainty regarding when these benefits will require settlement so these amounts were not included in the contractual obligations table above . off-balance sheet arrangements we do not have any off-balance sheet arrangements . critical accounting polices and estimates the preparation of financial statements and related disclosures in conformity with u.s. generally accepted

liquidity and capital resources on august 20 , 2015 , we completed our merger with targacept , which provided $ 41.2 million in cash , cash equivalents and short-term investments . prior to that time , our operations had been financed primarily by net proceeds from the sale of convertible preferred stock , and the issuance of convertible notes . as of december 31 , 2016 , we had $ 17.1 million of cash , cash equivalents and short-term investments and $ 16.9 million in net loss and $ 18.5 million cash used in operations . we have an accumulated deficit of $ 148.0 million as of december 31 , 2016. our primary uses of cash are to fund operating expenses , including research and development expenditures and general and administrative expenditures . cash used to fund operating expenses is impacted by the timing of when we pay these expenses , as reflected in the change in its outstanding accounts payable and accrued expenses . we believe that our existing capital resources , including cash , cash equivalents and short term investments as well as the cash raised from the sale of common stock in january 2017 and availability under our capital on demand sales agreement , will be sufficient to meet our projected operating requirements for at least the next 12 months from the date of this annual report on form 10-k. we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we plan to continue to fund losses from operations and capital funding needs through future equity and or debt financings , as well as potential additional asset sales , licensing transactions , collaborations or strategic partnerships with other companies . the sale of additional equity or convertible debt could result in additional dilution to our stockholders . the incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations .

ticket monster is an e-commerce company based in the republic of korea that connects merchants to consumers by offering goods and services at a discount . the operations of ticket monster will be reported within our rest of world segment beginning in 2014. on january 13 , 2014 , we acquired ideeli , inc. ( `` ideeli `` ) , a fashion flash site based in the united states . ideeli is focused on women 's fashion apparel , accessories and home décor , and the operations of ideeli will be reported within our north america segment beginning in 2014. we expect that these acquisitions will increase both our revenue and net loss in 2014. we expect to incur incremental costs related to the consolidation of our existing korean operations with ticket monster in the first quarter 2014. additionally , we plan to increase marketing expenditures in the near term for ticket monster and ideeli in connection with our efforts to drive growth in those operations . how we measure our business we measure our business with several financial and operating metrics . we use these metrics to assess the progress of our business , make decisions on where to allocate capital , time and technology investments and assess the long-term performance of our marketplaces . certain of the financial metrics are reported in accordance with u.s. generally accepted accounting principles 32 ( `` u.s. gaap `` ) and certain of these metrics are considered non-gaap financial measures . as our business evolves , we may make changes to our key financial and operating metrics used to measure our business in future periods . for further information and a reconciliation to the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the `` results of operations `` section . financial metrics gross billings . this metric represents the total dollar value of customer purchases of goods and services , excluding applicable taxes and net of estimated refunds . for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals , gross billings are equivalent to direct revenue reported in our consolidated statements of operations . we consider this metric to be an important indicator of our growth and business performance as it is a proxy for the dollar volume of transactions generated through our marketplaces . tracking gross billings on third party revenue deals also allows us to track changes in the percentage of gross billings that we are able to retain after payments to our merchants . revenue . third party revenue is derived from deals where we act as the marketing agent and is the purchase price paid by the customer less an agreed upon portion of the purchase price paid to the featured merchant , excluding applicable taxes and net of estimated refunds for which the merchant 's share is recoverable . direct revenue , when the company is selling the product as the merchant of record , is the purchase price paid by the customer , excluding applicable taxes and net of estimated refunds . gross profit . gross profit reflects the net margin earned after deducting our cost of revenue from our revenue . due to the lack of comparability between third party revenue , which is presented net of the merchant 's share of the transaction price , and direct revenue , which is reported on a gross basis , we believe that gross profit is an important measure for evaluating our performance . operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net . operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net is a non-gaap financial measure that comprises the consolidated total of the segment operating income ( loss ) of our three segments , north america , emea and rest of world . stock‑based compensation expense and acquisition‑related expense ( benefit ) , net are excluded from segment operating income ( loss ) that we report under u.s. gaap for our segments . stock-based compensation expense is primarily a non-cash item . acquisition-related expense ( benefit ) , net is comprised of the change in the fair value of contingent consideration arrangements and , beginning in 2013 , also includes external transaction costs related to business combinations , primarily consisting of legal and advisory fees . we have used consolidated operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net to allocate resources and evaluate performance internally . however , in recent periods , our management and board of directors have increasingly focused on adjusted ebitda , described below , as the primary non-gaap measure for evaluating our consolidated operating results . accordingly , we do not expect to continue to report operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net on a consolidated basis in future periods . for further information and a reconciliation to the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the `` results of operations `` section . adjusted ebitda . adjusted ebitda is a non-gaap financial measure that comprises net income ( loss ) excluding income taxes , interest and other non-operating items , depreciation and amortization , stock-based compensation and acquisition-related expense ( benefit ) , net . adjusted ebitda is similar to operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net , except adjusted ebitda also excludes depreciation and amortization . we exclude depreciation and amortization because it is non-cash in nature , and we believe that non-gaap financial measures excluding these items provide meaningful supplemental information about our operating performance and liquidity . story_separator_special_tag gross billings for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_12_th for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of 40 operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals and other revenue , gross billings are equivalent to direct revenue and other revenue reported in our consolidated statements of operations . gross billings increased by $ 377.1 million to $ 5,757.3 million for the year ended december 31 , 2013 , as compared to $ 5,380.2 million for the year ended december 31 , 2012. the increase was comprised of a $ 464.3 million increase in gross billings from direct revenue transactions , partially offset by an $ 80.4 million decrease in gross billings from third party revenue transactions and a $ 6.7 million decrease in gross billings from other revenue transactions . the net increase in gross billings was driven by an increase in active customers and the volume of transactions . the unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended december 31 , 2013 was $ 40.3 million . we offer goods and services through three primary categories : local deals ( `` local `` ) , groupon goods ( `` goods `` ) and groupon getaways ( `` travel `` ) within our north america , emea and rest of world segments . we also earn advertising revenue , payment processing revenue , point of sale revenue , reservation revenue and commission revenue . our other gross billings , revenue , cost of revenue and gross profit are presented within `` travel and other `` in the tables below . the increase in our gross billings was comprised of a $ 373.2 million increase in our goods category and a $ 24.4 million increase in our travel and other category , partially offset by a $ 20.5 million decrease in our local category , which was primarily driven by declines in our rest of world segment . gross billings by segment gross billings by segment for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_13_th gross billings by category and segment for the years ended december 31 , 2013 and 2012 were as follows ( in thousands ) : replace_table_token_14_th ( 1 ) includes gross billings from deals with local merchants , from deals with national merchants , and through local events . 41 north america north america segment gross billings increased by $ 474.1 million to $ 2,847.2 million for the year ended december 31 , 2013 , as compared to $ 2,373.2 million for the year ended december 31 , 2012. the increase in gross billings was comprised of a $ 278.7 million increase in our goods category , a $ 112.1 million increase in our local category and an $ 83.3 million increase in our travel and other category . the increase in gross billings in the north america segment resulted from higher unit sales and an increase in active customers for the year ended december 31 , 2013 , as compared to the prior year . we believe that increases in transaction activity by active customers who make purchases on mobile devices and in the number of deals that we offered contributed to the growth in billings for our north america segment . in addition , we have continued to refine our approach to targeting customers through our emails , on our websites and through our mobile applications by sending and highlighting deals for specific locations and personal preferences , which we believe contributed to the billings growth . although north america segment gross billings increased by 20.0 % during the year ended december 31 , 2013 , as compared to the prior year , we believe that there were a number of factors that may have negatively impacted gross billings . for example , we believe that the continued growth of our online marketplaces of deals , where merchants have a continuous presence on our websites for an extended period of time , is impacting the timing of customer purchases in our local category . historically , our customers often purchased a groupon voucher when they received our email with a limited-time offer , even though they may not have intended to use the voucher in the near term . however , the growth of marketplaces of deals enables customers to wait until they are ready to use the related vouchers before making purchases , which we believe is adversely impacting gross billings in the short term . additionally , a more significant portion of our marketing in recent periods has been directed toward increasing downloads of our mobile applications , and we have reduced our spending on email subscriber acquisition . on average , it takes longer for customers to make an initial purchase after downloading our mobile application than it does after subscribing to our emails and we believe that this shift in our marketing toward mobile application downloads has adversely impacted our gross billings in the current period . emea emea segment gross billings increased by $ 55.1 million to $ 1,983.6 million for the year ended december 31 , 2013 , as compared to $ 1,928.5 million for the year ended december 31 , 2012. the increase in gross billings was comprised of a $ 97.2 million increase in our goods category , resulting from higher unit sales in this category for the year ended december 31 , 2013 , as compared to the prior year . the increase in gross billings was partially offset by a $ 29.8 million decrease in our local category and a $ 12.3 million decrease in our travel and other category , resulting from lower unit sales in these categories for the year ended december 31 , 2013 , as compared

liquidity and capital resources on august 20 , 2015 , we completed our merger with targacept , which provided $ 41.2 million in cash , cash equivalents and short-term investments . prior to that time , our operations had been financed primarily by net proceeds from the sale of convertible preferred stock , and the issuance of convertible notes . as of december 31 , 2016 , we had $ 17.1 million of cash , cash equivalents and short-term investments and $ 16.9 million in net loss and $ 18.5 million cash used in operations . we have an accumulated deficit of $ 148.0 million as of december 31 , 2016. our primary uses of cash are to fund operating expenses , including research and development expenditures and general and administrative expenditures . cash used to fund operating expenses is impacted by the timing of when we pay these expenses , as reflected in the change in its outstanding accounts payable and accrued expenses . we believe that our existing capital resources , including cash , cash equivalents and short term investments as well as the cash raised from the sale of common stock in january 2017 and availability under our capital on demand sales agreement , will be sufficient to meet our projected operating requirements for at least the next 12 months from the date of this annual report on form 10-k. we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we plan to continue to fund losses from operations and capital funding needs through future equity and or debt financings , as well as potential additional asset sales , licensing transactions , collaborations or strategic partnerships with other companies . the sale of additional equity or convertible debt could result in additional dilution to our stockholders . the incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations .

ticket monster is an e-commerce company based in the republic of korea that connects merchants to consumers by offering goods and services at a discount . the operations of ticket monster will be reported within our rest of world segment beginning in 2014. on january 13 , 2014 , we acquired ideeli , inc. ( `` ideeli `` ) , a fashion flash site based in the united states . ideeli is focused on women 's fashion apparel , accessories and home décor , and the operations of ideeli will be reported within our north america segment beginning in 2014. we expect that these acquisitions will increase both our revenue and net loss in 2014. we expect to incur incremental costs related to the consolidation of our existing korean operations with ticket monster in the first quarter 2014. additionally , we plan to increase marketing expenditures in the near term for ticket monster and ideeli in connection with our efforts to drive growth in those operations . how we measure our business we measure our business with several financial and operating metrics . we use these metrics to assess the progress of our business , make decisions on where to allocate capital , time and technology investments and assess the long-term performance of our marketplaces . certain of the financial metrics are reported in accordance with u.s. generally accepted accounting principles 32 ( `` u.s. gaap `` ) and certain of these metrics are considered non-gaap financial measures . as our business evolves , we may make changes to our key financial and operating metrics used to measure our business in future periods . for further information and a reconciliation to the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the `` results of operations `` section . financial metrics gross billings . this metric represents the total dollar value of customer purchases of goods and services , excluding applicable taxes and net of estimated refunds . for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals , gross billings are equivalent to direct revenue reported in our consolidated statements of operations . we consider this metric to be an important indicator of our growth and business performance as it is a proxy for the dollar volume of transactions generated through our marketplaces . tracking gross billings on third party revenue deals also allows us to track changes in the percentage of gross billings that we are able to retain after payments to our merchants . revenue . third party revenue is derived from deals where we act as the marketing agent and is the purchase price paid by the customer less an agreed upon portion of the purchase price paid to the featured merchant , excluding applicable taxes and net of estimated refunds for which the merchant 's share is recoverable . direct revenue , when the company is selling the product as the merchant of record , is the purchase price paid by the customer , excluding applicable taxes and net of estimated refunds . gross profit . gross profit reflects the net margin earned after deducting our cost of revenue from our revenue . due to the lack of comparability between third party revenue , which is presented net of the merchant 's share of the transaction price , and direct revenue , which is reported on a gross basis , we believe that gross profit is an important measure for evaluating our performance . operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net . operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net is a non-gaap financial measure that comprises the consolidated total of the segment operating income ( loss ) of our three segments , north america , emea and rest of world . stock‑based compensation expense and acquisition‑related expense ( benefit ) , net are excluded from segment operating income ( loss ) that we report under u.s. gaap for our segments . stock-based compensation expense is primarily a non-cash item . acquisition-related expense ( benefit ) , net is comprised of the change in the fair value of contingent consideration arrangements and , beginning in 2013 , also includes external transaction costs related to business combinations , primarily consisting of legal and advisory fees . we have used consolidated operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net to allocate resources and evaluate performance internally . however , in recent periods , our management and board of directors have increasingly focused on adjusted ebitda , described below , as the primary non-gaap measure for evaluating our consolidated operating results . accordingly , we do not expect to continue to report operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net on a consolidated basis in future periods . for further information and a reconciliation to the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the `` results of operations `` section . adjusted ebitda . adjusted ebitda is a non-gaap financial measure that comprises net income ( loss ) excluding income taxes , interest and other non-operating items , depreciation and amortization , stock-based compensation and acquisition-related expense ( benefit ) , net . adjusted ebitda is similar to operating income ( loss ) excluding stock-based compensation and acquisition-related expense ( benefit ) , net , except adjusted ebitda also excludes depreciation and amortization . we exclude depreciation and amortization because it is non-cash in nature , and we believe that non-gaap financial measures excluding these items provide meaningful supplemental information about our operating performance and liquidity . story_separator_special_tag gross billings for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_12_th for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of 40 operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals and other revenue , gross billings are equivalent to direct revenue and other revenue reported in our consolidated statements of operations . gross billings increased by $ 377.1 million to $ 5,757.3 million for the year ended december 31 , 2013 , as compared to $ 5,380.2 million for the year ended december 31 , 2012. the increase was comprised of a $ 464.3 million increase in gross billings from direct revenue transactions , partially offset by an $ 80.4 million decrease in gross billings from third party revenue transactions and a $ 6.7 million decrease in gross billings from other revenue transactions . the net increase in gross billings was driven by an increase in active customers and the volume of transactions . the unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended december 31 , 2013 was $ 40.3 million . we offer goods and services through three primary categories : local deals ( `` local `` ) , groupon goods ( `` goods `` ) and groupon getaways ( `` travel `` ) within our north america , emea and rest of world segments . we also earn advertising revenue , payment processing revenue , point of sale revenue , reservation revenue and commission revenue . our other gross billings , revenue , cost of revenue and gross profit are presented within `` travel and other `` in the tables below . the increase in our gross billings was comprised of a $ 373.2 million increase in our goods category and a $ 24.4 million increase in our travel and other category , partially offset by a $ 20.5 million decrease in our local category , which was primarily driven by declines in our rest of world segment . gross billings by segment gross billings by segment for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_13_th gross billings by category and segment for the years ended december 31 , 2013 and 2012 were as follows ( in thousands ) : replace_table_token_14_th ( 1 ) includes gross billings from deals with local merchants , from deals with national merchants , and through local events . 41 north america north america segment gross billings increased by $ 474.1 million to $ 2,847.2 million for the year ended december 31 , 2013 , as compared to $ 2,373.2 million for the year ended december 31 , 2012. the increase in gross billings was comprised of a $ 278.7 million increase in our goods category , a $ 112.1 million increase in our local category and an $ 83.3 million increase in our travel and other category . the increase in gross billings in the north america segment resulted from higher unit sales and an increase in active customers for the year ended december 31 , 2013 , as compared to the prior year . we believe that increases in transaction activity by active customers who make purchases on mobile devices and in the number of deals that we offered contributed to the growth in billings for our north america segment . in addition , we have continued to refine our approach to targeting customers through our emails , on our websites and through our mobile applications by sending and highlighting deals for specific locations and personal preferences , which we believe contributed to the billings growth . although north america segment gross billings increased by 20.0 % during the year ended december 31 , 2013 , as compared to the prior year , we believe that there were a number of factors that may have negatively impacted gross billings . for example , we believe that the continued growth of our online marketplaces of deals , where merchants have a continuous presence on our websites for an extended period of time , is impacting the timing of customer purchases in our local category . historically , our customers often purchased a groupon voucher when they received our email with a limited-time offer , even though they may not have intended to use the voucher in the near term . however , the growth of marketplaces of deals enables customers to wait until they are ready to use the related vouchers before making purchases , which we believe is adversely impacting gross billings in the short term . additionally , a more significant portion of our marketing in recent periods has been directed toward increasing downloads of our mobile applications , and we have reduced our spending on email subscriber acquisition . on average , it takes longer for customers to make an initial purchase after downloading our mobile application than it does after subscribing to our emails and we believe that this shift in our marketing toward mobile application downloads has adversely impacted our gross billings in the current period . emea emea segment gross billings increased by $ 55.1 million to $ 1,983.6 million for the year ended december 31 , 2013 , as compared to $ 1,928.5 million for the year ended december 31 , 2012. the increase in gross billings was comprised of a $ 97.2 million increase in our goods category , resulting from higher unit sales in this category for the year ended december 31 , 2013 , as compared to the prior year . the increase in gross billings was partially offset by a $ 29.8 million decrease in our local category and a $ 12.3 million decrease in our travel and other category , resulting from lower unit sales in these categories for the year ended december 31 , 2013 , as compared

cash used in investing activities cash used in investing activities primarily consists of capital expenditures , additional investments in subsidiaries , minority investments and acquisitions of businesses . for the year ended december 31 , 2013 , our net cash used in investing activities of $ 96.3 million primarily consisted of $ 63.5 million in capital expenditures , including capitalized internally-developed software , $ 22.0 million in purchases of investments , $ 7.3 million in net cash paid for business acquisitions , $ 2.0 million related to the settlement of the liability related to the purchase of an additional interest in a consolidated subsidiary and $ 1.5 million for purchases of intangible assets . for the year ended december 31 , 2012 , our net cash used in investing activities of $ 195.0 million primarily consisted of $ 95.8 million in capital expenditures , including capitalized internally-developed software , $ 51.7 million invested in subsidiaries and minority investments and $ 46.9 million in net cash paid for business acquisitions . for the year ended december 31 , 2011 , our net cash used in investing activities of $ 147.4 million primarily consisted of $ 74.7 million invested in subsidiaries and equity method investments , $ 43.8 million in capital expenditures , including capitalized internal-use software , $ 14.5 million for purchases of intangible assets and $ 14.4 millionin net cash paid for business acquisitions .

the negative provision in each period was also impacted by other recoveries from our collection efforts and a continual decline in our historical charge-off levels from prior years . we had our fourth consecutive full year of net recoveries in 2016. the following table reflects the provision for loan losses for the past five years along with certain metrics that impact the determination of the level of the provision for loan losses . replace_table_token_14_th economic conditions in our market areas of grand rapids and holland have improved during the past several years . the state 's unemployment rate at the end of 2016 was 4.5 % . the grand rapids and holland area unemployment rate was 3.1 % at the end of 2016. residential housing values and commercial real estate property values have shown signs of improvement , with some of our newer appraisals tending to reflect values at or above prior year values . it also appears that the housing market in our primary market area is improving . in the grand rapids market during 2016 , there were 65 % more living unit starts than in 2015. similarly , in the holland-grand haven/lakeshore region , there were 27 % more living unit starts in 2016 than in 2015. these improvements are on top of improved results in 2015 over 2014. also , these markets are now also seeing significant activity in duplex , condominium and apartment starts after years of virtually no activity . beginning in 2014 , with our improved financial condition , and earnings growth , our primary focus was on high quality loan portfolio growth . we experienced strong commercial loan growth in the fourth quarter of 2014 and throughout 2015 and 2016. most of our emphasis has been on growing commercial and industrial loans . these loans have increased from $ 274.1 million at december 31 , 2013 to $ 327.7 million at december 31 , 2014 , $ 377.3 million at december 31 , 2015 and $ 449.3 million at december 31 , 2016. commercial real estate loans have increased from $ 472.3 million at december 31 , 2013 to $ 490.5 million at december 31 , 2014 , $ 508.7 million at december 31 , 2015 and $ 518.0 million at december 31 , 2016. consumer loans have increased from $ 295.9 million at december 31 , 2013 to $ 300.3 million at december 31 , 2014 , $ 312.0 million at december 31 , 2015 and $ 313.5 million at december 31 , 2016. we believe we are positioned for continued growth in 2017. results of operations summary : net income was $ 16.0 million ( $ 22.2 million on a pretax basis ) for 2016 , compared to $ 12.8 million ( $ 18.4 million on a pretax basis ) and $ 10.5 million ( $ 15.0 million on a pretax basis ) for 2014. earnings per common share on a diluted basis was $ 0.47 for 2016 , $ 0.38 for 2015 and $ 0.31 for 2014. generally , the improvement in company earnings was the result of growth in revenue while expenses have been held flat . the increase in earnings in 2016 compared to 2015 and 2014 was due primarily to increased net interest income and noninterest income , along with a reduction in noninterest expense . net interest income increased to $ 47.5 million in 2016 compared to $ 44.1 million in 2015 and $ 41.4 million in 2014. we realized a higher level of income from gains on sales of residential mortgages in 2016 and 2015 compared to 2014 due to the extended low interest rate environment . total noninterest expense was $ 45.8 million in 2016 compared to $ 47.0 million in 2015 and $ 45.9 million in 2014. earnings in each period were positively impacted by negative provisions for loan losses ( $ 1.35 million in 2016 , $ 3.5 million in 2015 and $ 3.35 million in 2014 ) . these negative provisions resulted from reduced levels of nonperforming loans , improved asset quality and net loan recoveries realized in each of these periods . these items are discussed more fully below . - 26 - we continued our improvement in nonperforming asset expenses in 2016. costs associated with nonperforming assets were $ 1.3 million in 2016 , compared to $ 3.0 million in 2015 and $ 3.1 million in 2014. lost interest from nonperforming assets decreased to approximately $ 572,000 for 2016 , compared to $ 1.4 million for 2015 and $ 1.9 million for 2014. each of these items are discussed more fully below . net interest income : net interest income totaled $ 47.5 million during 2016 , compared to $ 44.1 million during 2015 and $ 41.4 million in 2014. the increase in net interest income during 2016 compared to 2015 marked our second consecutive year with an increase in net interest income , following several years of declining net interest income . this increase was primarily due to an increase in average earning assets of $ 63.9 million from $ 1.48 billion in 2015 to $ 1.55 billion in 2016. average yield on securities , interest earning assets and net interest margin are presented on a fully taxable equivalent basis . our net interest income as a percentage of average interest-earning assets ( i.e . `` net interest margin `` or `` margin `` ) increased by 10 basis points compared to 2015. the increase in net interest income during 2015 compared to 2014 was due to an increase in average earning assets of $ 129.4 million from $ 1.35 billion in 2014 to $ 1.48 billion in 2015. our net interest margin decreased by 6 basis points in 2015 compared to 2014. the yield on earning assets increased 6 basis points from 3.36 % for 2015 to 3.42 % for 2016 and decreased 12 basis points from 3.48 % for 2014 to 3.36 % story_separator_special_tag story_separator_special_tag loan type and also shows average originated loan size ( dollars in thousands ) : replace_table_token_22_th our loan portfolio is reviewed regularly by our senior management , our loan officers , and an internal loan review team that is independent of our loan originators and credit administration . an administrative loan committee consisting of senior management and seasoned lending and collections personnel meets monthly to manage our internal watch list and proactively manage high risk loans . when reasonable doubt exists concerning collectability of interest or principal of one of our loans , the loan is placed in nonaccrual status . any interest previously accrued but not collected is reversed and charged against current earnings . - 34 - nonperforming assets are comprised of nonperforming loans , foreclosed assets and repossessed assets . at december 31 , 2016 , nonperforming assets totaled $ 12.6 million compared to $ 18.3 million at december 31 , 2015. additions to other real estate owned in 2016 were $ 339,000 , compared to $ 2.5 million in 2015. based on the loans currently in their redemption period , we expect there to be few additions to other real estate owned in 2017. proceeds from sales of foreclosed properties were $ 5.3 million in 2016 , resulting in a net realized gain on sale of $ 645,000. proceeds from sales of foreclosed properties were $ 11.5 million in 2015 resulting in a net realized loss on sale of $ 926,000. we expect the level of sales of foreclosed properties in 2017 to be similar to the levels experienced in 2016. nonperforming loans include loans on nonaccrual status and loans delinquent more than 90 days but still accruing . as of december 31 , 2016 , nonperforming loans totaled $ 300,000 , or 0.04 % of total portfolio loans , compared to $ 756,000 , or 0.06 % of total portfolio loans , at december 31 , 2015. there were no nonperforming loans for development or sale of 1-4 family residential properties at december 31 , 2016 compared to $ 195,000 , or 25.8 % of total nonperforming loans , at december 31 , 2015. the remaining balance of nonperforming loans at december 31 , 2016 consisted of $ 183,000 of commercial real estate loans secured by various types of non-residential real estate , $ 36,000 of commercial and industrial loans , and $ 81,000 of consumer and residential mortgage loans . foreclosed and repossessed assets include assets acquired in settlement of loans . foreclosed assets totaled $ 12.3 million at december 31 , 2016 and $ 17.6 million at december 31 , 2015. of this balance at december 31 , 2016 , there were 34 commercial real estate properties totaling approximately $ 11.7 million . the remaining balance was comprised of 7 residential properties totaling approximately $ 564,000. one commercial real estate property comprised $ 3.4 million , or 28 % , of total other real estate owned at december 31 , 2016. all properties acquired through or in lieu of foreclosure are initially transferred at their fair value less estimated costs to sell and then evaluated monthly for impairment after transfer using a lower of cost or market approach . updated property valuations are obtained at least annually on all foreclosed assets . at december 31 , 2016 , our foreclosed asset portfolio had a weighted average age held in portfolio of 5.35 years . below is a breakout of our foreclosed asset portfolio at december 31 , 2016 and 2015 by property type and the percentages the property has been written down since taken into our possession and the combined writedown percentage , including losses taken when the property was loan collateral ( dollars in thousands ) : replace_table_token_23_th - 35 - the following table shows the composition and amount of our nonperforming assets ( dollars in thousands ) : replace_table_token_24_th the following table shows the composition and amount of our troubled debt restructurings ( “ tdrs ” ) at december 31 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_25_th ( 1 ) included in nonperforming asset table above we had a total of $ 30.0 million and $ 39.1 million of loans whose terms have been modified in tdrs as of december 31 , 2016 and 2015 , respectively . these loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow . these may also include loans that renewed at existing contractual rates , but below market rates for comparable credit . for each restructuring , a comprehensive credit underwriting analysis of the borrower 's financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt . an analysis is also performed to determine whether the restructured loan should be on accrual status . generally , if the loan is on accrual at the time of restructure , it will remain on accrual after the restructuring . in some cases , a nonaccrual loan may be placed on accrual at restructuring if the loan 's actual payment history demonstrates it would have cash flowed under the restructured terms . after six consecutive payments under the restructured terms , a nonaccrual restructured loan is reviewed for possible upgrade to accruing status . in situations where there is a subsequent modification or renewal and the loan is brought to market terms , including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics , the tdr and impaired designations may be removed . as with other impaired loans , an allowance for loan loss is estimated for each tdr based on the most likely source of repayment for each loan . for impaired commercial real estate loans that are collateral

cash used in investing activities cash used in investing activities primarily consists of capital expenditures , additional investments in subsidiaries , minority investments and acquisitions of businesses . for the year ended december 31 , 2013 , our net cash used in investing activities of $ 96.3 million primarily consisted of $ 63.5 million in capital expenditures , including capitalized internally-developed software , $ 22.0 million in purchases of investments , $ 7.3 million in net cash paid for business acquisitions , $ 2.0 million related to the settlement of the liability related to the purchase of an additional interest in a consolidated subsidiary and $ 1.5 million for purchases of intangible assets . for the year ended december 31 , 2012 , our net cash used in investing activities of $ 195.0 million primarily consisted of $ 95.8 million in capital expenditures , including capitalized internally-developed software , $ 51.7 million invested in subsidiaries and minority investments and $ 46.9 million in net cash paid for business acquisitions . for the year ended december 31 , 2011 , our net cash used in investing activities of $ 147.4 million primarily consisted of $ 74.7 million invested in subsidiaries and equity method investments , $ 43.8 million in capital expenditures , including capitalized internal-use software , $ 14.5 million for purchases of intangible assets and $ 14.4 millionin net cash paid for business acquisitions .

the negative provision in each period was also impacted by other recoveries from our collection efforts and a continual decline in our historical charge-off levels from prior years . we had our fourth consecutive full year of net recoveries in 2016. the following table reflects the provision for loan losses for the past five years along with certain metrics that impact the determination of the level of the provision for loan losses . replace_table_token_14_th economic conditions in our market areas of grand rapids and holland have improved during the past several years . the state 's unemployment rate at the end of 2016 was 4.5 % . the grand rapids and holland area unemployment rate was 3.1 % at the end of 2016. residential housing values and commercial real estate property values have shown signs of improvement , with some of our newer appraisals tending to reflect values at or above prior year values . it also appears that the housing market in our primary market area is improving . in the grand rapids market during 2016 , there were 65 % more living unit starts than in 2015. similarly , in the holland-grand haven/lakeshore region , there were 27 % more living unit starts in 2016 than in 2015. these improvements are on top of improved results in 2015 over 2014. also , these markets are now also seeing significant activity in duplex , condominium and apartment starts after years of virtually no activity . beginning in 2014 , with our improved financial condition , and earnings growth , our primary focus was on high quality loan portfolio growth . we experienced strong commercial loan growth in the fourth quarter of 2014 and throughout 2015 and 2016. most of our emphasis has been on growing commercial and industrial loans . these loans have increased from $ 274.1 million at december 31 , 2013 to $ 327.7 million at december 31 , 2014 , $ 377.3 million at december 31 , 2015 and $ 449.3 million at december 31 , 2016. commercial real estate loans have increased from $ 472.3 million at december 31 , 2013 to $ 490.5 million at december 31 , 2014 , $ 508.7 million at december 31 , 2015 and $ 518.0 million at december 31 , 2016. consumer loans have increased from $ 295.9 million at december 31 , 2013 to $ 300.3 million at december 31 , 2014 , $ 312.0 million at december 31 , 2015 and $ 313.5 million at december 31 , 2016. we believe we are positioned for continued growth in 2017. results of operations summary : net income was $ 16.0 million ( $ 22.2 million on a pretax basis ) for 2016 , compared to $ 12.8 million ( $ 18.4 million on a pretax basis ) and $ 10.5 million ( $ 15.0 million on a pretax basis ) for 2014. earnings per common share on a diluted basis was $ 0.47 for 2016 , $ 0.38 for 2015 and $ 0.31 for 2014. generally , the improvement in company earnings was the result of growth in revenue while expenses have been held flat . the increase in earnings in 2016 compared to 2015 and 2014 was due primarily to increased net interest income and noninterest income , along with a reduction in noninterest expense . net interest income increased to $ 47.5 million in 2016 compared to $ 44.1 million in 2015 and $ 41.4 million in 2014. we realized a higher level of income from gains on sales of residential mortgages in 2016 and 2015 compared to 2014 due to the extended low interest rate environment . total noninterest expense was $ 45.8 million in 2016 compared to $ 47.0 million in 2015 and $ 45.9 million in 2014. earnings in each period were positively impacted by negative provisions for loan losses ( $ 1.35 million in 2016 , $ 3.5 million in 2015 and $ 3.35 million in 2014 ) . these negative provisions resulted from reduced levels of nonperforming loans , improved asset quality and net loan recoveries realized in each of these periods . these items are discussed more fully below . - 26 - we continued our improvement in nonperforming asset expenses in 2016. costs associated with nonperforming assets were $ 1.3 million in 2016 , compared to $ 3.0 million in 2015 and $ 3.1 million in 2014. lost interest from nonperforming assets decreased to approximately $ 572,000 for 2016 , compared to $ 1.4 million for 2015 and $ 1.9 million for 2014. each of these items are discussed more fully below . net interest income : net interest income totaled $ 47.5 million during 2016 , compared to $ 44.1 million during 2015 and $ 41.4 million in 2014. the increase in net interest income during 2016 compared to 2015 marked our second consecutive year with an increase in net interest income , following several years of declining net interest income . this increase was primarily due to an increase in average earning assets of $ 63.9 million from $ 1.48 billion in 2015 to $ 1.55 billion in 2016. average yield on securities , interest earning assets and net interest margin are presented on a fully taxable equivalent basis . our net interest income as a percentage of average interest-earning assets ( i.e . `` net interest margin `` or `` margin `` ) increased by 10 basis points compared to 2015. the increase in net interest income during 2015 compared to 2014 was due to an increase in average earning assets of $ 129.4 million from $ 1.35 billion in 2014 to $ 1.48 billion in 2015. our net interest margin decreased by 6 basis points in 2015 compared to 2014. the yield on earning assets increased 6 basis points from 3.36 % for 2015 to 3.42 % for 2016 and decreased 12 basis points from 3.48 % for 2014 to 3.36 % story_separator_special_tag story_separator_special_tag loan type and also shows average originated loan size ( dollars in thousands ) : replace_table_token_22_th our loan portfolio is reviewed regularly by our senior management , our loan officers , and an internal loan review team that is independent of our loan originators and credit administration . an administrative loan committee consisting of senior management and seasoned lending and collections personnel meets monthly to manage our internal watch list and proactively manage high risk loans . when reasonable doubt exists concerning collectability of interest or principal of one of our loans , the loan is placed in nonaccrual status . any interest previously accrued but not collected is reversed and charged against current earnings . - 34 - nonperforming assets are comprised of nonperforming loans , foreclosed assets and repossessed assets . at december 31 , 2016 , nonperforming assets totaled $ 12.6 million compared to $ 18.3 million at december 31 , 2015. additions to other real estate owned in 2016 were $ 339,000 , compared to $ 2.5 million in 2015. based on the loans currently in their redemption period , we expect there to be few additions to other real estate owned in 2017. proceeds from sales of foreclosed properties were $ 5.3 million in 2016 , resulting in a net realized gain on sale of $ 645,000. proceeds from sales of foreclosed properties were $ 11.5 million in 2015 resulting in a net realized loss on sale of $ 926,000. we expect the level of sales of foreclosed properties in 2017 to be similar to the levels experienced in 2016. nonperforming loans include loans on nonaccrual status and loans delinquent more than 90 days but still accruing . as of december 31 , 2016 , nonperforming loans totaled $ 300,000 , or 0.04 % of total portfolio loans , compared to $ 756,000 , or 0.06 % of total portfolio loans , at december 31 , 2015. there were no nonperforming loans for development or sale of 1-4 family residential properties at december 31 , 2016 compared to $ 195,000 , or 25.8 % of total nonperforming loans , at december 31 , 2015. the remaining balance of nonperforming loans at december 31 , 2016 consisted of $ 183,000 of commercial real estate loans secured by various types of non-residential real estate , $ 36,000 of commercial and industrial loans , and $ 81,000 of consumer and residential mortgage loans . foreclosed and repossessed assets include assets acquired in settlement of loans . foreclosed assets totaled $ 12.3 million at december 31 , 2016 and $ 17.6 million at december 31 , 2015. of this balance at december 31 , 2016 , there were 34 commercial real estate properties totaling approximately $ 11.7 million . the remaining balance was comprised of 7 residential properties totaling approximately $ 564,000. one commercial real estate property comprised $ 3.4 million , or 28 % , of total other real estate owned at december 31 , 2016. all properties acquired through or in lieu of foreclosure are initially transferred at their fair value less estimated costs to sell and then evaluated monthly for impairment after transfer using a lower of cost or market approach . updated property valuations are obtained at least annually on all foreclosed assets . at december 31 , 2016 , our foreclosed asset portfolio had a weighted average age held in portfolio of 5.35 years . below is a breakout of our foreclosed asset portfolio at december 31 , 2016 and 2015 by property type and the percentages the property has been written down since taken into our possession and the combined writedown percentage , including losses taken when the property was loan collateral ( dollars in thousands ) : replace_table_token_23_th - 35 - the following table shows the composition and amount of our nonperforming assets ( dollars in thousands ) : replace_table_token_24_th the following table shows the composition and amount of our troubled debt restructurings ( “ tdrs ” ) at december 31 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_25_th ( 1 ) included in nonperforming asset table above we had a total of $ 30.0 million and $ 39.1 million of loans whose terms have been modified in tdrs as of december 31 , 2016 and 2015 , respectively . these loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow . these may also include loans that renewed at existing contractual rates , but below market rates for comparable credit . for each restructuring , a comprehensive credit underwriting analysis of the borrower 's financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt . an analysis is also performed to determine whether the restructured loan should be on accrual status . generally , if the loan is on accrual at the time of restructure , it will remain on accrual after the restructuring . in some cases , a nonaccrual loan may be placed on accrual at restructuring if the loan 's actual payment history demonstrates it would have cash flowed under the restructured terms . after six consecutive payments under the restructured terms , a nonaccrual restructured loan is reviewed for possible upgrade to accruing status . in situations where there is a subsequent modification or renewal and the loan is brought to market terms , including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics , the tdr and impaired designations may be removed . as with other impaired loans , an allowance for loan loss is estimated for each tdr based on the most likely source of repayment for each loan . for impaired commercial real estate loans that are collateral

cash and cash equivalents : our cash and cash equivalents , which include federal funds sold and short-term investments , were $ 89.8 million at december 31 , 2016 compared to $ 181.5 million at december 31 , 2015. this $ 91.7 million decrease was caused by our efforts to grow loans and investments resulting in the deployment of excess liquidity . interest-bearing time deposits with other financial institutions : we opened a $ 20.0 million time deposit account with our primary correspondent bank in the first quarter of 2014. this time deposit matured in february 2016 . - 32 - securities : securities available for sale were $ 184.4 million at december 31 , 2016 compared to $ 166.8 million at december 31 , 2015. the balance at december 31 , 2016 primarily consisted of u.s. agency securities , agency mortgage backed securities and various municipal investments . our held to maturity portfolio increased from $ 51.9 million at december 31 , 2015 to $ 69.4 million at december 31 , 2016. our held to maturity portfolio is comprised of state and municipal bonds . portfolio loans and asset quality : total portfolio loans increased by $ 82.9 million to $ 1.28 billion at december 31 , 2016 compared to $ 1.20 billion at december 31 , 2015. during 2016 , our commercial portfolio increased by $ 81.4 million , while our residential portfolio increased by $ 7.6 million and our consumer portfolio decreased by $ 6.1 million . the volume of residential mortgage loans originated for sale in 2016 increased slightly compared to 2015 due to the mortgage rate environment and our increase in the number of residential mortgage lenders .

xmax® implements our proprietary interference mitigation software that can increase capacity on already crowded airwaves by improving interference tolerance , enabling the delivery of a comparatively high quality of service where other technologies would not be able to cope with the interference . we believe that the xmax® system will also , when in a future development operating on more than one radio channel , deliver dynamic spectrum access by scanning and finding unused or underused frequencies ( unlicensed as well as licensed ) and dynamically tuning to them , significantly increasing their usable capacity . our system is frequency agnostic although currently designed to operate within the 902 – 928 mhz license-free band . xmax® is intended to serve as a mobile voice over internet protocol ( “voip” ) and broadband data system that utilizes an end-to-end internet protocol ( “ip” ) system architecture . the xmax® product and service suite includes a line of access points , network bridges , mobile switching centers , network management systems , deployment tools , and customer support . the xmax® system will allow mobile operators to utilize free , unlicensed 902 – 928 mhz ism band spectrum ( which spectrum is available in most of the americas ) instead of purchasing scarce expensive licensed spectrum . our xmax® system will also enable enterprises to set up a mobile communications network in an expeditious and cost effective manner . in addition , we believe that our xmax® cognitive radio technology can also be used to provide additional capacity to licensed spectrum by identifying and utilizing unused bandwidth within the licensed spectrum . plan of operations we are executing on our sales and marketing strategy and have entered into agreements both direct with end-customers as well as with indirect channel network partners . these customer engagements primarily relate to two of our target markets in rural telecommunications and defense . together , they comprise commitments to purchase xmax® cognitive radio networking equipment , engineering services and other hardware worth approximately $ 34.6 million . 22 result of operations the following table sets forth the relationship to total revenues of principal items contained in the statement of operations of the financial statements included herewith for the fiscal years ending december 31 , 2013 and december 31 , 2012. xg technology , inc. statements of operations ( in thousands except net loss per share data ) replace_table_token_2_th revenue our revenues for the fiscal year ended december 31 , 2013 were $ 0.4 million compared to $ 0.0 million in fiscal 2012. the revenue of $ 323,000 resulted from sales of equipment and $ 83,000 from engineering and consulting services agreement . cost of revenue and operating expenses cost of components and personnel cost of components and personnel was $ 0.1 million in the year ended december 31 , 2013 compared to $ 0.0 million in fiscal 2012 as the company recorded no revenue and thus no cost of components and personnel in the year ending december 31 , 2012. cost of components and personnel of $ 98,000 is based on the cost of components and the time allocated to building the products sold and $ 4,000 is based on the cost of the time allocated towards the engineering and consulting services agreements . general and administrative expenses general and administrative expenses are the expenses of operating the business on a daily basis and include salary and benefit expenses and payroll taxes , as well as the costs of trade shows , marketing programs , promotional materials , professional services , facilities , general liability insurance , and travel . general and administrative expenses remained the same at $ 5.5 million in the year ended december 31 , 2013 and 2012 , respectively . we had a decrease in payroll expense through an adjustment to the fair market value of the 23 accrued bonus which was offset by an increase in a variety of expenses . over time , we expect our administrative expenses to increase in absolute dollars due to continued growth in headcount to support our business and operations as a public company . development development expenses consist primarily of salary and benefit expenses and payroll taxes , as well as costs for prototypes , facilities and travel . development increased $ 0.7 million , or 14 % , from $ 4.8 million in the year ended december 31 , 2012 to $ 5.5 million in the year ended december 31 , 2013. the increases are due to additional costs related to producing and testing equipment as the company 's products became available for sale on september 30 , 2013. over time , we expect our development costs to increase as we continue making significant investments in developing new products and working on enhancement of our technology with existing products . stock based compensation stock based compensation increased $ 0.3 million , or 45 % , from $ 0.5 million in the year ended december 31 , 2012 to $ 0.8 million in the year ended december 31 , 2013. the increase arose from the increase in the number of employees and directors of the company who received option grants in fiscal 2013. we had approximately $ 1.2 million of unrecognized stock-based compensation expense related to unvested stock options , net of estimated forfeitures , as of december 31 , 2013 , which we expect to be recognized over the next three years . story_separator_special_tag million in the years ended december 31 , 2013 and 2012 , respectively . of the $ 14.4 million , approximately 10.1 million was a result of the independent directors of the company authorizing a onetime agreement on september 30 , 2013 , whereby we issued to mbth 1,599,453 shares of our common stock and a warrant to purchase 1,363,636 shares of our common stock at an exercise price of $ 6.87 per share for the difference in price between the shares issued to them in march 2013 at a price of $ 13.30 per share in exchange for the conversion of its 2011 convertible note and the $ 5.50 purchase price for shares sold in our initial public offering in july 2013. our future capital requirements may vary materially from those currently planned and will depend on many factors , including our rate of revenue growth , the timing and extent of spending to support development efforts , the timing of new product introductions , market acceptance of our products and overall economic conditions . the ability of the company to continue as a going concern is dependent upon its ability to raise additional capital , obtain other means of financing , and to fulfill its existing backlog . as of march 6 , 2014 , the company has a total backlog of $ 34.6 million . the ability to recognize revenue and ultimately cash receipts , on the existing backlog is contingent upon , but not limited to , acceptable performance of the delivered equipment and services . 25 initial public offering on july 24 , 2013 , the company closed its initial public offering of 1,337,792 shares of common stock , par value $ 0.00001 per share , and warrants to purchase 668,896 shares of common stock , at a purchase price to the public of $ 5.50 per share and $ 0.01 per warrant , for net proceeds to the company , after deducting underwriter discounts and offering expenses , of $ 6,750,673. the warrants have an exercise price of $ 6.87 per share , are exercisable immediately and will expire five years from the date of issuance . feltl and company and aegis capital corp acted as joint underwriters for the offering . over-allotment option on august 19 , 2013 , the underwriters exercised in full their over-allotment option to purchase an additional 200,668 shares of common stock and warrants to purchase 100,334 shares of common stock with an exercise price of $ 6.87 , at a purchase price to the public of $ 5.50 per share and $ 0.01 per warrant , for net proceeds to the company , after deducting underwriter discounts , of $ 1,027,349. convertible notes payable during the year ended december 31 , 2013 , the company drew down $ 450,000 under the convertible notes payable to related party , compared to $ 10.3 million for 2012. on january 16 , 2013 , principal in excess of $ 15 million and any accrued interest and fees related to the convertible notes were converted into the bridge loan balance discussed below . bridge loan during 2013 , the company drew down $ 5.0 million under the bridge loan . on august 22 , 2013 , the company refinanced approximately $ 1,013,000 of liabilities previously paid by mbth during 2013 on behalf of the company through the bridge loan and incurred an origination fee of approximately $ 50,000. on august 7 , 2013 , the company repaid $ 125,000 to a non-related investor for investment into the bridge loan . on august 22 , 2013 , the company issued 2,187,529 common shares for the conversion of the balance of approximately $ 11,429,000 in principal and accrued interest and fees at a price per share of $ 5.225. secondary offering on november 18 , 2013 , the company closed its secondary public offering of 5,715,000 shares of common stock , par value $ 0.00001 per share , at a purchase price to the public of $ 1.75 per share , for net proceeds to the company , after deducting underwriter discounts and offering expenses , of $ 9,146,888. in connection with the offering , the company issued warrants to the underwriters to purchase 171,450 shares of common stock , for an aggregate price of $ 100. the warrants have an exercise price of $ 2.1875 per share and are exercisable immediately and will expire five years from the date of issuance . over-allotment option on december 12 , 2013 , the underwriters made a partial exercise of their over-allotment option in which they purchased an additional 255,000 shares of common stock at a purchase price to the public of $ 1.75 per share , for net proceeds to the company , after deducting underwriter discounts , of $ 415,013. the underwriters had an option to purchase up to 857,250 shares of common stock or 15 % of the total number of shares offered within 45 days after the closing of the offering . story_separator_special_tag recognition the company recognizes revenues when persuasive evidence of an arrangement exists , services have been rendered , the price is fixed and determinable , and collectability is reasonably assured . revenues from management and consulting , time-and-materials service contracts , maintenance agreements and other services are recognized as the services are provided or at the time the goods are shipped and title as passed . commitments and contingencies except as otherwise disclosed elsewhere in this document , we have no material commitments or contingent liabilities . the company has an employment contract with its ceo that would require a one-year severance payment in the event the company terminates his services under certain circumstances . warranties and indemnifications the company recognizes estimated costs related to warranty activities upon product shipment . the recorded amount will be adjusted from time to time for specifically identified warranty exposure . actual warranty expenses are charged against the company 's estimated warranty liability

cash and cash equivalents : our cash and cash equivalents , which include federal funds sold and short-term investments , were $ 89.8 million at december 31 , 2016 compared to $ 181.5 million at december 31 , 2015. this $ 91.7 million decrease was caused by our efforts to grow loans and investments resulting in the deployment of excess liquidity . interest-bearing time deposits with other financial institutions : we opened a $ 20.0 million time deposit account with our primary correspondent bank in the first quarter of 2014. this time deposit matured in february 2016 . - 32 - securities : securities available for sale were $ 184.4 million at december 31 , 2016 compared to $ 166.8 million at december 31 , 2015. the balance at december 31 , 2016 primarily consisted of u.s. agency securities , agency mortgage backed securities and various municipal investments . our held to maturity portfolio increased from $ 51.9 million at december 31 , 2015 to $ 69.4 million at december 31 , 2016. our held to maturity portfolio is comprised of state and municipal bonds . portfolio loans and asset quality : total portfolio loans increased by $ 82.9 million to $ 1.28 billion at december 31 , 2016 compared to $ 1.20 billion at december 31 , 2015. during 2016 , our commercial portfolio increased by $ 81.4 million , while our residential portfolio increased by $ 7.6 million and our consumer portfolio decreased by $ 6.1 million . the volume of residential mortgage loans originated for sale in 2016 increased slightly compared to 2015 due to the mortgage rate environment and our increase in the number of residential mortgage lenders .

xmax® implements our proprietary interference mitigation software that can increase capacity on already crowded airwaves by improving interference tolerance , enabling the delivery of a comparatively high quality of service where other technologies would not be able to cope with the interference . we believe that the xmax® system will also , when in a future development operating on more than one radio channel , deliver dynamic spectrum access by scanning and finding unused or underused frequencies ( unlicensed as well as licensed ) and dynamically tuning to them , significantly increasing their usable capacity . our system is frequency agnostic although currently designed to operate within the 902 – 928 mhz license-free band . xmax® is intended to serve as a mobile voice over internet protocol ( “voip” ) and broadband data system that utilizes an end-to-end internet protocol ( “ip” ) system architecture . the xmax® product and service suite includes a line of access points , network bridges , mobile switching centers , network management systems , deployment tools , and customer support . the xmax® system will allow mobile operators to utilize free , unlicensed 902 – 928 mhz ism band spectrum ( which spectrum is available in most of the americas ) instead of purchasing scarce expensive licensed spectrum . our xmax® system will also enable enterprises to set up a mobile communications network in an expeditious and cost effective manner . in addition , we believe that our xmax® cognitive radio technology can also be used to provide additional capacity to licensed spectrum by identifying and utilizing unused bandwidth within the licensed spectrum . plan of operations we are executing on our sales and marketing strategy and have entered into agreements both direct with end-customers as well as with indirect channel network partners . these customer engagements primarily relate to two of our target markets in rural telecommunications and defense . together , they comprise commitments to purchase xmax® cognitive radio networking equipment , engineering services and other hardware worth approximately $ 34.6 million . 22 result of operations the following table sets forth the relationship to total revenues of principal items contained in the statement of operations of the financial statements included herewith for the fiscal years ending december 31 , 2013 and december 31 , 2012. xg technology , inc. statements of operations ( in thousands except net loss per share data ) replace_table_token_2_th revenue our revenues for the fiscal year ended december 31 , 2013 were $ 0.4 million compared to $ 0.0 million in fiscal 2012. the revenue of $ 323,000 resulted from sales of equipment and $ 83,000 from engineering and consulting services agreement . cost of revenue and operating expenses cost of components and personnel cost of components and personnel was $ 0.1 million in the year ended december 31 , 2013 compared to $ 0.0 million in fiscal 2012 as the company recorded no revenue and thus no cost of components and personnel in the year ending december 31 , 2012. cost of components and personnel of $ 98,000 is based on the cost of components and the time allocated to building the products sold and $ 4,000 is based on the cost of the time allocated towards the engineering and consulting services agreements . general and administrative expenses general and administrative expenses are the expenses of operating the business on a daily basis and include salary and benefit expenses and payroll taxes , as well as the costs of trade shows , marketing programs , promotional materials , professional services , facilities , general liability insurance , and travel . general and administrative expenses remained the same at $ 5.5 million in the year ended december 31 , 2013 and 2012 , respectively . we had a decrease in payroll expense through an adjustment to the fair market value of the 23 accrued bonus which was offset by an increase in a variety of expenses . over time , we expect our administrative expenses to increase in absolute dollars due to continued growth in headcount to support our business and operations as a public company . development development expenses consist primarily of salary and benefit expenses and payroll taxes , as well as costs for prototypes , facilities and travel . development increased $ 0.7 million , or 14 % , from $ 4.8 million in the year ended december 31 , 2012 to $ 5.5 million in the year ended december 31 , 2013. the increases are due to additional costs related to producing and testing equipment as the company 's products became available for sale on september 30 , 2013. over time , we expect our development costs to increase as we continue making significant investments in developing new products and working on enhancement of our technology with existing products . stock based compensation stock based compensation increased $ 0.3 million , or 45 % , from $ 0.5 million in the year ended december 31 , 2012 to $ 0.8 million in the year ended december 31 , 2013. the increase arose from the increase in the number of employees and directors of the company who received option grants in fiscal 2013. we had approximately $ 1.2 million of unrecognized stock-based compensation expense related to unvested stock options , net of estimated forfeitures , as of december 31 , 2013 , which we expect to be recognized over the next three years . story_separator_special_tag million in the years ended december 31 , 2013 and 2012 , respectively . of the $ 14.4 million , approximately 10.1 million was a result of the independent directors of the company authorizing a onetime agreement on september 30 , 2013 , whereby we issued to mbth 1,599,453 shares of our common stock and a warrant to purchase 1,363,636 shares of our common stock at an exercise price of $ 6.87 per share for the difference in price between the shares issued to them in march 2013 at a price of $ 13.30 per share in exchange for the conversion of its 2011 convertible note and the $ 5.50 purchase price for shares sold in our initial public offering in july 2013. our future capital requirements may vary materially from those currently planned and will depend on many factors , including our rate of revenue growth , the timing and extent of spending to support development efforts , the timing of new product introductions , market acceptance of our products and overall economic conditions . the ability of the company to continue as a going concern is dependent upon its ability to raise additional capital , obtain other means of financing , and to fulfill its existing backlog . as of march 6 , 2014 , the company has a total backlog of $ 34.6 million . the ability to recognize revenue and ultimately cash receipts , on the existing backlog is contingent upon , but not limited to , acceptable performance of the delivered equipment and services . 25 initial public offering on july 24 , 2013 , the company closed its initial public offering of 1,337,792 shares of common stock , par value $ 0.00001 per share , and warrants to purchase 668,896 shares of common stock , at a purchase price to the public of $ 5.50 per share and $ 0.01 per warrant , for net proceeds to the company , after deducting underwriter discounts and offering expenses , of $ 6,750,673. the warrants have an exercise price of $ 6.87 per share , are exercisable immediately and will expire five years from the date of issuance . feltl and company and aegis capital corp acted as joint underwriters for the offering . over-allotment option on august 19 , 2013 , the underwriters exercised in full their over-allotment option to purchase an additional 200,668 shares of common stock and warrants to purchase 100,334 shares of common stock with an exercise price of $ 6.87 , at a purchase price to the public of $ 5.50 per share and $ 0.01 per warrant , for net proceeds to the company , after deducting underwriter discounts , of $ 1,027,349. convertible notes payable during the year ended december 31 , 2013 , the company drew down $ 450,000 under the convertible notes payable to related party , compared to $ 10.3 million for 2012. on january 16 , 2013 , principal in excess of $ 15 million and any accrued interest and fees related to the convertible notes were converted into the bridge loan balance discussed below . bridge loan during 2013 , the company drew down $ 5.0 million under the bridge loan . on august 22 , 2013 , the company refinanced approximately $ 1,013,000 of liabilities previously paid by mbth during 2013 on behalf of the company through the bridge loan and incurred an origination fee of approximately $ 50,000. on august 7 , 2013 , the company repaid $ 125,000 to a non-related investor for investment into the bridge loan . on august 22 , 2013 , the company issued 2,187,529 common shares for the conversion of the balance of approximately $ 11,429,000 in principal and accrued interest and fees at a price per share of $ 5.225. secondary offering on november 18 , 2013 , the company closed its secondary public offering of 5,715,000 shares of common stock , par value $ 0.00001 per share , at a purchase price to the public of $ 1.75 per share , for net proceeds to the company , after deducting underwriter discounts and offering expenses , of $ 9,146,888. in connection with the offering , the company issued warrants to the underwriters to purchase 171,450 shares of common stock , for an aggregate price of $ 100. the warrants have an exercise price of $ 2.1875 per share and are exercisable immediately and will expire five years from the date of issuance . over-allotment option on december 12 , 2013 , the underwriters made a partial exercise of their over-allotment option in which they purchased an additional 255,000 shares of common stock at a purchase price to the public of $ 1.75 per share , for net proceeds to the company , after deducting underwriter discounts , of $ 415,013. the underwriters had an option to purchase up to 857,250 shares of common stock or 15 % of the total number of shares offered within 45 days after the closing of the offering . story_separator_special_tag recognition the company recognizes revenues when persuasive evidence of an arrangement exists , services have been rendered , the price is fixed and determinable , and collectability is reasonably assured . revenues from management and consulting , time-and-materials service contracts , maintenance agreements and other services are recognized as the services are provided or at the time the goods are shipped and title as passed . commitments and contingencies except as otherwise disclosed elsewhere in this document , we have no material commitments or contingent liabilities . the company has an employment contract with its ceo that would require a one-year severance payment in the event the company terminates his services under certain circumstances . warranties and indemnifications the company recognizes estimated costs related to warranty activities upon product shipment . the recorded amount will be adjusted from time to time for specifically identified warranty exposure . actual warranty expenses are charged against the company 's estimated warranty liability

cash flows the following table sets forth the major components of our statements of cash flows data for the periods presented . replace_table_token_4_th 26 operating activities net cash used in operating activities for the year ended december 31 , 2013 totaled $ 14.4 million as compared to $ 5.6 million for the year ended december 31 , 2012. of the $ 14.4 million , approximately 10.1 million was a result of the independent directors of the company authorizing a onetime agreement on september 30 , 2013 , whereby we issued to mbth 1,599,453 shares of our common stock and a warrant to purchase 1,363,636 shares of our common stock at an exercise price of $ 6.87 per share for the difference in price between the shares issued to them in march 2013 at a price of $ 13.30 per share in exchange for the conversion of its 2011 convertible note and the $ 5.50 purchase price for shares sold in our initial public offering in july 2013. the cash used in operating activities consisted principally of the net loss from operations . investing activities net cash used in investing activities for the year ended december 31 , 2013 was $ 2.9 million as compared to $ 5.0 million for the year ended december 31 , 2012. this represents capital expenditures primarily associated with the investment in product and technology development and our patent portfolio .

open-label extension studies are ongoing in ssc and dm following the completion of the phase 2 studies in these indications . the u.s. food and drug administration , or the fda , has granted lenabasum orphan designation as well as fast track status for ssc and cf , and orphan drug designation for dm . the european medicines authority , or the ema , has granted lenabasum orphan designation for ssc , cf and dm . since our inception , we have devoted substantially all of our efforts to business planning , research and development , recruiting management and technical staff , acquiring operating assets and raising capital . our research and development activities have included conducting pre-clinical studies , developing manufacturing methods and the manufacturing of our drug lenabasum for clinical trials and conducting clinical studies in patients . two of the four clinical programs for lenabasum are being supported by non-dilutive awards and grants . the national institutes of health , or nih , has funded the majority of the clinical development costs for the dm phase 2 clinical trial and is funding the sle phase 2 clinical trials . in cystic fibrosis , the phase 2b clinical trial is being supported by the 2018 cff award and the phase 2 clinical trial was partially funded by a $ 5 million award ( the “ 2015 cfft award agreement ” ) from the cystic fibrosis foundation therapeutics , inc. , or cfft , a non-profit drug discovery and development affiliate of the cystic fibrosis foundation . in september 2018 , we acquired an exclusive worldwide license ( the “ jenrin agreement ” ) to develop , manufacture and market drug candidates from more than 600 compounds targeting the endocannabinoid system from jenrin discovery llc ( “ jenrin ” ) . the pipeline includes crb-4001 , jenrin 's 2nd generation , peripherally-restricted , cb1 inverse agonist targeting liver , lung , heart and kidney fibrotic diseases . the current portfolio for crb-4001 includes multiple issued and pending patent applications . crb-4001 was developed in collaboration with and with financial support from the nih . crb-4001 was specifically designed to eliminate blood-brain barrier penetration and brain cb1 receptor occupancy that mediate the neuropsychiatric issues associated with first-generation cb1 inverse agonists such as rimonabant . potential indications for crb-4001 include nash , primary biliary cholangitis , idiopathic pulmonary fibrosis , radiation-induced pulmonary fibrosis , myocardial fibrosis after myocardial infarction , and acute interstitial nephritis , among others . on january 3 , 2019 , we entered into a strategic collaboration with kaken pharmaceutical co. , ltd. ( “ kaken ” ) for the development and commercialization in japan of our investigational drug lenabasum for the treatment of systemic sclerosis ( “ ssc ” ) and dermatomyositis ( “ dm ” ) , two rare and serious autoimmune diseases . under the terms of the agreement , kaken receives an exclusive license to commercialize and market lenabasum in japan for ssc and dm . in march 2019 , kaken made an upfront payment to us of $ 27 million . we will be eligible to receive in addition up to $ 173 million upon achievement of certain regulatory , development and sales milestones as well as double- digit royalties . on january 30 , 2019 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 6,198,500 shares of our common stock at a purchase price of $ 6.50 per share with gross proceeds to us totaling approximately $ 40.3 million , less estimated issuance costs incurred of approximately $ 2.6 million . 60 on february 11 , 2020 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 7,666,667 shares of our common stock at a purchase price of $ 6.00 per share with gross proceeds to us totaling approximately $ 46.0 million , less estimated issuance costs incurred of approximately $ 3.0 million . financial operations overview we are a clinical stage pharmaceutical company and have not generated any revenues from the sale of products . we have never been profitable and at december 31 , 2019 , we had an accumulated deficit of approximately $ 192.8 million . our net losses for the years ended december 31 , 2019 and 2018 were approximately $ 71,454,000 and $ 55,672,000 , respectively . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase significantly in connection with our ongoing activities to develop , seek regulatory approval of and commercialize lenabasum . accordingly , we will need additional financing to support our continuing operations . we will seek to fund our operations through public or private equity or debt financings or other sources , which may include government grants and collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenues to achieve profitability , and we may never do so . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . story_separator_special_tag the following assumptions were used to estimate the fair value of stock options granted using the black-scholes option pricing model for the years ended december 31 , 2019 and 2018 is as follows : replace_table_token_2_th results of operations comparison of year ended 2019 to 2018 revenue from awards and licenses . we have recognized approximately $ 36,144,000 and $ 4,882,000 of revenue from awards and licenses in the years ended december 31 , 2019 and 2018 , respectively . revenue from awards for the years ended december 31 , 2019 and 2018 was $ 9,143,568 and $ 4,822,272 , respectively , recognized in accordance with asc 606 and pertains only to the 2018 cff award . we received an aggregate of $ 12.5 million during the year ended december 31 , 2018 and an additional $ 5.0 million during the year ended december 31 , 2019 upon our achievement of milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement . the remainder of the 2018 cff award is payable to us incrementally upon the achievement of the remaining milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement . revenue for the year ended december 31 , 2019 also included the recognition of revenue from licenses for the $ 27,000,000 upfront payment received from kaken in march 2019 for which we satisfied the combined performance obligation by june 30 , 2019 , upon which we recognized the $ 27,000,000 as revenue in the second quarter of 2019 . 65 we assessed the 2018 cff award and the kaken collaboration agreement for accounting under asc 606. to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . research and development . research and development expenses for the year ended december 31 , 2019 totaled approximately $ 89,605,000 , an increase of $ 40,991,000 over the $ 48,614,000 recorded for the year ended december 31 , 2018. the increase in fiscal 2019 as compared to fiscal 2018 was primarily attributable to increases of $ 32,479,000 in clinical trial costs , $ 6,031,000 in compensation costs , and $ 2,481,000 in stock-based compensation expense . during 2018 , the company formed a subsidiary in each of the united kingdom and australia and approximately 46 % of research and development expenses recorded for the year ended december 31 , 2019 was recorded in these entities . general and administrative . general and administrative expense for the year ended december 31 , 2019 totaled approximately $ 23,643,000 , an increase of $ 10,687,000 over the $ 12,956,000 recorded for the year ended december 31 , 2018. the increase was primarily attributable to the $ 2,700,000 we recorded in the first quarter of 2019 related to the amount we owed to cff as a royalty payment equal to 10 % of any amounts we received as payment under the collaboration agreement with kaken . additional increases include approximately $ 3,439,000 in compensation costs , $ 1,891,000 in stock-based compensation expense , $ 809,000 in consulting costs , $ 547,000 in facility and insurance costs , $ 507,000 in temporary help and recruiting costs , and $ 320,000 in software as a service costs , partially offset by an aggregate net increase of approximately $ 474,000 for other general and administrative expenses . other income , net . other income , net for 2019 was approximately $ 5,651,000 as compared to approximately $ 1,076,000 recorded for 2018. the increase of $ 4,575,000 in 2019 as compared to 2018 was primarily attributable to approximately $ 4,581,000 of cash paid to us in second half of 2019 from taxing authorities for refundable research and development tax credits that were earned on certain research and development expenses we incurred primarily outside of the united states . we also had an increase in net interest income of approximately $ 245,000 due to increased cash balances in 2019 as compared to 2018 , offset partially by decreases in foreign currency exchange transaction gains of approximately $ 251,000. story_separator_special_tag any other third-party funding arrangement could require us to relinquish valuable rights . the source , timing and availability of any future financing will depend principally upon market conditions , and , more specifically , on the progress of our clinical development programs . funding may not be available when needed , at all , or on terms acceptable to us . lack of necessary funds may require us , among other things , to delay , scale back or eliminate expenses including some or all of our planned clinical trials . 67 contractual obligations and commitments the following table presents information about our known contractual obligations as of december 31 , 2019. it does not reflect contractual obligations that may have arisen or may arise after that date . except for historical facts , the information in this section is forward-looking information . replace_table_token_3_th on february 26 , 2019 , we amended our lease ( “ february 2019 lease agreement ” ) pursuant to which an additional 30,023 square feet of office space ( “ new premises ” ) will be leased by us in the same building for an aggregate total of 62,756 square feet of leased office space ( “ total premises ” ) . per asc 842 , the february 2019 lease agreement constitutes a modification as it extends the original lease term and increases the scope of the lease (

cash flows the following table sets forth the major components of our statements of cash flows data for the periods presented . replace_table_token_4_th 26 operating activities net cash used in operating activities for the year ended december 31 , 2013 totaled $ 14.4 million as compared to $ 5.6 million for the year ended december 31 , 2012. of the $ 14.4 million , approximately 10.1 million was a result of the independent directors of the company authorizing a onetime agreement on september 30 , 2013 , whereby we issued to mbth 1,599,453 shares of our common stock and a warrant to purchase 1,363,636 shares of our common stock at an exercise price of $ 6.87 per share for the difference in price between the shares issued to them in march 2013 at a price of $ 13.30 per share in exchange for the conversion of its 2011 convertible note and the $ 5.50 purchase price for shares sold in our initial public offering in july 2013. the cash used in operating activities consisted principally of the net loss from operations . investing activities net cash used in investing activities for the year ended december 31 , 2013 was $ 2.9 million as compared to $ 5.0 million for the year ended december 31 , 2012. this represents capital expenditures primarily associated with the investment in product and technology development and our patent portfolio .

open-label extension studies are ongoing in ssc and dm following the completion of the phase 2 studies in these indications . the u.s. food and drug administration , or the fda , has granted lenabasum orphan designation as well as fast track status for ssc and cf , and orphan drug designation for dm . the european medicines authority , or the ema , has granted lenabasum orphan designation for ssc , cf and dm . since our inception , we have devoted substantially all of our efforts to business planning , research and development , recruiting management and technical staff , acquiring operating assets and raising capital . our research and development activities have included conducting pre-clinical studies , developing manufacturing methods and the manufacturing of our drug lenabasum for clinical trials and conducting clinical studies in patients . two of the four clinical programs for lenabasum are being supported by non-dilutive awards and grants . the national institutes of health , or nih , has funded the majority of the clinical development costs for the dm phase 2 clinical trial and is funding the sle phase 2 clinical trials . in cystic fibrosis , the phase 2b clinical trial is being supported by the 2018 cff award and the phase 2 clinical trial was partially funded by a $ 5 million award ( the “ 2015 cfft award agreement ” ) from the cystic fibrosis foundation therapeutics , inc. , or cfft , a non-profit drug discovery and development affiliate of the cystic fibrosis foundation . in september 2018 , we acquired an exclusive worldwide license ( the “ jenrin agreement ” ) to develop , manufacture and market drug candidates from more than 600 compounds targeting the endocannabinoid system from jenrin discovery llc ( “ jenrin ” ) . the pipeline includes crb-4001 , jenrin 's 2nd generation , peripherally-restricted , cb1 inverse agonist targeting liver , lung , heart and kidney fibrotic diseases . the current portfolio for crb-4001 includes multiple issued and pending patent applications . crb-4001 was developed in collaboration with and with financial support from the nih . crb-4001 was specifically designed to eliminate blood-brain barrier penetration and brain cb1 receptor occupancy that mediate the neuropsychiatric issues associated with first-generation cb1 inverse agonists such as rimonabant . potential indications for crb-4001 include nash , primary biliary cholangitis , idiopathic pulmonary fibrosis , radiation-induced pulmonary fibrosis , myocardial fibrosis after myocardial infarction , and acute interstitial nephritis , among others . on january 3 , 2019 , we entered into a strategic collaboration with kaken pharmaceutical co. , ltd. ( “ kaken ” ) for the development and commercialization in japan of our investigational drug lenabasum for the treatment of systemic sclerosis ( “ ssc ” ) and dermatomyositis ( “ dm ” ) , two rare and serious autoimmune diseases . under the terms of the agreement , kaken receives an exclusive license to commercialize and market lenabasum in japan for ssc and dm . in march 2019 , kaken made an upfront payment to us of $ 27 million . we will be eligible to receive in addition up to $ 173 million upon achievement of certain regulatory , development and sales milestones as well as double- digit royalties . on january 30 , 2019 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 6,198,500 shares of our common stock at a purchase price of $ 6.50 per share with gross proceeds to us totaling approximately $ 40.3 million , less estimated issuance costs incurred of approximately $ 2.6 million . 60 on february 11 , 2020 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 7,666,667 shares of our common stock at a purchase price of $ 6.00 per share with gross proceeds to us totaling approximately $ 46.0 million , less estimated issuance costs incurred of approximately $ 3.0 million . financial operations overview we are a clinical stage pharmaceutical company and have not generated any revenues from the sale of products . we have never been profitable and at december 31 , 2019 , we had an accumulated deficit of approximately $ 192.8 million . our net losses for the years ended december 31 , 2019 and 2018 were approximately $ 71,454,000 and $ 55,672,000 , respectively . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase significantly in connection with our ongoing activities to develop , seek regulatory approval of and commercialize lenabasum . accordingly , we will need additional financing to support our continuing operations . we will seek to fund our operations through public or private equity or debt financings or other sources , which may include government grants and collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenues to achieve profitability , and we may never do so . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . story_separator_special_tag the following assumptions were used to estimate the fair value of stock options granted using the black-scholes option pricing model for the years ended december 31 , 2019 and 2018 is as follows : replace_table_token_2_th results of operations comparison of year ended 2019 to 2018 revenue from awards and licenses . we have recognized approximately $ 36,144,000 and $ 4,882,000 of revenue from awards and licenses in the years ended december 31 , 2019 and 2018 , respectively . revenue from awards for the years ended december 31 , 2019 and 2018 was $ 9,143,568 and $ 4,822,272 , respectively , recognized in accordance with asc 606 and pertains only to the 2018 cff award . we received an aggregate of $ 12.5 million during the year ended december 31 , 2018 and an additional $ 5.0 million during the year ended december 31 , 2019 upon our achievement of milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement . the remainder of the 2018 cff award is payable to us incrementally upon the achievement of the remaining milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement . revenue for the year ended december 31 , 2019 also included the recognition of revenue from licenses for the $ 27,000,000 upfront payment received from kaken in march 2019 for which we satisfied the combined performance obligation by june 30 , 2019 , upon which we recognized the $ 27,000,000 as revenue in the second quarter of 2019 . 65 we assessed the 2018 cff award and the kaken collaboration agreement for accounting under asc 606. to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . research and development . research and development expenses for the year ended december 31 , 2019 totaled approximately $ 89,605,000 , an increase of $ 40,991,000 over the $ 48,614,000 recorded for the year ended december 31 , 2018. the increase in fiscal 2019 as compared to fiscal 2018 was primarily attributable to increases of $ 32,479,000 in clinical trial costs , $ 6,031,000 in compensation costs , and $ 2,481,000 in stock-based compensation expense . during 2018 , the company formed a subsidiary in each of the united kingdom and australia and approximately 46 % of research and development expenses recorded for the year ended december 31 , 2019 was recorded in these entities . general and administrative . general and administrative expense for the year ended december 31 , 2019 totaled approximately $ 23,643,000 , an increase of $ 10,687,000 over the $ 12,956,000 recorded for the year ended december 31 , 2018. the increase was primarily attributable to the $ 2,700,000 we recorded in the first quarter of 2019 related to the amount we owed to cff as a royalty payment equal to 10 % of any amounts we received as payment under the collaboration agreement with kaken . additional increases include approximately $ 3,439,000 in compensation costs , $ 1,891,000 in stock-based compensation expense , $ 809,000 in consulting costs , $ 547,000 in facility and insurance costs , $ 507,000 in temporary help and recruiting costs , and $ 320,000 in software as a service costs , partially offset by an aggregate net increase of approximately $ 474,000 for other general and administrative expenses . other income , net . other income , net for 2019 was approximately $ 5,651,000 as compared to approximately $ 1,076,000 recorded for 2018. the increase of $ 4,575,000 in 2019 as compared to 2018 was primarily attributable to approximately $ 4,581,000 of cash paid to us in second half of 2019 from taxing authorities for refundable research and development tax credits that were earned on certain research and development expenses we incurred primarily outside of the united states . we also had an increase in net interest income of approximately $ 245,000 due to increased cash balances in 2019 as compared to 2018 , offset partially by decreases in foreign currency exchange transaction gains of approximately $ 251,000. story_separator_special_tag any other third-party funding arrangement could require us to relinquish valuable rights . the source , timing and availability of any future financing will depend principally upon market conditions , and , more specifically , on the progress of our clinical development programs . funding may not be available when needed , at all , or on terms acceptable to us . lack of necessary funds may require us , among other things , to delay , scale back or eliminate expenses including some or all of our planned clinical trials . 67 contractual obligations and commitments the following table presents information about our known contractual obligations as of december 31 , 2019. it does not reflect contractual obligations that may have arisen or may arise after that date . except for historical facts , the information in this section is forward-looking information . replace_table_token_3_th on february 26 , 2019 , we amended our lease ( “ february 2019 lease agreement ” ) pursuant to which an additional 30,023 square feet of office space ( “ new premises ” ) will be leased by us in the same building for an aggregate total of 62,756 square feet of leased office space ( “ total premises ” ) . per asc 842 , the february 2019 lease agreement constitutes a modification as it extends the original lease term and increases the scope of the lease (

liquidity and capital resources since inception , we have experienced negative cash flows from operations . we have financed our operations primarily through sales of equity-related securities . in addition , the majority of the costs of the phase 2 dm and sle clinical trials have been or are expected to be funded by nih grants , and our phase 2 cystic fibrosis clinical trial was partially funded by the 2015 cfft award . our phase 2b cystic fibrosis trial is being supported by the 2018 cff award . at december 31 , 2019 , our accumulated deficit since inception was approximately $ 192,824,000. at december 31 , 2019 , we had total current assets of approximately $ 38,155,000 and current liabilities of approximately $ 34,887,000 resulting in working capital of approximately $ 3,267,000. of our total cash and cash equivalents of $ 31.7 million at december 31 , 2019 , $ 31.3 million was held within the united states . net cash used in operating activities for the year ended december 31 , 2019 was approximately $ 45,721,000 , which includes a net loss of approximately $ 71,454,000 , adjusted for non-cash expenses of approximately $ 13,257,000 principally related to stock-based compensation expense of $ 11,982,000 , depreciation and amortization expense of $ 739,000 and operating lease rou asset amortization of $ 490,000 , and approximately $ 12,476,000 of cash provided by net working capital items , principally related to the receipt of $ 5,000,000 under the 2018 cff award during 2019 and increases in accounts payable and accrued expenses . cash used in investing activities for the year ended december 31 , 2019 totaled approximately $ 2,743,000 , which was largely related to construction costs and purchases of furniture and fixtures to build out our office space that we began to occupy a portion of at the end of the third quarter of 2019 and the remainder in the fourth quarter of 2019 .

any forward-looking statement speaks only as of the date on which it is made , and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made . in addition , past results of operations are not necessarily indicative of future results . general the company 's primary source of earnings is net interest income , and its principal market risk exposure is interest rate risk . the company is not able to predict market interest rate fluctuations and its asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on the company 's results of operations and financial condition . although we endeavor to minimize the credit risk inherent in the company 's loan portfolio , we must necessarily make various assumptions and judgments about the collectability of the loan portfolio based on our experience and evaluation of economic conditions . if such assumptions or judgments prove to be incorrect , the current allowance for loan losses may not be sufficient to cover loan losses and additions to the allowance may be necessary , which would have a negative impact on net income . results of operations the following presents management 's discussion and analysis of the financial condition of the company at december 31 , 2018 and 2017 , and results of operations for the company for the years ended december 31 , 2018 and 2017. this discussion should be read in conjunction with the company 's audited financial statements and the notes thereto appearing elsewhere in this annual report . summary the company recorded net income of $ 3,037,000 and net income available to common shareholders , which deducts from net income the dividends on preferred stock , of $ 2,924,000 , or $ 2.04 per fully diluted share in 2018 , compared to a net loss of $ 3,096,000 and net loss available to common shareholders of $ 3,594,000 , or ( $ 2.55 ) per fully diluted share in 2017. the company 's results for the year ended december 31 , 2017 were significantly impacted by a reduction in the corporate tax rate . on december 22 , 2017 , the president signed into law the tax reform act . the tax reform act includes a number of changes in existing tax law impacting businesses . one of the most significant changes is a permanent reduction in the corporate income tax rate from 35 % to 21 % . the rate reduction took effect on january 1 , 2018. accounting principles generally accepted in the united states of america ( “ gaap ” ) require companies to re-value their deferred tax assets and liabilities as of the date of enactment , with resulting tax effects accounted for in the reporting period of enactment . as of december 31 , 2017 , the company had net deferred tax assets of $ 11 million . the company recorded a re-valuation of its deferred tax assets and liabilities as of december 31 , 2017 , at the new rate of 21 % , based upon balances in existence at date of enactment . as a result , the company 's net deferred tax assets were written down by approximately $ 4,181,000 in the fourth quarter of 2017 with a corresponding increase in tax expense . this write down decreased earnings per share for the year by $ 2.96. although the tax reform act had a significant negative impact on the company 's earnings for 2017 because of the re-valuation of its deferred tax assets and liabilities , the reduction in the corporate tax rate to 21 % had a positive benefit to the company in 2018 and is expected to have a continued positive benefit in future periods . 31 net interest income net interest income , which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities , is the company 's primary source of earnings . net interest income can be affected by changes in market interest rates as well as the level and composition of assets , liabilities and shareholders ' equity . net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net yield on interest-earning assets ( “ net interest margin ” ) is calculated by dividing tax equivalent net interest income by average interest-earning assets . generally , the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources , principally noninterest-bearing deposits and shareholders ' equity . replace_table_token_1_th the increase in net interest income of $ 2,583,000 for the year ended december 31 , 2018 was a result of positive movements in interest income . interest income increased $ 3,770,000 with interest income on loans held for investment increasing $ 3,434,000 and interest income on investments increasing by $ 311,000. the increase in interest income on loans held for investment was attributable to an increase in average loans outstanding of $ 54,285,000 and an increase in the yield of 22 basis points . the increase in interest income on securities was due to an increase in average investment securities of $ 1,234,000 and an increase in the yield of 62 basis points . interest expense increased by $ 1,187,000 because of an increase in average interest bearing liabilities of $ 32,225,000 and an increase in the cost of interest bearing liabilities of 26 basis points . the following table illustrates average balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated , showing the average distribution of assets , liabilities , shareholders ' equity and related income , expense and corresponding weighted-average yields and rates ( dollars in thousands ) . the average balances used in these tables and other statistical data were calculated using daily average balances . story_separator_special_tag if the evaluation shows that a loan is individually impaired , then a specific reserve is established for the amount of impairment . loans are grouped by similar characteristics , including the type of loan , the assigned loan classification and the general collateral type . a loss rate reflecting the expected loss inherent in a group of loans is derived based upon historical net charge-off rates , the predominant collateral type for the group and the terms of the loan . the resulting estimate of losses for groups of loans is adjusted for relevant environmental factors and other conditions of the portfolio of loans and leases , including : borrower and industry concentrations ; levels and trends in delinquencies , charge-offs and recoveries ; changes in underwriting standards and risk selection ; level of experience , ability and depth of lending management ; and national and local economic conditions . the amounts of estimated impairment for individually evaluated loans and groups of loans are added together for a total estimate of loan losses . this estimate of losses is compared to our allowance for loan losses as of the evaluation date and , if the estimate of losses is greater than the allowance , an additional provision to the allowance would be made . if the estimate of losses is less than the allowance , the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates . we recognize the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used , and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high . if different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses , an additional provision for loan losses would be made , which amount may be material to the financial statements . 44 troubled debt restructurings a loan is accounted for as a troubled debt restructuring if we , for economic or legal reasons , grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider . a troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan , or a modification of terms such as a reduction of the stated interest rate or balance of the loan , a reduction of accrued interest , an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk , or some combination of these concessions . troubled debt restructurings can be in either accrual or nonaccrual status . nonaccrual troubled debt restructurings are included in nonperforming loans . accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected . troubled debt restructurings generally remain categorized as nonperforming loans and leases until a six-month payment history has been maintained . in accordance with current accounting guidance , loans modified as troubled debt restructurings are , by definition , considered to be impaired loans . impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described above under allowance for loan losses . certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology ( i.e . , pooling ) , thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these two measurement methodologies . loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans . other real estate owned other real estate owned represents properties acquired through foreclosure or physical possession . write-downs to fair value of foreclosed assets less estimate costs to sell at the time of transfer are charged to allowance for loan losses . subsequent to foreclosure , the company periodically evaluates the value of foreclosed assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs . if fair value declines subsequent to foreclosure a valuation allowance is recorded through expense . operating costs after acquisition are expensed as incurred . the valuation allowance was $ 52,000 and $ 281,000 at december 31 , 2018 and 2017 , respectively . fair value is based on an assessment of information available at the end of a reporting period and depends upon a number of factors , including historical experience , economic conditions , and issues specific to individual properties . the evaluation of these factors involves subjective estimates and judgments that may change . assets held for sale assets held for sale at december 31 , 2018 and december 31 , 2017 included a branch building we previously closed . the company periodically evaluates the value of assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs . income taxes the company uses the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance may be established .

liquidity and capital resources since inception , we have experienced negative cash flows from operations . we have financed our operations primarily through sales of equity-related securities . in addition , the majority of the costs of the phase 2 dm and sle clinical trials have been or are expected to be funded by nih grants , and our phase 2 cystic fibrosis clinical trial was partially funded by the 2015 cfft award . our phase 2b cystic fibrosis trial is being supported by the 2018 cff award . at december 31 , 2019 , our accumulated deficit since inception was approximately $ 192,824,000. at december 31 , 2019 , we had total current assets of approximately $ 38,155,000 and current liabilities of approximately $ 34,887,000 resulting in working capital of approximately $ 3,267,000. of our total cash and cash equivalents of $ 31.7 million at december 31 , 2019 , $ 31.3 million was held within the united states . net cash used in operating activities for the year ended december 31 , 2019 was approximately $ 45,721,000 , which includes a net loss of approximately $ 71,454,000 , adjusted for non-cash expenses of approximately $ 13,257,000 principally related to stock-based compensation expense of $ 11,982,000 , depreciation and amortization expense of $ 739,000 and operating lease rou asset amortization of $ 490,000 , and approximately $ 12,476,000 of cash provided by net working capital items , principally related to the receipt of $ 5,000,000 under the 2018 cff award during 2019 and increases in accounts payable and accrued expenses . cash used in investing activities for the year ended december 31 , 2019 totaled approximately $ 2,743,000 , which was largely related to construction costs and purchases of furniture and fixtures to build out our office space that we began to occupy a portion of at the end of the third quarter of 2019 and the remainder in the fourth quarter of 2019 .