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gross profit for plant nutrition north america was favorably impacted by higher sales volumes and lower per-unit product costs , which were partially offset by increased per-unit shipping and handling costs and higher depreciation expense during 2017. a $ 61.6 million decrease in salt segment gross margin partially offset the combined plant nutrition business ' increase . the decrease resulted from lower sales volumes , increased per-unit product and increased shipping and handling costs , and higher depreciation expense . gross profit & gross margin commentary : 2015 – 2016 gross profit : decreased 9 % , or $ 30.6 million ; gross margin decreased 4 percentage points to 26 % from 30 % salt gross profit declined $ 17.1 million primarily due to reduced sales prices and higher per-unit production costs . the decrease was partially offset by lower logistics costs . the plant nutrition business , on a combined basis , contributed $ 10.8 million to the decrease in gross profit primarily due to lower average sales prices realized in our plant nutrition north america segment , partially offset by the inclusion of the results from produquímica following the acquisition in october 2016. in addition , plant nutrition north america experienced higher per-unit shipping and handling costs . other expenses and income commentary : 2016 – 2017 sg & a : increased $ 42.5 million , which represented a 1.3 percentage points of sales increase to 12.3 % from 11.0 % the increase in sg & a expense was primarily due to the full year inclusion of produquímica in our operating results in 2017 and approximately $ 2 million in higher corporate depreciation related to a significant software system upgrade . in addition , we incurred charges of approximately $ 2 million related to ongoing restructuring activities primarily impacting corporate sg & a . interest expense : increased $ 18.8 million to $ 52.9 million the increase was primarily due to our higher aggregate debt level driven by the acquisition of produquímica , which was partially offset by lower interest rates due to the refinancing of our term loans and revolving credit facility in april 2016. net ( earnings ) loss in equity investee : increased from a loss of $ 1.4 million to earnings of $ 0.8 million the $ 0.8 million of earnings in 2017 represents our share of fermavi eletroquímica ltda . 's ( “ fermavi ” ) net earnings . as a result of the full acquisition of produquímica , we hold a 50 % interest in fermavi , which was previously held by produquímica . the $ 1.4 million loss in 2016 was primarily comprised of our share of produquímica 's net loss based on our initial 35 % equity interest in produquímica prior to the full acquisition . gain from remeasurement of equity method investment we recognized a gain of $ 59.3 million in 2016 related to our previously held equity investment in produquímica , which was remeasured to fair value upon our full acquisition of the business in october 2016. other expense ( income ) , net : increased $ 3.3 million to $ 4.4 million the increase was primarily due to foreign exchange losses of $ 7.1 million in 2017 , compared to losses of $ 0.1 million in 2016. the increase was partially offset by the inclusion of $ 3.0 million of refinancing fees in 2016 and increased interest income in 2017. income tax expense : increased $ 25.4 million to $ 60.0 million income tax expense and our income tax rate increased in 2017 due to the impact of u.s. tax reform , which resulted in an increase in tax expense of $ 46.8 million , and due to a tax settlement agreement . these increases were partially offset by the release of valuation allowances related to our brazil business . our effective tax rate was 58 % in 2017 and 18 % in 2016. our effective tax rates were impacted by u.s. tax reform and a tax settlement agreement in 2017 and the non-taxable gain recognized from the remeasurement of our previously held equity investment in produquímica in 2016. replace_table_token_38_th compass minerals international , inc. our income tax provision in both periods differs from the u.s. statutory rate primarily due to u.s. statutory depletion , domestic manufacturing deductions , state income taxes , foreign income , mining and withholding taxes and interest expense recognition differences for tax and financial reporting purposes . other expenses and income commentary : 2015 – 2016 sg & a : increased $ 16.2 million , which represented a 1.1 percentage points of sales increase to 9.9 % from 11.0 % the increase in expense was due to the inclusion of produquímica 's results and higher expenses in our plant nutrition north america segment due to the $ 3.1 million partial impairment of our wolf trax trade name and corporate restructuring costs . this increase was partially offset by a decrease of $ 2.0 million in corporate professional services and a decrease of $ 1.8 million in marketing expenses in our plant nutrition north america and salt segments . interest expense : increased $ 12.6 million to $ 34.1 million the increase was primarily due to our higher aggregate debt level driven by the acquisition of produquímica , which was partially offset by lower interest rates due to the refinancing of our term loans and revolving credit facility in april 2016. net ( earnings ) loss in equity investee : loss of $ 1.4 million the $ 1.4 million in 2016 was primarily comprised of our share of produquímica 's net loss based on our initial 35 % equity interest in produquímica prior to the full acquisition . story_separator_special_tag net cash flows provided by operating activities were $ 167.3 million . » net earnings were $ 162.7 million which included a non-cash remeasurement gain of $ 59.3 million related to the acquisition of produquímica . » non-cash depreciation and amortization expense was $ 90.3 million . » working capital items were a use of operating cash flows of $ 31.7 million . net cash flows provided by operating activities were $ 137.9 million . » net earnings were $ 159.2 million . » non-cash depreciation and amortization expense was $ 78.3 million . » working capital items were a use of operating cash flows of $ 111.0 million . investing activities : net cash flows used by investing activities were $ 119.0 million . » included $ 114.1 million of capital expenditures . net cash flows used by investing activities were $ 467.8 million . » included $ 182.2 million of capital expenditures and cash payments of $ 4.7 million relating to our previously held equity investment and $ 277.7 million for the full acquisition of produquímica . net cash flows used by investing activities were $ 335.4 million . » included $ 217.6 million of capital expenditures and an equity investment of $ 116.4 million . financing activities : net cash flows used by financing activities were $ 73.4 million . » included net proceeds from issuance of debt of $ 38.7 million , payments of dividends of $ 97.5 million and payments of $ 14.7 million related to contingent consideration from the produquímica acquisition . net cash flows provided by financing activities were $ 314.6 million . » included net proceeds from issuance of debt of $ 416.7 million , payments of dividends of $ 94.1 million and payments of $ 8.5 million related to the refinancing of debt . net cash flows provided by financing activities were $ 14.2 million . » primarily related to new debt used to finance the produquímica investment of $ 100 million , partially offset by the payment of dividends of $ 89.4 million . replace_table_token_46_th compass minerals international , inc. story_separator_special_tag style= `` font-family : inherit ; font-size:8pt ; `` > we lease property and equipment under non-cancelable operating and capital leases for varying periods . ( c ) we have contracts to purchase certain amounts of electricity , equipment and raw materials . in addition , we have minimum throughput commitments in certain depots and warehouses . ( d ) note 8 to our consolidated financial statements provides additional information . ( e ) note 11 to our consolidated financial statements provides additional information . sensitivity analysis related to ebitda and adjusted ebitda management uses a variety of measures to evaluate our performance . while our consolidated financial statements , taken as a whole , provide an understanding of our overall results of operations , financial condition and cash flows , we analyze components of the consolidated financial statements to identify certain trends and evaluate specific performance areas . in addition to using u.s. generally accepted accounting principles ( “ gaap ” ) financial measures , such as gross profit , net earnings and cash flows generated by operating activities , management uses ebitda and adjusted ebitda . both ebitda and adjusted ebitda are non-gaap financial measures used to evaluate the operating performance of our core business operations because our resource allocation , financing methods and cost of capital , and income tax positions are managed at a corporate level , apart from the activities of the operating segments , and the operating facilities are located in different taxing jurisdictions , which can cause considerable variation in net earnings . we also use ebitda and adjusted ebitda to assess our operating performance and return on capital against other companies , and to evaluate potential acquisitions or other capital projects . ebitda and adjusted ebitda are not calculated under u.s. gaap and should not be considered in isolation or as a substitute for net earnings , cash flows or other financial data prepared in accordance with u.s. gaap or as a measure of our overall profitability or liquidity . ebitda and adjusted ebitda exclude interest expense , income taxes and depreciation and amortization , each of which are an essential element of our cost structure and can not be eliminated . furthermore , adjusted ebitda excludes other cash and non-cash items , including restructuring costs , refinancing costs and other ( income ) expense . our borrowings are a significant component of our capital structure and interest expense is a continuing cost of debt . we are also required to pay income taxes , a required and ongoing consequence of our operations . we have a significant investment in capital assets and depreciation and amortization reflect the utilization of those assets in order to generate revenues . consequently , any measure that excludes these elements has material limitations . while ebitda and adjusted ebitda are frequently used as measures of operating performance , these terms are not necessarily comparable to similarly titled measures of other companies due to the potential inconsistencies in the method of calculation . replace_table_token_49_th compass minerals international , inc. the calculation of ebitda and adjusted ebitda as used by management is set forth in the table below ( in millions ) . replace_table_token_50_th in 2017 , we incurred charges of $ 4.3 million related to ongoing restructuring activities . key adjustments in 2016 included a gain of $ 59.3 million related to the remeasurement of our previously held equity investment in produquímica ( see note 3 to our consolidated financial statements ) and $ 8.4 million of costs in connection with the acquisition of produquímica , primarily related to the step-up of finished goods inventory to fair value , which was recorded in product cost as the inventory was sold . in the fourth quarter of 2016 , we also partially wrote-down a trade name acquired in our wolf trax acquisition . ebitda also includes other

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capital resources we believe our primary sources of liquidity will continue to be cash flow from operations and borrowings under our revolving credit facility . we believe that our current banking syndicate is secure and believe we will have access to our entire revolving credit facility . we expect that ongoing requirements for debt service and committed or sustaining capital expenditures will primarily be funded from these sources . our debt service obligations could , under certain circumstances , materially affect our financial condition and prevent us from fulfilling our debt obligations . see item 1a. , “ risk factors – our indebtedness and ability to pay our indebtedness could adversely affect our business and financial condition. ” furthermore , cmi is a holding company with no operations of its own and is dependent on its subsidiaries for cash flow . as discussed in note 9 to our consolidated financial statements , at december 31 , 2017 , we had $ 1.37 billion of outstanding indebtedness consisting of $ 250.0 million under our 4.875 % notes , $ 1.01 billion of borrowings outstanding under our senior secured credit facilities ( consisting of term loans and a revolving credit facility ) , including $ 168.9 million borrowed against our revolving credit facility , and $ 112.9 million of debt related to our produquímica business in brazil . letters of credit totaling $ 8.4 million as of december 31 , 2017 , reduced available borrowing capacity under the revolving credit facility to $ 122.7 million .

the european commission , or ec , has granted orphan medicinal product designation to edasalonexent for the treatment of dmd . we initiated a global phase 3 trial of edasalonexent for the treatment of dmd in september 2018 , which we refer to as the polarisdmd trial . the polarisdmd trial is designed to evaluate the efficacy and safety of edasalonexent for registration purposes , with top-line results expected in the second quarter of 2020. our goal is to submit a new drug application for edasalonexent for the treatment of dmd in early 2021. polarisdmd is currently enrolling patients with enrollment expected to be completed in 2019. the trial design was informed by discussions with the fda , as well as input from treating physicians , families of boys affected by dmd and patient advocacy organizations . the polarisdmd trial is a randomized , double-blind , placebo-controlled trial , and we anticipate enrolling approximately 125 patients between the ages of four and seven ( up to eighth birthday ) , regardless of mutation type , who have not been on steroids for at least six months . the primary efficacy endpoint is change in north star ambulatory assessment , or nsaa , score after 12 months of treatment with edasalonexent compared to placebo . key secondary endpoints are the age-appropriate timed function tests : time to stand , 4-stair climb and 10-meter walk/run . assessments of growth , cardiac and bone health are also included in the trial . this month , we are initiating a new open-label extension trial called the galaxydmd trial , in which we plan to enroll all of the boys currently participating in the movedmd open-label extension , and which will also provide the boys who complete the 12-month polarisdmd trial with the opportunity to receive open-label edasalonexent treatment . the galaxydmd trial is designed to provide longer term safety data to support registration filings . our movedmd phase 1/2 trial enrolled ambulatory boys four to seven years old with a genetically confirmed diagnosis of dmd who were steroid naive or had not used steroids for at least six months prior to the trial . boys enrolled in the trial were not limited to any specific dystrophin mutations and the 31 boys in the trial had 26 different dystrophin mutations . the movedmd trial was designed to be conducted in three sequential parts , phase 1 and phase 2 , both of which are completed , and an open-label extension , which is on-going . in phase 1 of the movedmd trial , we assessed the safety , tolerability and pharmacokinetics of edasalonexent in 17 patients , following seven days of dosing , and 82 we reported in january 2016 that all three doses of edasalonexent tested were generally well tolerated with no safety signals observed and there were no serious adverse events and no drug discontinuations . in the phase 2 portion of the trial , we assessed the effects of edasalonexent using magnetic resonance imaging , or mri , t2 as an early biomarker at 12 weeks , and announced in january 2017 that the primary efficacy endpoint of average change from baseline to week 12 in the mri t2 composite measure of lower leg muscles for the pooled edasalonexent treatment groups compared to placebo was not met , although we observed directionally positive results in the 100/mg/kg/day edasalonexent treatment group that were not statistically significant . subsequently , in the open-label extension of the movedmd trial , we observed statistically significant improvement in the rate of change in lower leg composite mri t2 through 12 , 24 , 36 and 48 weeks on 100 mg/kg of edasalonexent treatment compared to the off-treatment control period . we have completed key efficacy and safety assessments from the movedmd trial . in the ongoing open-label extension of the movedmd trial through 72 weeks of oral 100 mg/kg/day edasalonexent treatment , we observed preserved muscle function and consistent improvements in all four assessments of muscle function : nsaa score , time to stand , 4-stair climb and 10-meter walk/run , compared to the rates of change in the control period for boys prior to receiving edasalonexent treatment . additionally , supportive changes in non-effort-based measures of muscle health were seen , supporting the durability of edasalonexent treatment effects . specifically , we observed , in the 100 mg/kg/day treatment group , that all four muscle enzymes tested ( creatine kinase , alanine aminotransferase , aspartate aminotransferase and lactate dehydrogenase ) were significantly decreased compared to baseline following edasalonexent treatment at 12 weeks and later time points through 72 weeks ( p < 0.05 ) . through 72 weeks of treatment , edasalonexent continued to be well tolerated with no safety signals observed in the movedmd trial . boys treated with edasalonexent continued to follow age-appropriate growth curves with age-appropriate increases in weight and height and overall body mass index trended down to age-normative values . we also observed that the heart rate of the boys significantly decreased toward age-normative values with over a year and a half period of edasalonexent treatment . in addition to edasalonexent , we have developed cat-5571 as a potential treatment for cystic fibrosis , or cf . cat-5571 is an oral small molecule that is designed to activate autophagy , a mechanism for recycling cellular components and digesting pathogens , which is important for host defenses and is depressed in cf . we have completed investigational new drug , or ind , application-enabling activities for cat-5571 . story_separator_special_tag general and administrative expenses general and administrative expenses increased by $ 0.4 million to $ 9.3 million for the year ended december 31 , 2018 from $ 8.9 million for the year ended december 31 , 2017 , an increase of 5 % . the increase in general and administrative expenses was attributable to a $ 0.8 million increase in employee compensation due to one-time performance bonuses awarded to general and administrative employees that were not awarded bonuses in 2017 , a $ 0.1 million increase in the general and administrative portion of insurance and facilities expense , and a $ 0.1 million increase in delaware franchise tax . these increases were partially offset by a $ 0.6 million decrease in consulting and professional services due to cost cutting associated with a strategic shift and restructuring . other income ( expense ) , net other income ( expense ) , net increased by $ 0.8 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 due to a decrease in interest expense of $ 0.4 million due to principal payments made on our credit facility , an increase in other income of $ 0.1 million due 88 partially to the net gain realized on assets sold in consolidation of our facilities and an increase of $ 0.3 million in interest and investment income due to an increase in our interest-bearing assets following our june 2018 financing . story_separator_special_tag the number and characteristics of future product candidates that we pursue and their development requirements ; the outcome , timing and costs of seeking regulatory approvals ; the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the responsibility of any future collaborators , including the costs and timing of establishing product sales , marketing , distribution and manufacturing capabilities ; subject to receipt of marketing approval , revenue , if any , received from commercial sales of our product candidates ; our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure ; the costs of preparing , filing and prosecuting patent applications , maintaining and protecting our intellectual property rights and defending against intellectual property related claims ; and the costs of operating as a public company . identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming , expensive and uncertain process that takes years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of medicines that we do not expect to be commercially available for several years , if at all . accordingly , we will need to continue to rely on additional financing to achieve our business objectives . adequate additional financing may not be available to us on acceptable terms , or at all . 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 , our stockholders ' ownership interests will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders ' rights . additional debt financing , if available , would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends , that could adversely impact our ability to conduct our business . if we raise funds through collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or to grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . 91 cash flows comparison of the years ended december 31 , 2018 and 2017 the following table provides information regarding our cash flows for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_3_th net cash used in operating activities net cash used in operating activities was $ 23.5 million for the year ended december 31 , 2018 and consisted primarily of a net loss of $ 25.9 million adjusted for non-cash items , including stock-based compensation expense of $ 1.8 million , depreciation and amortization expense of $ 0.1 million , other non-cash items of $ 0.1 million and a net decrease in operating assets of $ 0.7 million , which resulted primarily from increases in accounts payable and accrued expenses . these were partially offset by a gain on disposal of property and equipment of $ 0.3 million . net cash used in operating activities was $ 26.8 million for the year ended december 31 , 2017 and consisted primarily of a net loss of $ 27.4 million adjusted for non-cash items , including stock-based compensation expense of $ 2.0 million , depreciation and amortization expense of $ 0.3 million , non-cash interest expense of $ 0.2 million , and a net increase in operating assets of $ 1.9 million , which resulted

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liquidity and capital resources from our inception through december 31 , 2018 , we have raised an aggregate of $ 245.2 million , of which $ 92.9 million was from private placements of preferred stock , $ 69.0 million represented gross proceeds from our ipo , $ 11.5 million represented gross proceeds from our september 2016 registered direct offering , $ 19.0 million represented gross proceeds from our atm offering programs , $ 42.0 million represented gross proceeds from our june 2018 financing , $ 10.0 million was from a secured debt financing and $ 0.8 million was from common stock option and warrant exercises . as of december 31 , 2018 , we had $ 37.6 million in cash , cash equivalents and short-term investments . following december 31 , 2018 , we raised an additional $ 20.0 million in gross proceeds from our february 2019 financing and $ 2.1 million in gross proceeds under our atm offering program we have not generated any revenue from product sales to date . we have incurred significant annual net operating losses in every year since our inception and expect to incur net operating losses in 2019 and for the foreseeable future . as of december 31 , 2018 , we had an accumulated deficit of $ 197.3 million . we expect to continue to incur significant expenses and operating losses for the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we anticipate that our expenses will increase significantly if and to the extent that we continue to develop and conduct clinical trials with respect to edasalonexent and other product candidates ; initiate and continue research , preclinical and clinical development efforts for our other product candidates and potential product candidates ; maintain , expand and protect our intellectual property portfolio ; establish a commercial infrastructure to support the marketing and sale of certain of our product candidates ; hire additional personnel , such as clinical , regulatory , quality control and scientific personnel ; and operate as a public company .

in 2012 the fulfill program generated $ 1.4 million of 22 operating income . we expect the contribution of our fulfill program to generate operating income between $ 2.5 million and $ 3.0 million in 2013. the refractory segment introduced a new , fourth generation lacam ® laser measurement system and expect additional lacam ® sales in 2013. we also signed an agreement with united steel company b.s.c . ( sulb ) to perform all refractory maintenance at a greenfield steel mill in bahrain that started up in the third quarter of 2012. minteq , working with other refractory companies , is responsible for coordinating refractory maintenance of the steel furnaces and other steel production vessels . we generated approximately $ 3 million in revenue from this contract in 2012 and we expect to generate between $ 8 million- $ 10 million per year of revenue over the 3 year term of the contract . the company 's balance sheet as of december 31 , 2012 continues to be very strong . cash , cash equivalents and short-term investments at december 31 , 2012 were approximately $ 468 million . our cash flows from operations were approximately $ 139 million in 2012. in addition , we had available lines of credit of $ 183.5 million , our debt to equity ratio was 0.10 , and our current ratio was 3.1. we face some significant risks and challenges in the future : · the industries we serve , primarily paper , steel , construction and automotive , have been adversely affected by the uncertain global economic climate , primarily in europe . although these markets have stabilized , our global business could be adversely affected by further decreases in economic activity . our refractories segment primarily serves the steel industry . although north american production improved slightly in 2012 as compared with the prior year , we saw declines in european steel production and it remains below 2008 levels . in the paper industry , which is served by our paper pcc product line , 2012 production levels for printing and writing papers within north america and europe , our two largest markets were 5 % and 4 % below the prior year . in addition , our processed minerals and specialty pcc product lines are affected by the domestic building and construction markets and the automotive market . housing starts in 2012 averaged approximately 781 thousand units , and were up 28 % from 2011 levels . housing starts were at a peak rate of 2.1 million units in 2005 . · some of our customers may experience mill shutdowns due to further consolidations , or may face liquidity issues , or bankruptcy , which could deteriorate the aging of our accounts receivable , increase our bad debt exposure and possibly trigger impairment of assets or realignment of our businesses . · consolidations and rationalizations in the paper and steel industries concentrate purchasing power in the hands of fewer customers , increasing pricing pressure on suppliers such as us . · most of our paper pcc sales are subject to long-term contracts that may be terminated pursuant to their terms , or may be renewed on terms less favorable to us . · we are subject to volatility in pricing and supply availability of our key raw materials used in our paper pcc product line and refractory product line . · we continue to rely on china for a portion of our supply of magnesium oxide in the refractories segment , which may be subject to uncertainty in availability and cost . · fluctuations in energy costs have an impact on all of our businesses . · changes in the fair market value of our pension assets , rates of return on assets , and discount rates could continue to have a significant impact on our net periodic pension costs as well as our funding status . · as we expand our operations abroad we face the inherent risks of doing business in many foreign countries , including foreign exchange risk , import and export restrictions , and security concerns . · the company 's operations , particularly in the mining and environmental areas ( discharges , emissions and greenhouse gases ) , are subject to regulation by federal , state and foreign authorities and may be subject to , and presumably will be required to comply with , additional laws , regulations and guidelines which may be adopted in the future . during the second quarter of 2011 , m-real corporation announced plans to divest its alizay paper mill in france . since that time , the mill has not been operating . in january 2013 , double a paper company announced it had acquired the alizay mill . while there can be no assurance , we expect to negotiate a contract and the paper mill to resume operations in the second half of 2013. in 2011 , sales from our alizay mill were approximately $ 7 million . during the third quarter of 2011 , newpage corporation filed for chapter 11 bankruptcy protection . in 2012 , the company did business with five newpage mills , including operating three satellite pcc facilities at newpage locations . in december 2012 , newpage emerged from the bankruptcy process and the company continues to supply pcc to these mills . annual sales to newpage locations in 2012 were approximately $ 22 million . the company has evaluated these facilities for impairment of assets and , based upon the information currently available and probability-weighted cash flows of various potential outcomes , has determined that no impairment charge was required in the fourth quarter . 23 outlook looking forward , we remain cautious about the state of the global economy , particularly in europe , and the impact it will have on our product lines . story_separator_special_tag · allowance for doubtful accounts : substantially all of our accounts receivable are due from companies in the paper , construction and steel industries . accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future . such allowance is established through a charge to the provision for bad debt expenses . we recorded bad debt expenses of $ 1.0 million , $ 0.9 million and $ 0.1 million in 2012 , 2011 and 2010 , respectively . in addition to specific allowances established for bankrupt customers , we also analyze the collection history and financial condition of our other customers considering current industry conditions and determine whether an allowance needs to be established or adjusted . · property , plant and equipment , goodwill , intangible and other long-lived assets : property , plant and equipment are depreciated over their useful lives . useful lives are based on management 's estimates of the period that the assets can generate revenue , which does not necessarily coincide with the remaining term of a customer 's contractual obligation to purchase products made using those assets . our sales of pcc are predominately pursuant to long-term evergreen contracts , initially ten years in length , with paper mills at which we operate satellite pcc plants . the terms of many of these agreements have been extended , often in connection with an expansion of the satellite pcc plant . failure of a pcc customer to renew an agreement or continue to purchase pcc from our facility could result in an impairment of assets or accelerated depreciation at such facility . · valuation of long-lived assets , goodwill and other intangible assets : we assess the possible impairment of long-lived assets and identifiable amortizable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable . goodwill is reviewed for impairment at least annually . factors we consider important that could trigger an impairment review include the following : significant under-performance relative to historical or projected future operating results ; significant changes in the manner of use of the acquired assets or the strategy for the overall business ; significant negative industry or economic trends ; market capitalization below invested capital . the goodwill balance for each reporting unit as of december 31 , 2012 and 2011 , respectively , was as follows : replace_table_token_20_th annually , the company performs a qualitative assessment for each of its reporting units to determine if the two step process for impairment testing is required . if the company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , the company then evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level . step one involves a ) developing the fair value of total invested capital of each reporting unit in which goodwill is assigned ; and b ) comparing the fair value of total invested capital for each reporting unit to its carrying amount , to determine if 29 there is goodwill impairment . should the carrying amount for a reporting unit exceed its fair value , then the step one test is failed , and the magnitude of any goodwill impairment is determined under step two . the amount of impairment loss is determined in step two by comparing the implied fair value of reporting unit goodwill with the carrying amount of goodwill . the company has three reporting units ; pcc , processed minerals and refractories . we identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and management regularly reviews the operating results of those components . in the fourth quarter of 2012 , the company performed a qualitative assessment of each of its reporting units and determined it was not more likely than not that the fair value of each of its reporting units was less than their carrying values . · accounting for income taxes : as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating current tax expense together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included in the consolidated balance sheet . we must then assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . to the extent we establish a valuation allowance or change this allowance in a period , we must include an expense within the tax provision in the consolidated statements of operations . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences and forecasted operating earnings . these sources of income inherently rely heavily on estimates . we use our historical experience and business forecasts to provide insight . amounts recorded for deferred tax assets , net of valuation allowances , were $ 47.5 million and $ 44.4 million at december 31 , 2012 and 2011 , respectively . such year-end 2012 amounts are expected to be fully recoverable within the applicable statutory expiration periods . to the extent we do not consider it more likely than not that a deferred tax asset will be recovered , a

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liquidity and capital resources cash flows provided from operations in 2012 were used principally to fund $ 52.1 million of capital expenditures , and repurchase $ 25.9 million in treasury shares . cash provided from operating activities totaled $ 139.9 million in 2012 as compared with $ 133.7 million in 2011. the increase in cash from operating activities was primarily due to higher net income and lower income tax payments which were partially offset by increased pension plan funding . included in cash flow from operations was pension plan funding of approximately $ 17.0 million , $ 6.6 million and $ 8.5 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . trade working capital is defined as trade accounts receivable , trade accounts payable and inventories . our total days of trade working capital increased to 59 days from 55 days in 2011 primarily due to higher receivables and lower payables in our refractories segment . the funding status of the company 's pension plans was approximately 66 % at december 31 , 2012 and we have met all minimum funding requirements . the funding status at december 31 , 2011 was 70 % . the reduction in our funding status was due to a large increase in the projected benefit obligation from a change in the discount rate . in 2011 , the company 's board of directors authorized the company 's management to repurchase , at its discretion , up to $ 75 million of additional shares over a two-year period . as of december 31 , 2012 , 633,575 shares have been repurchased under this program for $ 30.7 million , or an average price of approximately $ 48.38 per share . on january 23 , 2013 , the company 's board of directors declared a regular quarterly dividend on its common stock of $ 0.05 per share .

combined sales to academic and governmental customers increased 2 % in 2019 and 8 % in 2018 , with the effect of foreign currency translation decreasing sales by 1 % in 2019 and increasing sales by 1 % in 2018. sales to academic and governmental customers are highly dependent on when institutions receive funding to purchase our instrument systems and , as such , sales growth rates can vary significantly from period to period . operating income was $ 708 million in 2019 , a decrease of 4 % as compared to 2018. this decrease can be attributed to lower sales volume , the effect of foreign currency translation and $ 10 million of severance-related costs in connection with a reduction in workforce that occurred in early 2019 , offset by lower variable incentive compensation costs . 27 operating income increased 12 % in 2018 as compared to 2017. this increase was primarily a result of the effect of higher sales volume achieved in 2018 , as well as the effect of approximately $ 33 million of facility closure , litigation and intellectual property payment charges from 2017 that did not recur in 2018. the company 's effective tax rates were 12.7 % , 13.0 % and 96.8 % for 2019 , 2018 and 2017 , respectively . net income per diluted share was $ 8.69 , $ 7.65 and $ 0.25 in 2019 , 2018 and 2017 , respectively . in 2018 , the company settled a pension plan obligation and incurred a $ 46 million expense which reduced the net income per diluted share by $ 0.39. in 2017 , the company incurred a $ 550 million income tax provision related to the 2017 tax cuts and jobs act ( “ 2017 tax act ” ) which reduced the net income per diluted share by $ 6.82 , and excluding the 2017 tax act income tax provision , the company 's effective tax rate in 2017 would have been 11.0 % . the company generated $ 643 million , $ 604 million and $ 698 million of net cash flows from operations in 2019 , 2018 and 2017 , respectively . the increase in operating cash flow in 2019 was primarily a result of payments made in 2018 that did not recur , including $ 103 million of income tax payments made in the u.s. relating to the company 's estimated 2017 transition tax liability and 2018 estimated tax payments , a $ 15 million litigation settlement payment and $ 11 million of contributions to certain defined benefit pension plans . included in the 2019 net cash flow from operations is $ 29 million of income tax payments made in the u.s. in relation to the 2017 transition tax liability . over the next three years , the company is required to make annual u.s. federal tax payments of approximately $ 38 million to tax authorities in connection with the company 's estimated remaining transition tax liabilities of $ 404 million under the 2017 tax act . the final 60 % of the total liability is required to be paid over a three-year period beginning in 2023. cash flows used in investing activities included capital expenditures related to property , plant , equipment and software capitalization of $ 164 million , $ 96 million and $ 85 million in 2019 , 2018 and 2017 , respectively . in 2019 , $ 68 million of capital expenditures paid related to the expansion of the company 's precision chemistry consumable operations in the u.s. the company has incurred $ 85 million of costs for this facility through the end of 2019. in 2018 , the company acquired the sole intellectual property rights to the desorption electrospray ionization ( “ desi ” ) imaging technology for $ 30 million in cash and a future contractual obligation to pay a minimum royalty of $ 3 million over the remaining life of the patent . desi is a mass spectrometry imaging technique that is used to develop medical therapies . in january 2019 , the company 's board of directors authorized the company to repurchase up to $ 4 billion of its outstanding common stock over a two-year period . during 2019 , 2018 and 2017 , the company repurchased 11.1 million , 6.8 million and 1.8 million shares of the company 's outstanding common stock at a cost of $ 2.5 billion , $ 1.3 billion and $ 323 million , respectively , under the january 2019 authorization and other previously announced programs . as of december 31 , 2019 , the company has a total of $ 1.7 billion authorized for future repurchases . the company believes that it has the financial flexibility to fund these share repurchases given current cash and investment levels and debt borrowing capacity , as well as to invest in research , technology and business acquisitions to further grow the company 's sales and profits . in september 2019 , the company issued fixed interest rate senior unsecured notes with an aggregate principal amount of $ 500 million , of which $ 200 million of the outstanding notes matures in seven years and the remaining $ 300 million matures in 10 years . the company used the proceeds from the issuance of these senior unsecured notes to repay other outstanding debt and for general corporate purposes . during 2019 and 2018 , the company entered into $ 260 million and $ 300 million , respectively , of u.s.-to-euro interest rate cross-currency swap agreements that hedge the company 's net investment in its euro denominated net assets , bringing the total currency interest rate cross-currency swap agreement notional value to $ 560 million at december 31 , 2019. as a result of entering into these agreements , the company lowered its net interest expense by $ 12 million and $ 3 million during 2019 and 2018 , respectively . story_separator_special_tag contractual obligations and commercial commitments the following is a summary of the company 's known contractual obligations as of december 31 , 2019 ( in thousands ) : replace_table_token_10_th ( 1 ) does not include normal purchases made in the ordinary course of business and uncertain tax positions discussed below . ( 2 ) the interest rates applicable to the 2017 credit agreement are , at the company 's option , equal to either the alternate base rate ( which is a rate per annum equal to the greatest of ( a ) the prime rate in effect on such day , ( b ) the federal reserve bank of new york rate on such day plus 1/2 of 1 % per annum and ( c ) the adjusted libo rate on such day ( or if such day is not a business day , the immediately preceding business day ) for a deposit in u.s. dollars with a maturity of one month plus 1 % per annum ) or the applicable 1 , 2 , 3 or 6 month adjusted libo rate or euribo rate for euro-denominated loans , in each case , plus an interest rate margin based upon the company 's leverage ratio , which can range between 0 and 12.5 basis points for alternate base rate loans and between 80 and 112.5 basis points for libo rate or euribo rate loans . the facility fee on the 2017 credit agreement ranges between 7.5 and 25 basis points per annum , based on the leverage ratio , of the amount of the revolving facility commitments and the outstanding term loan . the 2017 credit agreement requires that the company comply with an interest coverage ratio test of not less than 3.50:1 as of the end of any fiscal quarter for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter . in addition , the 2017 credit agreement includes negative covenants , affirmative covenants , representations and warranties and events of default that are customary for investment grade credit facilities . as of december 31 , 2019 , the company was in compliance with all such covenants . 36 the following is a summary of the company 's known commercial commitments as of december 31 , 2019 ( in thousands ) : replace_table_token_11_th from time to time , the company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business . the company believes it has meritorious arguments in its current litigation matters and believes any outcome , either individually or in the aggregate , will not be material to the company 's financial position or results of operations . the company has long-term liabilities for deferred employee compensation , including pension and supplemental executive retirement plans . the payments related to the supplemental retirement plan are not included above since they are dependent upon when the employee retires or leaves the company and whether the employee elects lump-sum or annuity payments . during fiscal year 2020 , the company expects to contribute approximately $ 3 million to $ 6 million to the company 's defined benefit plans . the company has contingent consideration for an earnout pertaining to its july 2014 acquisition of the net assets of medimass research , development and service kft . ( “ medimass ” ) . the earnout payments are not included above since they are dependent upon many factors that can not be predicted with any certainty . the estimated fair value of the contingent consideration as of december 31 , 2019 is $ 3 million . the company licenses certain technology and software from third parties . future minimum license fees payable under existing license agreements as of december 31 , 2019 are immaterial . the company enters into licensing arrangements with third parties that require future milestone or royalty payments contingent upon future events . upon the achievement of certain milestones in existing agreements , the company could make additional future payments of up to $ 7 million , as well as royalties on future net sales . it is not possible to predict with reasonable certainty whether these milestones will be achieved or the timing for achievement . as a result , these potential payments are not included in the table above . the company has not paid any dividends and has no plans , at this time , to pay any dividends in the future . off-balance sheet arrangements the company has not created , and is not party to , any special-purpose or off-balance sheet entities for the purpose of raising capital , incurring debt or operating parts of its business that are not consolidated ( to the extent of the company 's ownership interest therein ) into the consolidated financial statements . the company has not entered into any transactions with unconsolidated entities whereby it has subordinated retained interests , derivative instruments or other contingent arrangements that expose the company to material continuing risks , contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides financing , liquidity , market risk or credit risk support to the company . the company enters into standard indemnification agreements in its ordinary course of business . pursuant to these agreements , the company indemnifies , holds harmless and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party , generally the company 's business partners or customers , in connection with patent , copyright or other intellectual property infringement claims by any third party with respect to its current products , as well as claims relating to property damage or personal injury resulting from the performance of services by the company or its subcontractors . the maximum potential amount of future payments the company could be required to make under these indemnification agreements is unlimited

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cash flow from operating activities net cash provided by operating activities was $ 643 million , $ 604 million and $ 698 million in 2019 , 2018 and 2017 , respectively . the changes within net cash provided by operating activities include the following significant changes in the sources and uses of net cash provided by operating activities , aside from the changes in net income : the changes in accounts receivable were primarily attributable to timing of payments made by customers and timing of sales . days sales outstanding was 77 days at december 31 , 2019 , 74 days at december 31 , 2018 and 71 days at 2017 . 33 the changes in inventory were primarily attributable to new product launches and the increase in safety stock in advance of brexit . the changes in accounts payable and other current liabilities were the result of timing of payments to vendors . in addition , the change in 2019 as compared to 2018 includes $ 29 million and $ 103 million , respectively , of income tax payments made in the u.s. relating to the company 's estimated 2017 tax reform liability and 2018 estimated income tax payments and a $ 15 million litigation settlement payment . net cash provided from deferred revenue and customer advances results from annual increases in new service contracts as a higher installed base of customers renew annual service contracts . other changes were attributable to variation in the timing of various provisions , expenditures , prepaid income taxes and accruals in other current assets , other assets , other liabilities , and income tax expenses related to the 2017 tax act . in addition , in 2018 , the company made $ 11 million of contributions to certain defined benefit pension plans .

the timing and amount of these investments vary based on the rate at which we add new clients , add new personnel and scale our application development and other activities . many of these investments will occur in advance of experiencing any direct benefit from them which will make it difficult to determine if we are effectively allocating our resources . we expect these investments to increase our costs on an absolute basis , but as we grow our number of clients and our related revenues , we anticipate that we will gain economies of scale and increased operating leverage . as a result , we expect our gross and operating margins will improve over the long term . as our business has grown , we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions . if general economic conditions were to deteriorate further , including declines in private sector employment growth and business productivity , increases in the unemployment rate and changes in interest rates , we may experience delays in our sales cycles , increased pressure from prospective customers to offer discounts and increased pressure from existing customers to renew expiring recurring revenue agreements for lower amounts . our interest income on funds held for clients continues to be negatively impacted by historically low interest rates . 32 our operating subsidiary paylocity corporation was incorporated in july 1997 as an illinois corporation . in november 2013 , we formed paylocity holding corporation , a delaware corporation , of which paylocity corporation is now a wholly-owned subsidiary . paylocity holding corporation had no operations prior to the restructuring . all of our business operations have historically been , and are currently , conducted by paylocity corporation , and the financial results presented herein are entirely attributable to the results of its operations . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . recurring revenue growth our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations . this visibility enables us to better manage and invest in our business . recurring revenue , which is comprised of recurring fees and interest income on funds held for clients , increased from $ 72.8 million in fiscal 2013 to $ 101.9 million in fiscal 2014 , representing a 40 % year-over-year increase . recurring revenue increased from $ 101.9 million in fiscal 2014 to $ 144.1 million in fiscal 2015 , representing a 41 % year-over-year increase . recurring revenue represented 94 % of total revenue in each of the fiscal years ended 2013 , 2014 , and 2015. client count growth we believe there is a significant opportunity to grow our business by increasing our number of clients . we have increased our number of clients from approximately 6,850 as of june 30 , 2013 to approximately 10,350 as of june 30 , 2015 , representing a compound annual growth rate of approximately 23 % . the table below sets forth our client count for the periods indicated , rounded to the nearest fifty . replace_table_token_6_th the rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year . although many clients have multiple divisions , segments or locations , we only count such clients once for these purposes . annual revenue retention rate our annual revenue retention rate has been in excess of 92 % during each of the past three fiscal years . we calculate our annual revenue retention rate as our total revenue for the preceding 12 months , less the annualized value of revenue lost during the preceding 12 months , divided by our total revenue for the preceding 12 months . we calculate the annualized value of revenue lost by summing the recurring fees paid by lost clients over the previous twelve months prior to their termination if they have been a client for a minimum of twelve months . for those lost clients who became clients within the last twelve months , we sum the recurring fees for the period that they have been a client and then annualize the amount . we exclude interest income on funds held for clients from the revenue retention calculation . we believe that our annual revenue retention rate is an important metric to measure overall client satisfaction and the general quality of our product and service offerings . recurring fees from new clients we calculate recurring fees from new clients as the percentage of year-to-date recurring fees from all clients on our solutions which had not been on or used any of our solutions for a full year as of the start of the current fiscal year . we believe recurring fees from new clients is an important metric to measure the expansion of our existing client base as well as the growth in our client base . our recurring fees from new clients for fiscal 2013 and 2014 were 44 % and for fiscal 2015 was 45 % . adjusted gross profit , adjusted recurring gross profit and adjusted ebitda we disclose adjusted gross profit , adjusted recurring gross profit and adjusted ebitda because we use them to evaluate our performance , and we believe adjusted gross profit , adjusted recurring gross profit and adjusted ebitda assist in the comparison of our performance across reporting periods by excluding certain items that we do not believe are indicative of our core operating performance . we believe these metrics are used in the financial community , and we present it to enhance investors ' understanding of our operating performance and cash flows . story_separator_special_tag the increase was also attributable to $ 0.8 million of stock-based compensation associated with our broad based ipo grant to all employees . research and development replace_table_token_14_th research and development for the year ended june 30 , 2015 increased by $ 9.5 million , or 92 % , to $ 19.9 million from $ 10.4 million for the year ended june 30 , 2014. research and development costs increased in fiscal 2015 primarily due to $ 7.5 million of additional employee-related expenses related to 64 additional development personnel and $ 2.2 million of stock-based compensation associated with our equity incentive plan . this was offset by an increase of $ 0.2 million in our capitalized internal-use software costs . research and development for the year ended june 30 , 2014 increased by $ 3.5 million , or 52 % , to $ 10.4 million from $ 6.8 million for the year ended june 30 , 2013. research and development costs increased in fiscal 2014 primarily due to $ 5.1 million of additional employee-related expenses related to 27 additional development personnel , $ 0.6 million of stock-based compensation associated with our broad based ipo grant to all employees and $ 0.5 million related to the one-time founder funded bonus pay-outs . this was offset by an increase of $ 2.7 million in our capitalized internal-use software costs as we developed significant additional functionality in our human capital management applications during the year . general and administrative replace_table_token_15_th general and administrative expenses for the year ended june 30 , 2015 increased by $ 10.8 million , or 49 % , to $ 32.8 million from $ 22.0 million for the year ended june 30 , 2014. general and administrative expenses increased primarily as a result of $ 5.0 million of additional employee-related expenses relating to 30 additional personnel , $ 2.0 million of additional stock-based 39 compensation costs , $ 1.5 million of increased occupancy costs incurred as a result of our requirement for additional office space , $ 0.8 million of amortization expense of the customer relationship and non-compete intangibles associated with acquisitions of both of our resellers , $ 0.7 million of increased insurance costs associated with being a public company , and $ 0.3 million in additional professional fees . general and administrative expenses for the year ended june 30 , 2014 increased by $ 9.9 million , or 82 % , to $ 22.0 million from $ 12.1 million for the year ended june 30 , 2013. general and administrative expenses increased primarily as a result of $ 4.3 million of additional employee-related expenses relating to 18 additional personnel , $ 2.1 million of additional stock-based compensation costs associated with ipo related grants of options and restricted stock units , $ 1.7 million in additional professional fees and $ 0.6 million of increased occupancy costs incurred as a result of our requirement for additional office space . other income ( expense ) replace_table_token_16_th * not meaningful other income ( expense ) for the year ended june 30 , 2015 decreased by $ 0.1 million as compared to the year ended june 30 , 2014. other income for the year ended june 30 , 2015 primarily consists of interest income earned on our cash and cash equivalents partially offset by loss on the disposal of property and equipment . other income ( expense ) for the year ended june 30 , 2014 increased by $ 0.2 million as compared to the year ended june 30 , 2013. other income for the year ended june 30 , 2014 primarily consisted of interest income earned on our cash and cash equivalents , partially offset by interest expense incurred on our note payable and other debt , which was repaid in full in march 2014. income tax ( benefit ) expense replace_table_token_17_th * not meaningful income tax ( benefit ) expense for the year ended june 30 , 2015 decreased by $ 0.2 million , as compared to the year ended june 30 , 2014 primarily due to the recognition of a deferred tax asset valuation allowance during the year ended june 30 , 2014 related to net deferred tax balances generated in prior years . income tax ( benefit ) expense for the year ended june 30 , 2014 increased by $ 0.9 million , as compared to the year ended june 30 , 2013 primarily due to the expiration of federal research and development tax credit allowances resulting in a $ 0.5 million decline in amount claimed and an increase in non-deductible expenses as a result of our growing business . the company also recognized a valuation allowance as of june 30 , 2014 on substantially all of its net deferred tax assets , many of which were generated in the three month period ended june 30 , 2014 , given its determination that it was more likely than not that the company would not recognize the benefits of its net operating loss carryforwards prior to their expiration . see note 11 of the notes to consolidated financial statements included in part ii , item 8 : “financial statements and supplementary data” of this annual report on form 10-k for further details on the valuation allowance and a reconciliation of the u.s. federal statutory rate to the effective tax rate . critical accounting policies and significant judgments and estimates in preparing our financial statements and accounting for the underlying transactions and balances in accordance with gaap , we apply various accounting policies that require our management to make estimates , judgments and assumptions that affect the amounts reported in our financial statements . we consider the policies discussed below as critical to understanding our financial statements , as their application places the most significant demands on management 's judgment . management bases its estimates , judgments and assumptions on historical experience , current economic and industry conditions and on various other factors deemed to be reasonable under the circumstances ,

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cash flows the following table sets forth data regarding cash flows for the periods indicated : replace_table_token_20_th operating activities net cash provided by operating activities was $ 6.2 million , $ 7.2 million and $ 11.1 million for the years ended june 30 , 2013 , 2014 and 2015 , respectively . the increase in net cash provided by operating activities from fiscal 2014 to fiscal 2015 was primarily due to improved operating results after adjusting for non-cash items including stock-based compensation and depreciation and amortization . the increase in net cash provided by operating activities from fiscal 2013 to fiscal 2014 was the primarily the result of the change of $ 2.3 million in operating assets and liabilities partially offset by the increase in net loss and increases in non-cash items including stock-based compensation and depreciation and amortization . investing activities net cash used in investing activities was $ 98.6 million , $ 78.8 million and $ 199.2 million , for the years ended june 30 , 2013 , 2014 and 2015 , respectively . changes in net cash used in investing activities are significantly influenced by the amount of funds held for clients at the end of a reporting period . changes in the amount of funds held for client from period to period will vary substantially . our payroll processing activities involves the movement of significant funds from the account of an employer to employees and relevant taxing authorities . during the year ended june 30 , 2015 we processed almost $ 54 billion in payroll transactions .

we charge customers for our consulting services on a time-and-materials basis and we recognize that revenue as services are performed . we typically invoice customers annually in advance for annual and multi-year subscriptions and invoice in advance or on a time-and-materials basis for professional services . we record amounts invoiced for portions of annual subscription periods that have not occurred or services that have not been performed as deferred revenue on our consolidated balance sheet . we sell our solutions primarily through our direct sales force , which leverages our relationships with technology vendors , professional services firms and business process outsourcers . in particular , our solution integrates with sap 's erp solutions . in the fourth quarter of 2018 , sap became part of the reseller channel that we use in the ordinary course of business . sap has the ability to resell our solutions , as an sap solution-extension ( “ solex ” ) , for which we receive a percentage of the revenues . our ability to maximize the lifetime value of our customer relationships will depend , in part , on the willingness of customers to purchase additional user licenses and products from us . we rely on our sales and customer 39 success teams to support and grow our existing customers by maintaining high customer satisfaction and educating customers on the value all our products provide . the length of our sales cycle depends on the size of a potential customer and contract , as well as the type of solution or product being purchased . the sales cycle for our global enterprise customers is generally longer than that of our mid-market customers . in addition , the length of the sales cycle tends to increase for larger contracts and for more complex , strategic products like intercompany hub . as we continue to focus on increasing our average contract size and selling more strategic products , we expect our sales cycle to lengthen and become less predictable , which could cause variability in our results for any particular period . we have historically signed a high percentage of agreements with new customers , as well as renewal agreements with existing customers , in the fourth quarter of each year and usually during the last month of the quarter . this can be attributed to buying patterns typical in the software industry . as the terms of most of our customer agreements are measured in full year increments , agreements initially entered into during the fourth quarter or last month of any quarter will generally come up for renewal at that same time in subsequent years . this seasonality is reflected in our revenues , though the impact to overall annual or quarterly revenues is minimal due to the fact that we recognize subscription revenue ratably over the term of the customer contract . for the years ended december 31 , 2020 , 2019 , and 2018 , we had revenues totaling $ 351.7 million , $ 289.0 million , and $ 227.8 million , respectively , and we incurred net losses attributable to blackline , inc. of $ 46.9 million , $ 32.5 million , and $ 28.7 million , respectively . covid-19 update in december 2019 , the emergence of a novel coronavirus , or covid-19 , was reported and in march 2020 , the world health organization , or who , characterized covid-19 as a pandemic . we responded to the pandemic by creating an executive task force to monitor the covid-19 situation daily , immediately restricted non-essential travel and enabled work-from-home protocols . shortly thereafter , and in line with guidance provided by government agencies and international organizations , we restricted all travel , mandated a work-from-home policy across our global workforce , and moved all in-person customer-facing events to virtual ones . we expect these restrictions to stay in effect during the first half of 2021. we also responded with covid-19 customer-relief programs to help our community of global accounting and finance professionals in these challenging times . we have offered free access to our entire training library . we also offered the task management and reporting modules complimentary for six months to existing customers to enable a more effective remote close . in addition , we announced complimentary coaching sessions with our existing customers . we have been recognized by the stevie international business awards and the ceo world awards for our commitment to helping ensure business continuity and fostering well-being for both customers and employees in response to , and throughout the covid-19 pandemic . we have continued to see purchasing decisions being deferred due to covid-19 and a reduction on new business pipeline and large deals . moreover , we have experienced and expect to continue to experience delays in deals in emea and north america mid-market , as well as large digital transformation deals . we further expect delays in deals arising out of our sap partnership , all which will impact our customers and prospects , and our financial results for fiscal 2021. we have also seen a decrease in travel-related expenses and advertising and trade show expenses . the broader implications of the global emergence of covid-19 on our business , operating results , and overall financial performance remain uncertain and depend on certain developments , including the duration and spread of the outbreak , impact on our customers and our sales cycles , impact on our partners and employees , and impact on the economic environment and financial markets , all of which are uncertain and can not be predicted . we are conducting business as usual with certain limitations to employee travel , employee work locations , and marketing events , among other modifications . we have observed other companies taking precautionary and preemptive actions to address covid-19 , and the effects it has had and is expected to have on business and the economy . story_separator_special_tag 46 research and development replace_table_token_10_th the increase in research and development expenses for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , was primarily due to a $ 14.9 million increase in salaries , benefits , and stock-based compensation ; a $ 2.7 million increase in computer software expenses ; and a $ 1.8 million increase in professional services expense . these increases were partially offset by a $ 5.6 million increase in capitalized software costs , which resulted in a decrease in net expenses , and a $ 0.6 million decrease in travel-related costs . the increase in salaries , benefits , and stock-based compensation was primarily driven by a 33 % increase in average headcount from the year ended december 31 , 2019 to the year ended december 31 , 2020. the increase in computer software expenses was primarily driven by our migration to the public cloud and the purchase of additional software licenses driven by an increase in average research and development headcount . the increase in professional services expense was primarily driven by external consultant fees as part of our investment in products , features , and functionality buildouts . capitalized software costs increased due to significant new enhancement initiatives related to the functionality of our solutions . travel-related expenses decreased primarily as a result of covid-19 travel restrictions . general and administrative replace_table_token_11_th the increase in general and administrative expenses for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , was primarily due to an $ 8.8 million increase in salaries , benefits , and stock-based compensation ; $ 4.7 million of transaction-related costs ; and a $ 2.2 million increase in professional services expense . these increases were partially offset by a $ 0.8 million decrease in travel-related expenses . the increase in salaries , benefits , and stock-based compensation was primarily driven by an 18 % increase in average headcount from the year ended december 31 , 2019 to the year ended december 31 , 2020. transaction-related costs in the period related to the rimilia acquisition , which closed in october 2020. travel-related expenses decreased primarily as a result of covid-19 travel restrictions . interest income year ended december 31 , change 2020 2019 $ % ( in thousands , except percentages ) interest income $ 4,502 $ 6,128 $ ( 1,626 ) ( 27 ) % the decrease in interest income during the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , was primarily due to a decrease in average interest rates , partially offset by interest earned on higher cash balances in the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 . 47 interest expense year ended december 31 , change 2020 2019 $ % ( in thousands , except percentages ) interest expense $ 23,311 $ 8,650 $ 14,661 169 % the increase in interest expense during the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , was primarily due to increased amortization of the debt discount on the notes . the notes were issued in the third quarter of 2019 and , as such , there was less amortization in 2019 as compared to a full year in 2020. the increase was also , to a lesser extent , related to increased interest accrued during the period on the outstanding balance on the notes in the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. provision for income taxes replace_table_token_12_th we are subject to federal and state income taxes in the united states and taxes in foreign jurisdictions . for the year ended december 31 , 2020 , our annual estimated effective tax rate differed from the u.s. federal statutory rate of 21 % primarily as a result of state taxes , foreign taxes , and changes in our valuation allowance for domestic income taxes . for the years ended december 31 , 2020 and 2019 , we recorded $ 0.7 million and $ 1.7 million in income tax expense , respectively . the decrease in income tax expense for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , was attributable to 2020 tax benefits associated with our international operations . for the year ended december 31 , 2020 , we continued to maintain a full valuation allowance on our u.s. federal and state net deferred tax assets as it was more likely than not that those deferred tax assets will not be realized . liquidity and capital resources at december 31 , 2020 , our principal sources of liquidity were an aggregate of $ 542.6 million of cash and cash equivalents and marketable securities , which primarily consist of short-term , investment-grade u.s. treasury securities , corporate bonds , and commercial paper . in october 2020 , we completed the acquisition of rimilia and paid $ 121.4 million . we had $ 500.0 million aggregate principal amount of notes outstanding at december 31 , 2020. during the quarter ended december 31 , 2020 , the stock price condition allowing holders of the notes to convert was met . as a result , holders have the option to convert their notes at any time during the calendar quarter ending march 31 , 2021. we have the ability to settle the notes in cash , shares of our common stock , or a combination of cash and shares of our common stock at our election . from january 1 , 2021 , through the date of this filing , we have not received any conversion requests for our notes . it is our current intent to settle any such conversions through combination settlement , which involves repayment of the principal portion in

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net cash provided by operating activities our net loss and cash flows from operating activities are significantly influenced by our investments in headcount and infrastructure to support anticipated growth . in recent periods , our net loss has generally been significantly greater than our use of cash for operating activities due to our subscription-based revenue model in which billings occur in advance of revenue recognition , as well as the substantial amount of non-cash charges which we incur . non-cash charges primarily include depreciation and amortization , stock-based compensation , non-cash lease expense , amortization of debt discount and issuance costs , and deferred taxes . for the year ended december 31 , 2020 , cash provided by operations was $ 54.7 million , resulting from net non-cash expenses of $ 97.5 million , partially offset by our net loss of $ 39.4 million and net cash flow used as a result of changes in operating assets and liabilities of $ 3.4 million . the $ 3.4 million of net cash flows used as a result of changes in our operating assets and liabilities reflected the following : a $ 12.4 million increase in other assets ; a $ 5.7 million increase in accounts receivable ; a $ 5.3 million increase in prepaid expenses and other current assets ; a $ 5.0 million decrease in operating lease liabilities ; and a $ 4.4 million decrease in accounts payable . these changes in our operating assets and liabilities were partially offset by the following : a $ 26.4 million increase in deferred revenue as a result of the growth of our customer and user bases ; and a $ 3.1 million increase in accrued expenses and other current liabilities . for the year ended december 31 , 2019 , cash provided by operations was $ 29.7 million , resulting from net non-cash expenses of $ 68.2 million , partially offset by our net loss of $ 32.1 million and net cash flow used as a result of changes in operating assets and liabilities of $ 6.3 million .

new risk factors emerge from time to time and it is not possible for management to predict all such risk factors , nor can we assess the impact of all such risk factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . given these risks and uncertainties , investors should not place undue reliance on forward-looking statements as a prediction of actual results . investors should also refer to our quarterly reports on form 10-q for future periods and current reports on form 8-k as we file them with the sec , and to other materials we may furnish to the public from time to time through forms 8-k or otherwise . overview we are an externally advised and managed real estate investment company that owns a diverse portfolio of income-producing properties and land held for development . the company 's portfolio of income-producing properties includes residential apartment communities , office buildings and other commercial properties . our investment strategy includes acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for a specific development project . we acquire land primarily in in-fill locations or high-growth suburban markets . we are an active buyer and seller of real estate and during 2015 we acquired $ 130 million and sold $ 118 million of land and income-producing properties . as of december 31 , 2015 , we owned 7,983 units in 48 residential apartment communities , eight commercial properties comprising approximately 1.9 million rentable square feet , and a golf course . in addition , we own 3,665 acres of land held for development . the company currently owns income-producing properties and land in ten states as well as in the u.s. virgin islands . 20 we finance our acquisitions primarily through operating cash flow , proceeds from the sale of land and income-producing properties and debt financing primarily in the form of property-specific first-lien mortgage loans from commercial banks and institutional lenders . we finance our development projects principally with short-term , variable interest rate construction loans that are converted to long-term , fixed rate amortizing mortgages when the development project is completed and occupancy has been stabilized . the company will , from time to time , also enter into partnerships with various investors to acquire income-producing properties or land and to sell interests in certain of its wholly-owned properties . when the company sells assets , it may carry a portion of the sales price generally in the form of a short-term , interest bearing seller-financed note receivable . the company generates operating revenues primarily by leasing apartment units to residents and leasing office , retail and industrial space to commercial tenants . the company has historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition and dispositions . transactions involving related parties can not be presumed to be carried out on an arm 's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities . related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . since april 30 , 2011 , pillar is the company 's external advisor and cash manager under a contractual arrangement that is reviewed annually by our board of directors . pillar 's duties include , but are not limited to , locating , evaluating and recommending real estate and real estate-related investment opportunities . pillar also arranges , for tci 's benefit , debt and equity financing with third party lenders and investors . pillar also serves as an advisor and cash manager to arl and iot . as the contractual advisor , pillar is compensated by tci under an advisory agreement that is more fully described in part iii , item 10 . “ directors , executive officers and corporate governance – the advisor ” . tci has no employees . employees of pillar render services to tci in accordance with the terms of the advisory agreement . effective since january 1 , 2011 , regis manages our commercial properties and provides brokerage services . regis is entitled to receive a fee for its property management and brokerage services . see part iii , item 10 . “ directors , executive officers and corporate governance – property management and real estate brokerage ” . the company contracts with third-party companies to lease and manage our apartment communities . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . the accompanying consolidated financial statements include our accounts , our subsidiaries , generally all of which are wholly-owned , and all entities in which we have a controlling interest . arrangements that are not controlled through voting or similar rights are accounted for as a variable interest entity ( vie ) , in accordance with the provisions and guidance of asc topic 810 “ consolidation ” , whereby we have determined that we are a primary beneficiary of the vie and meet certain criteria of a sole general partner or managing member as identified in accordance with emerging issues task force ( “ eitf ” ) issue 04-5 , investor 's accounting for an investment in a limited partnership when the investor is the sole general partner and the limited partners have certain rights ( “ eitf 04-5 ” ) . story_separator_special_tag the acquired property portfolio consists of properties that we acquired but have not held for the entire period for both periods being compared . developed properties in the lease-up phase consist of completed projects that are being leased-up . as we complete each phase of the project , we lease-up that phase and include those revenues in our continued operations . once a developed property becomes leased-up ( 80 % or more ) and is held the entire period for both years under comparison , it is considered to be included in the same property portfolio . income-producing properties that we have sold during the year are reclassified to discontinued operations for all periods presented . the other segment consists of revenue and operating expenses related to the notes receivable and corporate entities . the following discussion is based on our consolidated statements of operations for the twelve months ended december 31 , 2015 , 2014 , and 2013 as included in item 8 . “ financial statements and supplementary data ” . the prior year 's property portfolios have been adjusted for subsequent sales . continuing operations relates to income-producing properties that were held during those years as adjusted for sales in the subsequent years . 24 at december 31 , 2015 , 2014 and 2013 , we owned or had interests in a portfolio of 57 , 45 and 45 income-producing properties , respectively . the total property portfolio represents all income-producing properties held as of december 31 for the year presented . sales subsequent to year end represent properties that were held as of year-end for the years presented , but sold in subsequent years . continued operations represents all properties that have not been reclassed to discontinued operations as of december 31 , 2015 for the year presented . the table below shows the number of income-producing properties held by year : replace_table_token_10_th comparison of the year ended december 31 , 2015 to the same year ended 2014 : for the twelve months ended december 31 , 2015 , we reported net loss applicable to common shares of ( $ 8.5 ) million or ( $ 0.98 ) per diluted earnings per share , as compared to a net income applicable to common shares of $ 40.6 million or $ 4.74 per diluted earnings per share for the same year ended 2014. the current year net loss applicable to common shares of ( $ 8.5 ) million includes gain on land sales of $ 18.9 million and net income from discontinued operations of $ .9 million , as compared to the prior year net income applicable to common shares of $ 40.6 million which includes gain on land sales of $ 0.6 million and net income from discontinued operations of $ 37.9 million . revenues rental and other property revenues were $ 102.2 million for the twelve months ended december 31 , 2015. this represents an increase of $ 26.3 million , as compared to the prior year revenues of $ 75.9 million . this increase in revenues is mainly due to the addition of several properties to the apartment portfolio and the commercial portfolio . the change by segment is reflected in an increase in the apartment portfolio of $ 16.1 million and an increase in the commercial portfolio of $ 10.2 million . our apartment portfolio continues to excel in the current economic conditions with occupancies averaging over 94 % and increasing rental rates . we have been able to surpass expectations due to the high-quality product offered , strength of our management team and our commitment to our tenants . the increase in the commercial segment is due to a high rise in the occupancy rate of the commercial complexes , in 2015 the average occupancy rate was over 86 % . our commercial portfolio is performing significantly better than in previous periods and we anticipate that it will continue to improve as the company has been successful in attracting high-quality tenants and expects to continue to see the benefits of those new leases in the future . we continue to work aggressively to attract new tenants and strive for continuous improvement of our properties in order to maintain our existing tenants . expenses property operating expenses were $ 52.3 million for the twelve months ended december 31 , 2015 . this represents an increase of $ 12.9 million , as compared to the prior year operating expenses of $ 39.4 million . this change , by segment , is an increase in the apartment portfolio of $ 8.3 million and an increase in the commercial portfolio of $ 4.6 million . within the apartment portfolio there was an increase of $ 5.9 million in the acquired properties portfolio and an increase of $ 2.4 million in the same property portfolio . within the commercial portfolio there was an increase of $ 3.6 million in the acquired properties portfolio and an increase of $ 1.0 million in the same store properties . the increase in the apartment portfolio was due to the acquisition of new properties throughout the year . the increase in the commercial portfolio was due to an acquisition of a property within the year and an increase in real estate taxes . depreciation and amortization expenses were $ 21.3 million for the twelve months ended december 31 , 2015. this represents an increase of $ 3.9 million as compared to prior year depreciation of $ 17.4 million . within the apartment and commercial portfolios , the majority of this change is due to the acquisition of new properties and an increase in tenant improvements and repairs projects . general and administrative expenses were $ 5.5 million dollars for the twelve months ended december 31 , 2015. this represents a decrease of $ 1.7 million , as compared to the prior year general and administrative expenses of $ 7.2 million . this change is mainly due to a decrease in the

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cash flow summary the following summary discussion of our cash flows is based on the consolidated statements of cash flows in part ii , item 8 . “ consolidated financial statements and supplementary data ” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below ( dollars in thousands ) : replace_table_token_13_th the primary use of cash for operations is daily operating costs , general and administrative expenses , advisory fees , and land holding costs . our primary source of cash from operating activities is from rental income on properties . our primary cash outlays for investing activities are for construction and development , acquisition of land and income-producing properties , and capital improvements to existing properties . our primary sources of cash from investing activities are from the proceeds on the sale of land and income-producing properties . we received more proceeds from land sales in the current period than in the prior period . in addition , we acquired 12 residential properties and one commercial property . our primary sources of cash from financing activities are from proceeds on notes payables . our primary cash outlays are for recurring debt payments and payments on maturing notes payable . the proceeds from new financings in the current period allowed us to pay down more debt , as compared to the prior period .

critical accounting policies revenue recognition we generate our revenue from three different types of contractual arrangements : cost-plus-fee contracts , fixed price contracts and cost reimbursable grants . costs consist primarily of actual internal labor charges and external subcontractor costs incurred plus an allocation of applied fringe benefits , overhead and general and administrative expenses as defined in the contract . revenues on cost-plus-fee contracts are recognized in an amount equal to the costs incurred during the period plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is determined by reference to the contract : if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned under the “ milestone method of revenue recognition ” . otherwise , we compute fee income earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the contract . under the milestone method of revenue recognition , substantive milestone payments , including milestone payments for fees , contained in research and development arrangements under our contracts with the u.s. government are recognized as revenue when : ( i ) the milestones are achieved ; ( ii ) no further performance obligations with respect to the milestone exist ; ( iii ) collection is reasonably assured ; and ( iv ) substantive effort was necessary to achieve the milestone . milestones are considered substantive if all of the following conditions are met : ( 1 ) it is commensurate with either our performance to meet the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone , ( 2 ) it relates solely to past performance , and ( 3 ) the value of the milestone is reasonable relative to all the deliverables and payment terms ( including other potential milestone consideration ) within the arrangement . if a milestone is deemed not to be substantive , the company recognizes the portion of the milestone payment as revenue that correlates to work already performed ; the remaining portion of the milestone payment is deferred and recognized as revenue as the company completes its performance obligations . for fixed price contracts with the u.s. government without substantive milestones as described above , revenue is recognized under the percentage-of-completion method in accordance with the applicable accounting guidance for long term contracts . the percentage-of completion method recognizes income as the contract progresses ; recognition of revenue and profits generally related to the costs incurred in providing the services required under the contract . the use of the percentage-of completion method depends on the ability to make reasonable dependable estimates . the fact that circumstances may necessitate frequent revision of estimates does not indicate that the estimates are unreliable for the purpose for which they are used . estimating is an integral part of our business activities , and we may have to revise estimates on contracts continually as the work progresses . 39 we analyze each cost reimbursable grant to determine whether we should report such reimbursements as revenue or as an offset to our expenses incurred . in 2011 and 2010 , we recorded approximately $ 0.7 million and $ 2.9 million , respectively , of costs reimbursed by the government as an offset to research and development expenses . our revenue-generating contracts may include multiple elements , including one or more of up-front license fees , research payments , and milestone payments . in these situations , we allocate the total contract price to the multiple elements based on their relative fair values and recognize revenue for each element according to its characteristics . as revenue is recognized in accordance with the terms of the contracts , related amounts are recorded as unbilled accounts receivable , the primary component of “ other receivables ( including unbilled receivables ) ” in our consolidated balance sheets . as specific contract invoices are generated and sent to our customers , invoiced amounts are transferred out of unbilled accounts receivable and into billed accounts receivable . invoicing frequency and payment terms for cost-plus-fee contracts with our customers are defined within each contract , but are typically monthly invoicing with 30 to 60 day payment cycles . at december 31 , 2011 , unbilled accounts receivable were $ 3.0 million . research and development expenses research and development costs are expensed as incurred ; advance payments are deferred and expensed as performance occurs . research and development costs include salaries , facilities expense , overhead expenses , material and supplies , pre-clinical expense , clinical trials and related clinical manufacturing expenses , stock-based compensation expense , contract services and other outside services . share-based payments we have a long-term incentive plan ( the “ ltip ” ) under which options to purchase shares of our common stock may be granted to employees , consultants and directors at a price no less than the quoted market value on the date of grant . the ltip also provides for awards in the form of stock appreciation rights , restricted or unrestricted stock awards , stock-equivalent units or performance-based stock awards . we account for share-based awards to employees and non-employee directors pursuant to fasb asc topic 718 , compensation – stock compensation , which requires that compensation cost resulting from share-based payment transactions be recognized in the financial statements at fair value over the service period . story_separator_special_tag 41 research and development expenses for the years ended december 31 , 2011 and 2010 were attributable to research programs as follows : replace_table_token_3_th for the year ended december 31 , 2011 , research and development expenses increased $ 0.3 million from the prior year . this change was primarily due to the increased technical activity and the achievement of key technical milestones on our sparvax program and the completion of the phase i valortim ® dose escalation clinical trial partially offset by a decrease in development expenses related to the clinical nerve agent protectants program as a result of the december 31 , 2010 shut down of the protexia ® program . general and administrative expenses general and administrative functions include executive management , finance and administration , government affairs and regulations , corporate development , human resources , legal , and compliance . for each function , we may incur expenses such as salaries , supplies and third-party consulting and other external costs and non-cash expenditures such as expense related to stock option and restricted share awards . an allocation of facilities , utilities and other administrative overhead is also included in general and administrative expenses . expenses associated with general and administrative functions were approximately $ 14.3 million and $ 18.0 million for the years ended december 31 , 2011 and 2010 , respectively . the decrease for the year ended december 31 , 2011 from the prior year period was a result of a $ 3.0 million reduction in bad debt expense , a property loss insurance reimbursement of $ 1.4 million partially offset by an increase in non-cash stock compensation expenses as well as taxes and other expenses . the bad debt expenses in 2010 consisted primarily of provisions associated with an invoice to our u.s. government customer for the work at avecia as well as the wind down of the third generation anthrax vaccine program . depreciation and intangible amortization ( including impairment charges ) depreciation and amortization expenses were approximately $ 0.5 million and $ 5.7 million for the years ended december 31 , 2011 and 2010 , respectively . these expenses are lower in 2011 primarily as a result of the impairment charge taken in december 2010 of $ 4.6 million with the closing of our canadian operations . other income ( expense ) other income ( expense ) primarily consists of income on our investments , interest expense on our debt and other financial obligations , changes in market value of our derivative financial instruments , and foreign currency transaction gains or losses . we incurred interest expense of approximately $ 0.1 million and $ 5.9 million for the years ended december 31 , 2011 and 2010 , respectively . interest expense for 2011 primarily relate to the settlement with avecia for termination of a subcontract agreement with that organization . interest expense for 2010 relates primarily to interest on our then-outstanding convertible notes , including the amortization of the debt discount arising from the allocation of fair value to the warrants issued in connection with such notes . in november and december 2010 , our outstanding 10 % convertible notes were converted into shares of common stock ( with one note being redeemed for cash ) . gain on sale of assets held for sale of $ 0.8 million was the result of the sale of land and buildings associated with our canadian operations , which were closed in 2010 . 42 the change in the fair value of our derivative instruments was a decrease of our liability of approximately $ 7.1 million for the year ended december 31 , 2011 compared to an increase of our liability of approximately $ 5.5 million for the year ended december 31 , 2010. the fair value of these derivative instruments is estimated using the black-scholes option pricing model . the decrease in fair value realized as of december 31 , 2011 was primarily the result of the decrease in pharmathene 's stock price from $ 4.23 per share on december 31 , 2010 to $ 1.27 per share on december 31 , 2011. liquidity and capital resources overview our primary cash requirements for 2012 are to fund our operations ( including our research and development programs ) and support our general and administrative activities . our future capital requirements will depend on many factors , including , but not limited to , timing , amount and profitability of sales of st-246 , if any ; the progress of our research and development programs ; the progress of pre-clinical and clinical testing ; the time and cost involved in obtaining regulatory approval ; the cost of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; changes in our existing research relationships ; competing technological and marketing developments ; our ability to establish collaborative arrangements and to enter into licensing agreements and contractual arrangements with others ; and any future change in our business strategy . these cash requirements could change materially as a result of shifts in our business and strategy . during 2011 and the first quarter 2012 , we implemented certain cost reduction activities that we believe will reduce our net operating cash needs for 2012 and 2013 significantly as compared to 2010 and 2011. as a result we currently anticipate that our current cash on hand and collection of accounts receivables at december 31 , 2011 as well as cash to be collected from 2012 contract revenue under contracts currently in place will be sufficient to meet pharmathene 's ongoing expenses and capital requirements through 2012 and into year 2013. since our inception , we have not generated positive cash flows from operations . to bridge the gap between payments made to us under our government contracts and grants and our operating and capital needs , we have had to rely on a variety of financing sources , including the issuance of equity

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sources and uses of cash cash , restricted cash and cash equivalents were approximately $ 11.3 million and $ 11.9 million at december 31 , 2011 and 2010 , respectively . the $ 0.6 million decrease at december 31 , 2011 was primarily due to a combination of a loss from operations of $ 11.7 million , of which $ 3.0 million were noncash , substantially offset by net proceeds of $ 5.8 million from a registered direct public offering of common stock and warrants , as well as $ 1.8 million related to the sale of assets in canada . in april , july and november 2010 , we completed various public offerings of common stock and warrants . in november and december 2010 , our outstanding 10 % convertible notes were converted into shares of common stock ( with one note being redeemed for cash ) . operating activities net cash used in operating activities was approximately $ 7.8 million and $ 14.9 million for the years ended december 31 , 2011 and 2010 , respectively . in 2011 , pharmathene received an insurance recovery of $ 1.4 million , which has been recorded as an offset to operating expenses .

see notes 4 and 5 to the consolidated financial statements for further discussion related to this note purchase and bankruptcy . acquisition pipeline the company has three properties under definitive purchase agreements for an aggregate purchase price of approximately $ 16.8 million with expected returns ranging from approximately 9.0 % to 9.6 % . the company anticipates these properties will close during the first quarter of 2018. however , the company is currently performing due diligence procedures customary for these types of transactions and can not provide assurance as to the timing of when , or whether , these transactions will actually close . the company also has three properties under definitive purchase agreements , to be acquired after completion and occupancy , for an aggregate expected purchase price of approximately $ 40.4 million . the company expects to close on one of these properties sometime in the first half of 2018 and expects to close on the remaining two properties sometime in the second half of 2018. the company 's expected aggregate return on these investments ranges up to approximately 11 % . however , the company can not provide assurance as to the timing of when , or whether , these transactions will actually close . the company anticipates funding these investments with cash from operations , through proceeds from its credit facility or from net proceeds from additional debt or equity offerings . purchase option provisions certain of the company 's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property . the purchase option provisions require the lessee to purchase the leased property at an amount greater than the company 's gross investment in the leased property at the time of the purchase . no purchase options were exercised during the year ended december 31 , 2017 . the company had approximately $ 6.3 million in two real estate properties at december 31 , 2017 with purchase options that are exercisable during 2018 . equity offering in july 2017 , the company completed a public offering of 4,887,500 shares of its common stock , including 637,500 shares of common stock issued in connection with the exercise in full of the underwriters ' option to purchase additional shares , and received net proceeds of approximately $ 108.6 million after deducting underwriting discount and commissions and offering expenses paid by the company . proceeds from the offering were used to repay the outstanding balance on our revolving credit facility totaling $ 58.0 million and for additional investments . see note 7 to the consolidated financial statements . second amended and restated credit facility on march 29 , 2017 , we entered into a second amended and restated credit facility ( as amended and restated , the `` credit facility `` ) . the credit facility provides for a $ 150.0 million revolving credit facility ( the `` revolving credit facility `` ) and $ 100.0 million in term loans ( the `` term loans `` ) . the credit facility , through the accordion feature , allows borrowings up to a total of $ 450.0 million , including the ability to add and fund additional term loans . the revolving credit facility matures on august 9 , 2019 and includes two 12-month options to extend the maturity date of the revolving credit facility , subject to the satisfaction of certain conditions . the term loans include a five-year term loan facility in the aggregate principal amount of $ 50.0 million ( the `` 5-year term loan `` ) which matures on march 29 , 2022 and a seven-year term loan facility in the aggregate principal amount of $ 50.0 million ( the `` 7-year term loan `` ) which matures on march 29 , 2024 . upon closing of the credit facility on march 29 , 2017 , the 46 company borrowed $ 30.0 million under each of the 5-year term loan and the 7-year term loan . each of the 5-year term loan and 7-year term loan has a delayed draw feature that is available in up to three draws within 15 months from march 29 , 2017 , subject to a minimum draw of $ 10.0 million and pro forma compliance . see note 5 to the consolidated financial statements . lease expirations we expect that approximately 5 % to 15 % of our leases will expire in each year , given that our leases are generally three to fifteen year leases with physicians or other healthcare providers . based on annualized rent , approximately 9.1 % expire in 2018. management expects that many of the tenants will renew their leases , but in cases where they do not renew , the company believes it will generally be able to re-lease the space to existing or new tenants without significant loss of rental income . contractual obligations the company 's material contractual obligations at december 31 , 2017 are included in the table below . at december 31 , 2017 , the company had no long-term capital lease or purchase obligations . replace_table_token_4_th ( 1 ) the amounts shown include interest at the weighted average interest rate at december 31 , 2017 and the unused fee interest assuming the credit facility remains at $ 34.0 million through its maturity . ( 2 ) the amounts shown include interest at the current fixed rates through the in-place cash flow hedges , and the ticking fees ( or unused interest ) assuming the term loans remain at $ 60.0 million outstanding through maturity . off-balance sheet arrangements we have no off-balance sheet arrangements that are reasonably like to have a material effect on the company 's consolidated financial condition , results of operations or liquidity . inflation we believe inflation will have a minimal impact on the operating performance of our properties . many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation . story_separator_special_tag an acquisition accounted for as a business combination is recorded at fair value and related closing costs are expensed as incurred . an acquisition accounted for as an asset acquisition is recorded at its purchase price , inclusive of acquisition costs , which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date of acquisition . the company adopted accounting standards update ( `` asu `` ) no . 2017-01 , business combinations ( topic 805 ) : clarifying the definition of a business , on january 1 , 2017 , and company expects that substantially all of its acquisitions will be accounted for as asset acquisitions . 55 the allocation of real estate property acquisitions may include land and land improvements , building and building improvements , personal property , and identified intangible assets and liabilities ( consisting of above- and below-market leases , in-place leases , and tenant relationships ) based on the evaluation of information and estimates available at that date , and we allocate the purchase price based on these assessments . we make estimates of the acquisition date fair value of the tangible and intangible assets and acquired liabilities using information obtained from multiple sources as a result of pre-acquisition due diligence , tax records , and other sources . based on these estimates , we recognize the acquired assets and liabilities at their estimated fair values . we expense transaction costs associated with business combinations in the period incurred . the fair value of tangible property assets acquired considers the value of the property as if vacant determined by comparable sales and other relevant data . the determination of fair value involves the use of significant judgment and estimation . we value land based on various inputs , which may include internal analysis of recently acquired properties , existing comparable properties within our portfolio , or third party appraisals or valuations based on comparable sales . in recognizing identified intangible assets and liabilities of an acquired property , the value of above- or below-market leases is estimated based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between contractual amounts to be received pursuant to the leases and management 's estimate of market lease rates measured over a period equal to the estimated remaining term of the lease . in the case of a below-market lease , the company would also evaluate any renewal options associated with that lease to determine if the intangible should include those periods . the capitalized above-market or below-market lease intangibles are amortized as a reduction from or an addition to rental income over the estimated remaining term of the respective leases . in determining the value of in-place leases and tenant relationships , management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy . in estimating carrying costs , management includes real estate taxes , insurance , other property operating expenses , estimates of lost rental revenue during the expected lease-up periods , and costs to execute similar leases , including leasing commissions . the values assigned to in-place leases and tenant relationships are amortized over the estimated remaining term of the lease . if a lease terminates prior to its scheduled expiration , all unamortized costs related to that lease are written off . asset impairments the company may need to assess the potential for impairment of identifiable , definite-lived , intangible assets and long-lived assets , including real estate properties , whenever events occur or a change in circumstances indicates that the carrying value might not be fully recoverable . indicators of impairment may include significant under-performance of an asset relative to historical or expected operating results ; significant changes in the company 's use of assets or the strategy for its overall business ; plans to sell an asset before its depreciable life has ended ; the expiration of a significant portion of leases in a property ; or significant negative economic trends or negative industry trends for the company or its operators . in addition , the company 's review for possible impairment may include those assets subject to purchase options and those impacted by casualties , such as tornadoes and hurricanes . if management determines that the carrying value of the company 's assets may not be fully recoverable based on the existence of any of the factors above , or others , management would measure and record an impairment charge based on the estimated fair value of the property or the estimated fair value less costs to sell the property . revenue recognition the company derives most of its revenues from its real estate property and mortgage and other notes portfolio . the company 's rental and mortgage and other notes interest income is recognized based on contractual arrangements with its tenants and borrowers . the company recognizes rental revenue when it is realized or realizable and earned , in accordance with asc 840 , leases , or asc 840. there are four criteria that must all be met before a company may recognize revenue , including persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered ( i.e . , the tenant has taken possession of and controls the physical use of the leased asset ) , the price has been fixed or is determinable , 56 and collectability is reasonably assured . asc 840 also requires that rental revenue , less lease inducements , be recognized on a straight-line basis over the term of the lease . recognizing rental revenue on a straight-line basis for leases may result in recognizing revenue in amounts more or less than amounts currently due from tenants . if management determines that the collectability of straight-line rents is not

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sources and uses of cash the company derives most of its revenues from its real estate property and mortgage notes portfolio , collecting rental income , operating expense reimbursements and mortgage interest based on contractual arrangements with its tenants and borrowers . these sources of revenue represent our primary source of liquidity to fund our dividends , 51 general and administrative expenses , property operating expenses , interest expense on our credit facility and other expenses incurred related to managing our existing portfolio and investing in additional properties . to the extent additional resources are needed , the company will fund its investment activity generally through equity or debt issuances either in the public or private markets or through proceeds from our credit facility . the company expects to meet its liquidity needs through cash on hand , cash flows from operations and cash flows from sources discussed above . the company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements . the company can not , however , be certain that these sources of funds will be available at a time and upon terms acceptable to the company in sufficient amounts to meet its liquidity needs . operating activities cash flows provided by operating activities for the years ended december 31 , 2017 , 2016 and 2015 were approximately $ 22.1 million , $ 14.9 million , and $ 3.0 million , respectively . cash flows provided by operating activities for the years ended december 31 , 2017 , 2016 and 2015 were generally provided by contractual rents and mortgage interest , net of property operating expenses not reimbursed by the tenants and general and administrative expenses . investing activities cash flows used in investing activities for the years ended december 31 , 2017 , 2016 and 2015 were approximately $ 147.6 million , $ 117.1 million , and $ 140.6 million , respectively . during 2017 , the company invested in 28 real estate properties and acquired a property adjacent to its corporate office for cash consideration of approximately $ 133.5 million , and funded or purchased notes totaling approximately $ 13.8 million .

we intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our consolidated financial statements , the changes in certain key items in those financial statements from year to year , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect our consolidated financial statements . this discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this document . key components of our results of operations revenue gross premiums written . gross premiums written represent , with respect to a period , the sum of assumed premiums written ( premiums from policies that we assumed from citizens , net of opt-outs , as well as policies acquired from ssic ) plus direct premiums written ( premiums from subsequent renewals of citizens ' policies and voluntary policies written during the period , net of any midterm cancellations ) , in each case prior to ceding premiums to reinsurers . gross premiums earned . gross premiums earned represent the total premiums earned during a period from policies assumed from citizens , net of opt-outs , as well as policies acquired from ssic , subsequent renewals of such policies and voluntary policies . premiums associated with assumed policies are earned ratably over the remaining term of the policy and premiums associated with voluntary and renewed policies are earned ratably over the twelve-month term of the policy . ceded premiums . ceded premiums represent the cost of our reinsurance during a period . we recognize the cost , excluding premiums ceded to osprey , of our reinsurance program ratably over the twelve month term of the arrangement . in most cases , our reinsurance contracts are effective june 1 and run through may 31 of the following year . net premiums earned . net premiums earned reflect gross premiums earned less ceded premiums during the period . 34 retroactive reinsurance income . retroactive reinsurance income represents the income , net of associated losses and loss adjustment expenses , arising from the retroactive reinsurance agreement we entered in connection with our assumption of approximately 39,000 policies from citizens in june 2013. under this retroactive reinsurance agreement , we realized income equal to the earned premiums , net of associated losses and loss adjustment expenses , from such polices for the period from january 1 , 2013 through may 31 , 2013 with no corresponding reinsurance costs . the earned premiums for the period from june 1 , 2013 through june 27 , 2013 ( the date the assumption agreement ) are effective ) are included in gross premiums written for the year ended december 31 , 2013. the retroactive reinsurance agreement , which was a key element of our decision to enter into an assumption transaction at the outset of hurricane season , is not typical of our assumption transactions with citizens . the typical assumption transaction with citizens provides for the assumption of unearned premiums as of the effective date of the transaction , and does not result in the transfer of earned premiums and losses and loss adjustment expenses for prior periods . we do not expect to enter into similar retroactive arrangements with citizens in connection with future policy assumptions . net investment income . net investment income represents interest earned from fixed maturity securities , short term securities and other investments , dividends on equity securities , and the gains or losses from the sale of investments . other revenue . other revenue represents rental income due under non-cancelable leases for space at our commercial property in clearwater , florida that we acquired in april 2013 , and all policy and pay-plan fees . florida law allows insurers to charge policyholders a $ 25 policy fee on each policy written ; these fees are not subject to refund , and we recognize the income immediately when collected . we also charge pay-plan fees to policyholders that pay their premium in more than one installment and record the fees as income when collected . expenses losses and loss adjustment expenses . losses and loss adjustment expenses reflect losses paid , expenses paid to resolve claims , such as fees paid to adjusters , attorneys and investigators , and changes in our reserves for unpaid losses and loss adjustment expenses during the period , in each case net of losses ceded to reinsurers . our reserves for unpaid losses and loss adjustment expenses represent the estimated ultimate cost of resolving all reported claims plus all losses we incurred related to insured events that we assume have occurred as of the reporting date , but that policyholders have not yet reported to us ( which are commonly referred to as incurred but not reported , or “ibnr” ) . we estimate our reserves for unpaid losses using individual case-based estimates for reported claims and actuarial estimates for ibnr losses . we continually review and adjust our estimated losses as necessary based on industry development trends , our evolving claims experience and new information obtained . if our unpaid losses and loss adjustment expenses are considered deficient or redundant , we increase or decrease the liability in the period in which we identify the difference and reflect the change in our current period results of operations . policy acquisition costs . policy acquisition costs consist of the following items : ( i ) commissions paid to outside agents at the time of policy issuance , ( ii ) policy administration fees paid to a third-party administrator at the time of policy issuance , ( iii ) premium taxes and ( iv ) inspection fees . we recognize policy acquisition costs ratably over the term of the underlying policy . until renewed , policies assumed from citizens have no associated policy acquisition costs . story_separator_special_tag our initial estimate for each claim is based upon the judgment of our claims professionals who are familiar with property and liability losses associated with the coverage offered by our policies . then , our claims personnel perform an evaluation of the type of claim involved , the circumstances surrounding each claim and the policy provisions relating to the loss and adjust the reserve as necessary . as claims mature , we increase or decrease the reserve estimates as deemed necessary by our claims department based upon additional information we receive regarding the loss , the results of on-site reviews and any other information we gather while reviewing the claims . ibnr reserves —our ibnr reserves include true ibnr reserves plus “bulk” reserves . true ibnr reserves represent amounts related to claims for which a loss occurred on or before the date of the financial statements but which have not yet been reported to us . bulk reserves represent additional amounts that can not be allocated to particular claims , but which are necessary to estimate ultimate losses on known claims . we estimate our ibnr reserves by projecting our ultimate losses using industry accepted actuarial methods and then deducting actual loss payments and case reserves from the projected ultimate losses . we review and adjust our ibnr reserves on a quarterly basis based on information available to us at the balance sheet date . when we establish our reserves , we analyze various factors such as the evolving historical loss experience of the insurance industry as well as our experience , claims frequency and severity , our business mix , our claims processing procedures , legislative enactments , judicial decisions and legal developments in imposition of damages , and general economic conditions , including inflation . a change in any of these factors from the assumptions implicit in our estimates will cause our ultimate loss experience to be better or worse than indicated by our reserves , and the difference could be material . due to the interaction of the foregoing factors , there is no precise method for evaluating the impact of any one specific factor in isolation , and an element of judgment is ultimately required . due to the uncertain nature of any projection of the future , the ultimate amount we will pay for losses will be different from the reserves we record . we determine our ultimate loss reserves by selecting a point estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques . our selection of the point estimate is influenced by the analysis of our paid losses and incurred losses since inception , as well as industry information relevant to the population of exposures drawn from citizens . at our current level of experience , industry information strongly influences the basis for estimates of claims related factors . we expect that our loss experience will be of growing significance in future periods . our independent actuary evaluated the adequacy of our reserves as of december 31 , 2014 and concluded that total reserves ranging from a low of $ 45.3 million to a high of $ 51.9 million would meet the requirements of the insurance laws of florida , be consistent with reserves computed in accordance with accepted loss reserving standards and principles , and make a reasonable provision for all unpaid loss and loss adjustment expense obligations under the terms of our contracts and agreements . in addition to $ 21.4 million of recorded case reserves , we recorded $ 30.1 million of ibnr reserves as of december 31 , 2014 to achieve overall reserves of $ 51.5 million . the process of establishing our reserves is complex and inherently imprecise , as it involves using judgment that is affected by many variables . we believe a reasonably likely change in almost any of the factors we evaluate as part of our loss reserve analysis could have an impact on our reported results , financial position and liquidity . the following table quantifies the pro-forma impact of hypothetical changes in our loss reserves on our net income , stockholders ' equity and liquidity as of and for the year ended december 31 , 2014 ( in thousands ) . replace_table_token_9_th ( 1 ) adjusted cash , cash equivalents and investments is intended to present a measure of future liquidity and consists of cash , cash equivalents and investments , less loss reserves , net of taxes , assuming a 38.575 % tax rate . 42 policy acquisition costs . we incur policy acquisition costs that vary with , and are directly related to , the production of new business . policy acquisition costs consist of the following four items : ( i ) commissions paid to outside agents at the time of policy issuance , ( ii ) policy administration fees paid to a third-party administrator at the time of policy issuance , ( iii ) premium taxes and ( iv ) inspection fees . we capitalize policy acquisition costs to the extent recoverable , then we amortize those costs over the contract period of the related policy . at each reporting date , we determine whether we have a premium deficiency . a premium deficiency would result if the sum of our expected losses , deferred policy acquisition costs and policy maintenance costs ( such as costs to store records and costs incurred to collect premiums and pay commissions ) exceeded our related unearned premiums plus investment income . should we determine that a premium deficiency exists , we would write off the unrecoverable portion of deferred policy acquisition costs . reinsurance . we follow industry practice of reinsuring a portion of our risks . reinsurance involves transferring , or “ceding” , all or a portion of the risk exposure on policies we write to another insurer , known as a reinsurer . to the extent that our reinsurers are unable to meet the obligations

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liquidity and capital resources as of december 31 , 2014 , we had $ 160.5 million of cash and cash equivalents , which primarily consisted of cash and money market accounts . we intend to hold substantial cash balances during hurricane season to meet seasonal liquidity needs and the collateral requirements of osprey re ltd , our captive reinsurance company described below . we also had $ 4.3 million in restricted cash to meet our contractual obligations related to the cat bonds issued by citrus re . osprey is required to maintain a collateral trust account equal to the risk that it assumes from heritage p & c , less amounts collateralized through a letter of credit . in december , the floir approved the removal of $ 45 million from the collateral trust account following the end of the 2014 hurricane season . as of december 31 , 2014 , $ 5.0 million was held in osprey 's trust account and an additional $ 5 million was collateralized with a letter of credit . at december 31 , 2014 , the company and the floir deemed $ 10 million to be sufficient to satisfy osprey 's reinsurance obligations from non-hurricane catastrophic events . further , $ 35.0 million of the $ 45.0 million that was removed from the collateral trust accounts was contributed as paid in surplus , to heritage property & casualty . although we can provide no assurances , we believe that we maintain sufficient liquidity to pay heritage p & c 's claims and expenses , as well as to satisfy commitments in the event of unforeseen events such , inadequate premium rates , or reserve deficiencies . we maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position . as of december 31 , 2014 , we had 29,794,960 shares of common stock outstanding , and warrants and options to purchase 1,685,923 shares of common stock , reflecting total paid-in capital of $ 188.3 million as of such date . we believe our current capital resources , together with cash provided from our operations , will be sufficient to meet currently anticipated working capital requirements .

cost reduction efforts remain an important part of our normal ongoing operations and are expected to generate savings without compromising overall product quality and service levels . business environment the semiconductor business environment is highly volatile , driven by internal dynamics , both cyclical and seasonal , in addition to macroeconomic forces . over the long term , semiconductor consumption has historically grown , and is forecast to continue to grow . this growth is driven , in part , by regular advances in device performance and by price declines that result from improvements in manufacturing technology . in order to exploit these trends , semiconductor manufacturers , both integrated device manufacturers ( “ idms ” ) and osats , periodically invest aggressively in latest generation capital equipment . this buying pattern often leads to periods of excess supply and reduced capital spending - the so called semiconductor cycle . within this broad semiconductor cycle there are also , generally weaker , seasonal effects that are specifically tied to annual , end-consumer purchasing patterns . typically , semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the september quarter . occasionally , this results in subsequent reductions in the december quarter . this annual seasonality can occasionally be 24 overshadowed by effects of the broader semiconductor cycle . macroeconomic factors also affect the industry , primarily through their effect on business and consumer demand for electronic devices , as well as other products that have significant electronic content such as automobiles , white goods , and telecommunication equipment . our equipment segment is primarily affected by the industry 's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors that positively and negatively affect our financial performance . the sales mix of idm and osat customers in any period also impacts financial performance , as changes in this mix can affect our products ' average selling prices and gross margins due to differences in volume purchases and machine configurations required by each customer type . our expendable tools segment is less volatile than our equipment segment . expendable tools sales are more directly tied to semiconductor unit consumption rather than capacity requirements and production capability improvements . we continue to position our business to leverage our research and development leadership and innovation and to focus our efforts on mitigating volatility , improving profitability and ensuring longer-term growth . we remain focused on operational excellence , expanding our product offerings and managing our business efficiently throughout the business cycles . our visibility into future demand is generally limited , forecasting is difficult , and we generally experience typical industry seasonality . to limit potential adverse cyclical , seasonal and macroeconomic effects on our financial position , we have de-leveraged and strengthened our balance sheet . as of september 27 , 2014 , our total cash , cash equivalents and investments were $ 597.1 million , a $ 72.1 million increase from the prior fiscal year end . we believe this strong cash position will allow us to continue to invest in product development and pursue organic and non-organic opportunities . on august 14 , 2014 , the company 's board of directors authorized a program ( the `` program `` ) to repurchase up to $ 100 million of the company 's common stock on or before august 14 , 2017 . the company has entered into a written trading plan under rule 10b5-1 of the exchange act , to facilitate repurchases under the program . the program may be suspended or discontinued at any time and will be funded using the company 's available cash . under the program , shares may be repurchased through open market and or privately negotiated transactions at prices deemed appropriate by management . the timing and amount of repurchase transactions under the program will depend on market conditions as well as corporate and regulatory considerations . during the year ended september 27 , 2014 , the company repurchased a total of 43.5 thousand shares of common stock at a cost of $ 0.6 million under the program . as of september 27 , 2014 , our remaining stock repurchase authorization under the program was approximately $ 99.4 million . technology leadership we compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire and wedge bonding processes . our equipment is typically the most productive and has the highest levels of process capability , and as a result , has a lower cost of ownership compared to other equipment in its market . our expendable tools are designed to optimize the performance of the equipment in which they are used . we believe our technology leadership contributes to the strong market positions of our ball bonder , wedge bonder and expendable tools products . to maintain our competitive advantage , we invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-generation products . these investments often focus as much on improvements in the semiconductor assembly process as on specific pieces of assembly equipment or expendable tools . in order to generate these improvements , we often work in close collaboration with customers , end users , and other industry members . in addition to producing technical advances , these collaborative development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider . in addition to gold , silver alloy wire and aluminum wire , our leadership in the industry 's use of copper wire for the bonding process is an example of the benefits of our collaborative efforts . by working with customers , material suppliers , and other equipment suppliers , we have developed a series of robust , high-yielding production processes , which have made copper wire widely accepted and significantly reduced the cost of assembling an integrated circuit . story_separator_special_tag we establish reserves for estimated warranty expense when revenue for the related equipment is recognized . the reserve for estimated warranty expense is based upon historical experience and management 's estimate of future expenses . conditions of acceptance : sales of our consumable products generally do not have customer acceptance terms . in certain cases , sales of our equipment have customer acceptance clauses which may require the equipment to perform in accordance with customer specifications or when installed at the customer 's facility . in such cases , if the terms of acceptance are satisfied at our facility prior to shipment , the revenue for the equipment will be recognized upon shipment . if the terms of acceptance are satisfied at our customers ' facilities , the revenue for the equipment will not be recognized until acceptance , which typically consists of installation and testing , is received from the customer . shipping and handling costs billed to customers are recognized in net revenue . shipping and handling costs paid by us are included in cost of sales . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from our customers ' failure to make required payments . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . we are subject to concentrations of customers and sales to concentrated geographic locations , which could also impact the collectability of certain receivables . if global economic conditions deteriorate or political conditions were to change in some of the countries where we do business , it could have a significant impact on our results of operations , and our ability to realize the full value of our accounts receivable . inventories inventories are stated at the lower of cost ( on a first-in first-out basis ) or market value . we generally provide reserves for obsolete inventory and for inventory considered to be in excess of demand . demand is generally defined as 18 months forecasted future consumption for equipment , 24 months forecasted future consumption for all spare parts , and 12 months forecasted future consumption for expendable tools . forecasted consumption is based upon internal projections , historical sales volumes , customer order activity and a review of consumable inventory levels at customers ' facilities . we communicate forecasts of our future consumption to our suppliers and adjust commitments to those suppliers accordingly . if required , we reserve the difference between the carrying value of our inventory and the lower of cost or market value , based upon assumptions about future consumption , and market conditions . if actual market conditions are less favorable than projections , additional inventory reserves may be required . accounting for impairment of goodwill the company operates two reportable segments : equipment and expendable tools . goodwill was recorded in 2009 for the acquisition of orthodyne electronics inc. , which added wedge bonder products to the equipment business . accounting standard update 2011-08 , testing goodwill for impairment provides companies with the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value . if , after assessing the qualitative factors , a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value , then performing the two-step impairment test is unnecessary . however , if a company concludes otherwise , then it is required to perform the first step of the two-step goodwill impairment test . if the carrying value of a reporting 31 unit exceeds its fair value in the first step of the test , then a company is required to perform the second step of the goodwill impairment test to measure the amount of the reporting unit 's goodwill impairment loss , if any . in fiscal 2013 and 2014 , we chose to bypass the qualitative assessment and proceed directly to performing the quantitative evaluation of the fair value of the reporting unit , to compare against the carrying value of the reporting unit . as part of our annual evaluation of the goodwill , we perform an impairment test of our goodwill in the fourth quarter of each fiscal year to coincide with the completion of our annual forecasting process and refreshing of our business outlook processes . on an ongoing basis , we monitor whether a `` triggering `` event has occurred that may have the effect of reducing the fair value of a reporting unit below its respective carrying value . adverse changes in expected operating results and or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future . impairment assessments inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions . future events and changing market conditions may impact our assumptions as to prices , costs , growth rates or other factors that may result in changes in our estimates of future cash flows . although we believe the assumptions we have used in testing for impairment are reasonable , significant changes in any one of our assumptions could produce a significantly different result . indicators of potential impairment may lead us to perform interim goodwill impairment assessments , including significant and unforeseen customer losses , a significant adverse change in legal factors or in the business climate , a significant adverse action or assessment by a regulator , a significant stock price decline , unforeseen changes in technology or unanticipated competition . for further information on goodwill and other intangible assets , see note 3 to our consolidated financial statements included in item 8. income taxes in accordance with asc no . 740 , income taxes ,

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cash and cash equivalents $ 587,981 $ 521,788 $ 66,193 percentage of total assets 62.3 % 60.5 % the following table reflects summary consolidated statement of cash flow information for fiscal 2014 and 2013 : replace_table_token_24_th fiscal 2014 continuing operations net cash provided by operating activities was primarily the result of net income of $ 63.0 million , non-cash adjustments of $ 33.6 million and offset by the working capital changes of $ 14.1 million . the change in working capital was primarily driven by an increase in inventories of $ 14.6 million and an increase in accounts receivable of $ 9.3 million . this was partially offset by a decrease in prepaid expenses and other current assets of $ 8.9 million and a decrease in accounts payable of $ 1.0 million . the increase in inventories was due to higher inventories held at year-end in anticipation of a scheduled scale down of manufacturing activity in the first quarter of fiscal 2015. the higher accounts receivable were due to higher sales in the fourth quarter of fiscal 2014. the reduction in prepaid expenses and other current assets was due to net refunds of a $ 2.7 million deposit in relation to the agreement to develop and lease ( the “ adl ” ) following the execution of the lease agreement , and a reduction of $ 6.3 million due to tax refunds . net cash used in investing activities was primarily the purchase of short-term investments of $ 18.2 million and capital expenditures of $ 10.1 million offset by the maturity of short-term investments of $ 12.4 million . net cash used in financing activities was primarily the reversal of excess tax benefits from stock-based compensation arrangements of $ 0.8 million and the repurchase of common stock of $ 0.4 million offset by proceeds from the exercise of stock options of $ 1.0 million . fiscal 2013 continuing operations net cash provided by operating activities was due primarily to net income of $ 59.4 million plus non-cash adjustments of $ 35.5 million contributed to net cash provided by continuing operations . net cash used by investing activities was primarily capital expenditures of $ 17.2

- 33 - effective february 1 , 2017 , we entered into an exclusive oem distribution agreement with esthetic education , llc to be the exclusive marketer and seller of private label versions of the skinstylus® microsystem and associated parts under the name of stratapen . this three-year agreement has minimum annual sales requirements for renewal . the company does not expect to meet the criteria for renewal . during 2017 we entered into an agreement to license the nordlys product line from ellipse a/s . in 2018 , following the financing , we determined we would no longer market the line and the agreement was terminated . for 2017 quarterly sales of the nordlys product line were $ 0 , $ 391 , $ 118 , $ 698 for the first through fourth quarters of 2017 , respectively . for 2018 quarterly sales were $ 218 , $ 59 , $ 57 and $ 75 for the first through fourth quarters of 2018 , respectively . we discontinued carrying the nordlys product line and the distribution agreement with ellipse a/s was terminated on may 31 , 2018. key technology xtrac® excimer laser . xtrac received fda clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin diseases . the xtrac excimer laser delivers ultra-narrowband ultraviolet b ( “ uvb ” ) light to affected areas of skin . following a series of treatments typically performed twice weekly , psoriasis remission can be achieved , and vitiligo patches can be re-pigmented . xtrac is endorsed by the national psoriasis foundation , and its use for psoriasis is covered by nearly all major insurance companies , including medicare . we estimate that more than half of all major insurance companies now offer reimbursement for vitiligo as well , a figure that is increasing . in the third quarter of 2018 we announced the fda granted clearance for our multi micro dose ( mmd ) tip for our xtrac excimer laser . the mmd tip accessory is indicated for use in conjunction with the xtrac laser system to filter the narrow band uvb ( “ nb-uvb ” ) light at delivery in order to calculate and individualize the maximum non-blistering dose for a particular patient . in the third quarter of 2018 we announced the launch of our s3 , the next generation xtrac . the s3 is smaller , faster and has a smart user interface . vtrac® lamp . vtrac received fda clearance in 2005 and provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system . stratapen® . stratapen uses the patent-pending biolock cartridge . the biolock needle depth can be adjusted during the course of the procedure to accommodate different treatment areas and can easily maneuver around facial contours and delicate features , such as the eyes , nose and mouth . recent developments equity financing on march 30 , 2018 , we entered into multiple agreements in order to obtain $ 17.0 million of equity financing from the following sources : on may 29 , 2018 , we completed the sale and issuance ( the “ financing ” ) of 15,740,741 shares of the company 's common stock , subject to customary post-closing adjustments , to accelmed growth partners l.p. ( `` accelmed `` ) , broadfin capital llc ( `` broadfin `` ) , sabby management llc ( `` sabby `` ) , gohan investments , ltd. and dr. dolev rafaeli , our president and chief executive officer , for gross proceeds of $ 17.0 million at a per share price of $ 1.08. the various stock purchase agreements were entered into on march 30 , 2018 ( collectively , the “ spas ” ) . we incurred $ 2.3 million of costs related to the financing during the year ended december 31 , 2018 , which have been offset against the proceeds in the accompanying financial statements . these costs included $ 500 to accelmed for legal fees , consulting and due diligence costs related to the stock purchase agreement . in addition , we incurred placement agent fees in the amount of $ 1.4 million , among other costs directly related to the financing . - 34 - in further consideration of entering into their respective stock purchase agreements , sabby and broadfin have each entered into separate agreements restricting their abilities to sell their holdings ( the “ leak-out agreements ” ) . under the terms of each of the respective leak-out agreements , the stockholder agreed that from the later of ( a ) the date that the approval by the shareholders of the transactions is deemed effective and ( b ) the closing of the transactions contemplated pursuant to the spa , the stockholder shall not sell dispose or otherwise transfer , directly or indirectly , ( including , without limitation , any sales , short sales , swaps or any derivative transactions that would be equivalent to any sales or short positions ) any shares of common stock of the company held by the stockholder on the date hereof or issuable to the stockholder upon conversion of shares of the company 's series c convertible preferred stock held by the stockholder on the date hereof , ( a ) if prior to april 1 , 2019 , at a price per share of the company 's common stock less than $ 1.296 , subject to adjustment for reverse and forward stock splits and the like , or ( b ) thereafter , at a price per share reflecting less than the price set forth on the schedule in the leak-out agreements subject to adjustment for reverse and forward stock splits and the like , unless , ( 1 ) in the case of either clause ( a ) or ( b ) , otherwise approved by the company 's board of directors , story_separator_special_tag considerable management judgment is necessary to assess recoverable amounts of intangible assets and measure fair value of the intangible assets that were impaired as such measurements involve estimation of future revenues , royalty rates , profit margins and other cash flows . changes in our actual results and or estimates or any of our other assumptions used in our analysis could result in a different conclusion . income taxes as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process requires us to estimate our actual current tax exposure and make an assessment of temporary differences resulting from differing treatment of items , for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheet . we must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is not more likely than not , we establish a valuation allowance . to the extent we establish a valuation allowance or increase this allowance in a period , we must include an expense within the tax provision in the consolidated statement of operations and comprehensive loss . significant management judgment is required in determining any valuation allowance recorded against our deferred tax assets . in the event that we generate taxable income in the jurisdictions in which we operate and in which we have net operating loss carry-forwards , we may be required to adjust our valuation allowance . - 38 - asc topic 740-10 requires that we recognize in our financial statements the impact of a tax position , if that position will more likely than not be sustained upon examination , based on the technical merits of the position , without regard to the likelihood that the tax position may be challenged . if an uncertain tax position meets the “ more-likely-than-not ” threshold , the largest amount of tax benefit , that is greater than 50 % , likely to be recognized upon ultimate settlement with the taxing authority is recorded . we do not have any uncertain tax positions or accrued penalties and interest . if such matters were to arise , we would recognize interest and penalties related to income tax matters in income tax expense . stock-based compensation we account for stock based compensation to employees in accordance with the “ share-based payment ” accounting standard . the standard requires estimating the fair value of equity-based payment awards on the date of grant using an option-pricing model . the value of the award is recognized as an expense over the requisite service periods in our consolidated statements of operations and comprehensive loss . for performance-based awards , we recognize the expense only if we deem it probable that the vesting condition will occur . there were no performance awards granted in 2018 or 2017. the fair value of employee stock options is estimated using a black-scholes valuation model . compensation costs are recognized over the requisite service period . total stock-based compensation expense was $ 904 and $ 186 for the years ended december 31 , 2018 and 2017 , respectively . fair value measurements we measure fair value in accordance with financial accounting standards board accounting standards codification 820 , fair value measurements and disclosures ( “ asc topic 820 ” ) . asc topic 820 defines fair value , establishes a framework and gives guidance regarding the methods used for measuring fair value , and expands disclosures about fair value measurements . fair value is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . as such , fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability . as a basis for considering such assumptions there exists a three-tier fair-value hierarchy , which prioritizes the inputs used in measuring fair value . our derivative financial instruments were measured using significant unobservable inputs ( level 3 ) . results of operations ( the following financial data , in this narrative , are expressed in thousands , except for the earnings per share and per treatment . amounts have been revised to give effect to the restatements of the 2017 financial statements as described in note 2 to the consolidated financial statements . ) revenues the following table presents revenues from our three segments for the periods indicated below : replace_table_token_1_th dermatology recurring procedures revenues from dermatology recurring procedures for the year ended december 31 , 2018 was $ 21,053 which approximates 300,000 treatments , with prices from $ 65 to $ 95 per treatment . revenues from dermatology recurring procedures for the year ended december 31 , 2017 was $ 22,954 which approximates 328,000 treatments , with prices from $ 65 to $ 95 per treatment . - 39 - increases in procedures are dependent upon building market acceptance through marketing programs with our physician partners and their patients to show that the xtrac procedures will be of clinical benefit and will be generally reimbursed by insurers . we believe that several factors have had a negative impact on the prescribed use of xtrac treatments for psoriasis and vitiligo patients . specifically , we believe that there is a lack of awareness of the positive effects of xtrac treatments among both sufferers and providers ; and the treatment regimen which can sometimes require up to 12 or more treatments has limited xtrac use to certain patient populations . therefore , we have initiated a direct to patient program for xtrac advertising in the united states , targeting psoriasis and vitiligo patients through a variety of media including television and radio ; and

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liquidity and capital resources as of december 31 , 2018 , we had $ 14,595 of working capital compared to $ 279 as of december 31 , 2017 ( as restated ) . cash and cash equivalents were $ 16,487 as of december 31 , 2018 , as compared to $ 4,069 , as of december 31 , 2017. working capital at march 31 , june 30 , and september 30 , 2017 , as restated , was $ 111 , $ ( 78 ) , $ 991 , respectively . working capital at march 31 , june 30 , and september 30 , 2018 , as restated , was $ ( 1,270 ) , $ 13,176 , $ 13,259 , respectively . on december 30 , 2015 , we entered into a $ 12,000 credit facility pursuant to a credit agreement and related financing documents with midcap and the lenders listed therein . our obligations under the credit facility are secured by a first priority lien on all of our assets . on may 29 , 2018 , we entered into a fourth amendment to credit and security agreement with midcap , pursuant to which the company repaid $ 3.0 million in principal of the existing $ 10.6 million credit facility established with midcap in 2015. the terms of the credit facility have been amended to impose less restrictive covenants and lower prepayment fees for the company and extended the maturity date to may 2022. the agreement modified the principal payments including a period of 18 months where there are no principal payments due . the company was in compliance with its covenants as of december 31 , 2018. on april 30 , july 15 , august 26 , and october 15 , 2019 , we received a waiver from midcap as administrative agent for the lenders who are party to the agreement , wherein the lenders waived all our compliance defaults with the obligation to deliver audited financial statements within 120 days of our year-end pursuant to the agreement .

our applied technologies business unit has an array of web and mobile applications and payment technologies , such as mvc , chip and gsm licensing and vtu , and has deployed solutions in many countries , including south africa , namibia , nigeria , malawi , cameroon , the philippines , india and colombia . sources of revenue we generate our revenues by charging transaction fees to government agencies , merchants , financial service providers , utility providers , bill issuers , employers ; and cardholders ; by providing loans and insurance products and by selling hardware , licensing software and providing related technology services . we have structured our business and our business development efforts around four related but separate approaches to deploying our technology . in our most basic approach , we act as a supplier , selling our equipment , software , and related technology to a customer . the revenue and costs associated with this approach are reflected in our financial inclusion and applied technologies segment . 39 we have found that we have greater revenue and profit opportunities , however , by acting as a service provider instead of a supplier . in this approach we own and operate the ueps ourselves , charging one-time and on-going fees for the use of the system either on a fixed or ad valorem basis . this is the case in south africa , where we distribute welfare grants on behalf of the south african government on a fixed fee basis , provide bank accounts on a fixed fee basis , but charge a fee on an ad valorem basis for goods and services purchased using our smart card . the revenue and costs associated with this approach are reflected in our south african transaction processing and financial inclusion and applied technologies segments . because our smart cards are designed to enable the delivery of more advanced services and products , we are also willing to supply those services and products directly where the business case is compelling . for instance , we provide short-term loans to our smart card holders . this is an example of the third approach that we have taken . here we can act as the principal in operating a business that can be better delivered through our ueps . the revenue and costs are reflected in our financial inclusion and applied technologies segment . in south africa , we also generate fees from debit and credit card transaction processing , the provision of value-added services such as bill payments , mobile top-up and prepaid utility sales , and from providing a payroll transaction management service . the revenue and costs associated with these services are reflected in our south african transaction processing and financial inclusion and applied technologies segments . through ksnet , we earn most of our revenue from payment processing services we provide to approximately 240,000 merchants and to card issuers in south korea through our value-added-network . through ipg we generate fee revenue through the provision of payment service provider and card issuing and acquiring services in primarily germany , china and the u.s. we also generate fees from our customers who utilize our vcpay technology to generate a unique , one-time use prepaid virtual card number to securely purchase goods and services or perform bill payments in any card-not-present environment . the revenue and costs at of all of these businesses are reflected in our international transaction processing segment . finally , we have investments , business partnerships or joint ventures to introduce our financial technology solutions to markets such as bank frick in europe , finbond in south africa and north america , onefi in nigeria and mobikwik in india . in these situations , we take an equity position in the business while also acting as a supplier of technology . in evaluating these types of opportunities , we seek to maintain a highly disciplined approach , carefully selecting partners , participating closely in the development of the business plan and remaining actively engaged in the management of the new business . in most instances , the joint venture or partnership has a license to use our proprietary technologies in the specific territory , including the back-end system . we believe that this flexible approach enables us to drive adoption of our solution while capturing the value created by the implementation of our technology . developments during fiscal 2018 cps and sassa contract termination on march 23 , 2018 , the constitutional court ordered a six-month extension of our current contract with sassa , for the payment of grants in cash at pay points only , on the same terms and conditions as the contract that was due to expire on march 31 , 2018. accordingly , we have continued to pay grant recipients at pay points . while the court order was silent regarding the payment of the other 9.1 million grant recipients who access their grants utilizing pin or by biometric verification at pos and atms , we have continued to support the bank accounts that underpin these grant payments . as sassa is no longer paying us a service fee for the management of these accounts with effect from april 1 , 2018 , grant recipients now bear the cost for the fees associated with these accounts . sassa has indicated that grant recipients will be encouraged to open a commercial bank account of their choice in the future , including the special account offered by sapo for grant recipients . sassa reported in its september 2018 filing with the constitutional court the sassa ceo reported that 5,475,752 new sassa/sapo payment cards have been issued . the constitutional court further ordered that we may approach the national treasury to investigate and make a recommendation regarding the price to be paid for our contracted services during the six-month period . story_separator_special_tag the results of our impairment tests during fiscal 2018 indicated that the fair value of our reporting units exceeded their carrying values and therefore our reporting units were not at risk of potential impairment , with the exception of the $ 19.9 million of goodwill impaired during the third quarter of fiscal 2018 and goodwill of $ 1.1 million allocated to a business that ceased trading during the year . intangible assets acquired through acquisitions the fair values of the identifiable intangible assets acquired through acquisitions were determined by management using the purchase method of accounting . we completed acquisitions during fiscal 2018 , 2017 and 2016 where we identified and recognized intangible assets . we have used the relief from royalty method , the multi-period excess earnings method , the income approach and the cost approach to value acquisition-related intangible assets . in so doing , we made assumptions regarding expected future revenues and expenses to develop the underlying forecasts , applied contributory asset charges , discount rates , exchange rates , cash tax charges and useful lives . the valuations were based on information available at the time of the acquisition and the expectations and assumptions that have been deemed reasonable by us . no assurance can be given , however , that the underlying assumptions or events associated with such assets will occur as projected . for these reasons , among others , the actual cash flows may vary from forecasts of future cash flows . to the extent actual cash flows vary , revisions to the useful life or impairment of intangible assets may be necessary . valuation and impairment of marketable securities our investments in available-for-sale equity securities are reported at fair value . unrealized gains and losses related to changes in the fair value of available-for-sale equity securities are recognized in accumulated other comprehensive income , net of tax . changes in the fair value of available-for-sale equity securities impact our reported net income only when such securities are sold or an other-than-temporary impairment is recognized . realized gains and losses on the sale of equity securities will be calculated with reference to its original cost . we regularly review the carrying value of our available-for-sale equity securities to determine whether it is other-than-temporarily impaired , which would require us to record an impairment charge in the period in which such determination is made . in making this determination , we consider , among other things , the extent and the duration of the decline ; the reasons for the decline in value ( i.e . credit event , currency or interest-rate related ) ; and the financial condition of and near term-prospects of the issuer of the security . our assessment of whether an equity security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security , which would have an adverse impact on our financial condition and operating results . deferred taxation we estimate our tax liability through the calculations done for the determination of our current tax liability , together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities which are disclosed on our balance sheet . 44 management then has to assess the likelihood that deferred tax assets are more likely than not to be realized in the foreseeable future . a valuation allowance is created if it is determined that a deferred tax asset will not be realized in the foreseeable future . any change to the valuation allowance would be charged or credited to income in the period such determination is made . in assessing the need for a valuation allowance , historical levels of income , expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered . during fiscal 2018 , we recorded a net decrease of $ 22.9 million to our valuation allowance and during fiscal 2017 and 2016 , respectively , we recorded a net increase of $ 0.1 million and $ 16.3 million to our valuation allowance . as of june 30 , 2018 and 2017 , the valuation allowance related to deferred tax assets was $ 16.1 million and $ 39.0 million , respectively . stock-based compensation management is required to make estimates and assumptions related to our valuation and recording of stock-based compensation charges under current accounting standards . these standards require all share-based compensation to employees to be recognized in the statement of operations based on their respective grant date fair values over the requisite service periods and also requires an estimation of forfeitures when calculating compensation expense . we utilize the cox ross rubinstein binomial model to measure the fair value of stock options granted to employees and directors . we have also utilized a bespoke adjusted monte carlo simulation discounted cash flow model to measure the fair value of restricted stock with market conditions granted to employees and directors . the stock-based compensation cost related to these valuations has been recognized on a straight line basis . these valuation models require estimates of a number of key valuation inputs including expected volatility , expected dividend yield , expected term and risk-free interest rate . our management has estimated forfeitures based on historic employee behavior under similar compensation plans . the fair value of stock options is affected by the assumptions selected . net stock-based compensation expense from continuing operations was $ 2.6 million , $ 2.0 million and $ 3.6 million for fiscal 2018 , 2017 and 2016 , respectively . accounts receivable and allowance for doubtful accounts receivable we maintain an allowance for doubtful accounts receivable related to our financial inclusion and applied technologies and international transaction-based activities segments with respect to sales or rental of hardware , support and maintenance services provided ; or sale of licenses to customers

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cash flows from operating activities cash flows from operating activities for fiscal 2018 increased to $ 132.6 million ( zar 1.7 billion ) from $ 97.2 million ( zar 1.3 billion ) for fiscal 2017. excluding the impact of interest received , interest paid on our korean and south africa debt and taxes presented in the table below , the increase relates primarily to the receipt of certain working capital loans outstanding , offset partially by the expansion of our south african lending book and weaker trading activity during fiscal 2018 compared to 2017. during fiscal 2018 , we paid interest of $ 7.2 million and $ 0.4 million , respectively , under our south african and south korean debt facilities . cash flows from operating activities for fiscal 2017 decreased to $ 97.2 million ( zar 1.3 billion ) from $ 116.6 million ( zar 1.7 billion ) for fiscal 2016. excluding the impact of interest received , interest paid under our korean debt and taxes presented in the table below , the decrease relates primarily to the growth of masterpayment 's working capital finance offering and the separation payment made to our former chief executive officer , offset by an increase in cash from operating activities resulted from improved trading activity during fiscal 2017. during fiscal 2017 , we paid interest of $ 1.5 million under our south korean debt facility . during fiscal 2018 , we made a first provisional tax payment of $ 17.7 million ( zar 231.2 million ) and a second provisional tax payment of $ 17.0 million ( zar 225.9 million ) related to our 2018 tax year in south africa . we also paid taxes totaling $ 4.9 million in other tax jurisdictions , primarily south korea . during fiscal 2017 , we made a first provisional tax payment of $ 18.2 million ( zar 252.0 million ) and a second provisional tax payment of $ 17.2 million ( zar 221.7 million ) related to our 2017 tax year in south africa . we paid dividend withholding taxes of $ 1.5 million ( zar 21.3 million ) .

events provides it , supply chain , digital marketing and business professionals the opportunity to attend various symposia , conferences and exhibitions to learn , contribute and network with their peers . from our flagship symposium/itxpo series , to summits focused on specific technologies and industries , to experimental workshop-style seminars , our events distill the latest gartner research into applicable insight and advice . 17 business measurements we believe the following business measurements are important performance indicators for our business segments : business segment business measurements research contract value represents the value attributable to all of our subscription-related research products that recognize revenue on a ratable basis . contract value is calculated as the annualized value of all subscription research contracts in effect at a specific point in time , without regard to the duration of the contract . client retention rate represents a measure of client satisfaction and renewed business relationships at a specific point in time . client retention is calculated on a percentage basis by dividing our current clients , who were also clients a year ago , by all clients from a year ago . client retention is calculated at an enterprise level , which represents a single company or customer . wallet retention rate represents a measure of the amount of contract value we have retained with clients over a twelve-month period . wallet retention is calculated on a percentage basis by dividing the contract value of clients , who were clients one year ago , by the total contract value from a year ago , excluding the impact of foreign currency exchange . when wallet retention exceeds client retention , it is an indication of retention of higher-spending clients , or increased spending by retained clients , or both . wallet retention is calculated at an enterprise level , which represents a single company or customer . consulting consulting backlog represents future revenue to be derived from in-process consulting , measurement and strategic advisory services engagements . utilization rate represents a measure of productivity of our consultants . utilization rates are calculated for billable headcount on a percentage basis by dividing total hours billed by total hours available to bill . billing rate represents earned billable revenue divided by total billable hours . average annualized revenue per billable headcount represents a measure of the revenue generating ability of an average billable consultant and is calculated periodically by multiplying the average billing rate per hour times the utilization percentage times the billable hours available for one year . events number of events represents the total number of hosted events completed during the period . number of attendees represents the total number of people who attend events . 18 executive summary of operations and financial position we have executed a consistent growth strategy since 2005 to drive double-digit annual revenue and earnings growth . the fundamentals of our strategy include a focus on creating extraordinary research content , delivering innovative and highly differentiated product offerings , building a strong sales capability , providing world class client service with a focus on client engagement and retention , and continuously improving our operational effectiveness . we had total revenues of $ 2.163 billion in 2015 , an increase of 7 % over 2014 on a reported basis and 13 % adjusted for the impact of foreign currency exchange . diluted earnings per share increased to $ 2.06 per share in 2015 from $ 2.03 per share in 2014. research revenues rose 10 % year-over-year , to $ 1.583 billion in 2015 , and the contribution margin was 69 % , the same as 2014. at december 31 , 2015 , research contract value was $ 1.761 billion , an increase of 10 % over december 31 , 2014 on a reported basis and 14 % adjusted for the impact of foreign currency exchange . both client and wallet retention remained strong , at 84 % and 105 % , respectively , at december 31 , 2015. consulting revenues in 2015 decreased 6 % when compared to 2014 but were flat when adjusted for the foreign exchange impact . the gross contribution margin was 33 % in 2015 compared to 34 % in 2014. consultant utilization declined by 2 points in 2015 , to 66 % . we had 606 billable consultants at december 31 , 2015 compared to 535 at year-end 2014. backlog increased 15 % year-over-year , to $ 117.7 million at december 31 , 2015 , which is the highest in the company 's history . events revenues increased 11 % year-over-year , to $ 251.8 million . adjusted for the foreign currency impact , events revenues increased 18 % . the segment contribution margin was 52 % in 2015 , a 3 point increase over 2014. we held 65 events in 2015 compared to 61 in 2014 , while the number of attendees increased 7 % year-over-year , to 52,595. for a more detailed discussion of our results , see the segment results section below . cash flow from our operating activities was $ 345.6 million in 2015. we ended 2015 with $ 373.0 million in cash and cash equivalents while $ 656.0 million was available for borrowing under the revolving credit line . we believe that we have adequate liquidity to meet our currently anticipated needs . we continue to focus on maximizing shareholder value . during 2015 we repurchased 6.2 million of our outstanding common shares , and we also acquired nubera ebusiness s.l . , based in barcelona , spain ( `` nubera `` ) , and capterra , inc. , based in arlington , virginia ( `` capterra `` ) , both of which help organizations find the right business software to meet their needs . note 2 - acquisitions in the notes to the consolidated financial statements included in this annual report on form 10-k provides additional information regarding these acquisitions . story_separator_special_tag the following table presents total revenues by geographic region for the twelve months ended ( in thousands ) : replace_table_token_8_th the following table presents our revenues by segment for the twelve months ended ( in thousands ) : replace_table_token_9_th cost of services and product development ( “ cos ” ) expense increased 12 % in 2014 compared to 2013 , or $ 84.4 million , to $ 797.9 million compared to $ 713.5 million in 2013. the impact of foreign currency exchange for the full year was not significant . the increase was primarily due to higher payroll and related benefits costs from additional headcount , which increased 12 % . the headcount increase reflects our continued investment in our research business and includes the additional employees resulting from the 2014 acquisitions . cos as a percentage of revenues was 39 % in the 2014 period compared to 40 % in the 2013 period . 24 selling , general and administrative ( “ sg & a ” ) expense increased by $ 115.6 million in 2014 , or 15 % , to $ 876.1 million compared to $ 760.5 million in 2013. excluding the favorable impact of foreign currency exchange , sg & a expense increased 16 % year-over-year . the increase was primarily due to higher payroll and related benefits costs from additional headcount , higher sales commissions , and merit salary increases . the increased headcount includes our investment in additional quota-bearing sales associates , which increased to 1,881 at december 31 , 2014 , a 14 % increase over year-end 2013. depreciation expense increased 8 % in 2014 compared to 2013 , which reflects our additional investment in fixed assets . amortization of intangibles increased 51 % year-over-year due to the intangibles arising from the 2014 acquisitions . acquisition and integration charges was $ 21.9 million in 2014 compared to $ 0.3 million in 2013. these charges are directly-related to our acquisitions and primarily include amounts accrued for payments contingent on the achievement of certain employment conditions , legal , consulting , and severance costs . operating income increased $ 10.7 million year-over-year , or 4 % , to $ 286.2 million in 2014 from $ 275.5 million in 2013. the increased operating income was attributable to higher segment contributions from our research and events businesses . operating income as a percentage of revenues was 14 % in 2014 and 15 % in 2013. interest expense , net increased 23 % year-over-year due to additional borrowings in the 2014 period . other expense , net was $ 0.6 million in 2014 and $ 0.2 million in 2013. these expenses primarily consisted of net foreign currency exchange gains and losses . provision for income taxes was $ 90.9 million in 2014 compared to $ 83.6 million in 2013 and the effective tax rate was 33.1 % for 2014 compared to 31.4 % for 2013. the higher effective tax rate in 2014 was primarily due to the impact of certain favorable items in 2013 , as well as the unfavorable mix of pretax income by jurisdiction in 2014 which was partially offset by foreign tax credit benefits in 2014. the favorable items in 2013 included the enactment of certain beneficial legislation in 2013 , the release of tax reserves due to audit settlements , and increased tax exempt income . during 2014 , the internal revenue service closed its audit of the company 's 2011 and 2010 federal income tax returns . the resolution of the audit did not have a material adverse effect on the company 's consolidated financial position , cash flows , or results of operations . net income was $ 183.8 million in 2014 and $ 182.8 million in 2013 , an increase of 1 % , as the increased operating income in 2014 was substantially offset by additional income tax charges . diluted earnings per share increased 5 % year-over-year , to $ 2.03 in 2014 , primarily due to a lower number of weighted-average shares outstanding . 25 segment results we evaluate reportable segment performance and allocate resources based on gross contribution margin . gross contribution is defined as operating income excluding certain cost of services and product development charges , sg & a , depreciation , acquisition and integration charges , and amortization of intangibles . gross contribution margin is defined as gross contribution as a percentage of revenues . the following sections present the results of our three business segments as of and for the three years-ended december 31 , 2015. research the following table presents the financial results and business measurements of our research segment for the twelve months ended december 31 : replace_table_token_10_th ( 1 ) dollars in thousands . 2015 versus 2014 research segment revenues increased 10 % in 2015 compared to 2014. excluding the unfavorable impact of foreign currency , research revenues increased 16 % in 2015. the segment gross contribution margin was 69 % in both annual periods . the contribution margin remained at 69 % in spite of a 12 % increase in segment headcount , mostly driven by new hires but also to a lesser extent the additional employees resulting from our acquisitions . the overall headcount increase reflects our continuing investment in this business . research contract value increased 10 % in 2015 to $ 1.761 billion , and increased 14 % year-over-year adjusted for the impact of foreign currency exchange . the growth in contract value was broad-based , with every region , client size , and industry sector growing at double-digit rates , with the exception of the energy and utilities sector , which still increased year-over-year but at a slower rate . the number of our research client enterprises increased by 8 % in 2015 , to 10,796. both client retention and wallet retention remained strong , at 84 % and 105 % respectively , as of december 31 , 2015 . 2014 versus 2013 research segment revenues in 2014

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liquidity and capital resources we had $ 373.0 million of cash and cash equivalents at december 31 , 2015 and $ 656.0 million of available borrowing capacity under our 2014 credit agreement . in addition , the 2014 credit agreement contains an expansion feature by which the company may borrow up to an additional $ 500.0 million in the aggregate under certain conditions . we believe that our consistently strong operating cash flow , as well as our existing cash balances and our available borrowing capacity under our 2014 credit agreement , provide us with adequate liquidity to meet our currently anticipated needs . however , should we need to borrow additional amounts , we believe we would be able to do so on reasonable terms . we had operating cash flow of $ 345.6 million in 2015. in addition , we also borrowed an additional $ 420.0 million on a net basis under our 2014 credit agreement . during 2015 we used $ 196.2 million in cash to acquire other businesses and we also used $ 509.0 million in cash to repurchase our common shares . we currently have a $ 1.2 billion board approved authorization to repurchase the company 's common stock , and as of december 31 , 2015 , approximately $ 1.1 billion of this authorization remains . we have historically generated significant cash flows from our operating activities . our operating cash flow has been continuously enhanced by the leverage characteristics of our subscription-based business model as well as our focus on operational efficiencies .