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operations at our u.k. salt mine were idled near the end of march 2020 through mid-may 2020 due to the very mild winter weather experienced in that market , along with u.k. government guidance on covid-19 preventative measures . during 2020 , we also experienced an impact to some of our sales channels due to manufacturing outages and retail disruptions related to covid-19 , primarily for our non-deicing salt products . in total , we estimate that the combined impact of lost sales and incremental operating costs related to the covid-19 pandemic totaled approximately $ 10 million on a year-to-date basis . 39 2020 form 10-k compass minerals international , inc. supply chain and logistics : to date , we have e xperienced no material supply chain or logistics issues related to covid-19 . we continue to evaluate potential supply chain and logistics impacts , proactively increase inventory levels of critical sourced inputs and identify secondary suppliers where possible . both our operations and our logistics partners are deemed “ essential ” under current governmental guidance , and we have worked to ensure we understand and comply with their safety precautions to limit potential disruptions . the ultimate impact that covid-19 will have on our future results is unknown at this time . for more information , see “ part i , item 1a , risk factors . ” consolidated results of operations * refer to “ —reconciliation of net earnings to ebitda and adjusted ebitda ” for a reconciliation to the most directly comparable gaap financial measure and the reasons we use this non-gaap measure . consolidated results commentary : 2019 – 2020 total sales decreased $ 117.0 million , due to a decrease in the salt and plant nutrition south america segments , partially offset by an increase in the plant nutrition north america segment . operating earnings decreased 14 % , or $ 23.1 million , due to lower operating earnings in our salt and plant nutrition north america segments and higher corporate expenses . diluted earnings per share decreased 5 % , or $ 0.09. ebitda * adjusted for items management believes are not indicative of our ongoing operating performance ( “ adjusted ebitda ” ) * decreased 8 % , or $ 24.4 million . consolidated results commentary : 2018 – 2019 total sales decreased $ 3.1 million , due to a decrease in both plant nutrition businesses , partially offset by an increase in the salt segment . operating earnings increased 26 % , or $ 33.3 million , due to higher operating earnings in our salt segment , which was partially offset by lower operating earnings in both of our plant nutrition businesses . diluted earnings per share decreased 10 % , or $ 0.21. adjusted ebitda * increased 12 % , or $ 32.5 million . 40 2020 form 10-k compass minerals international , inc. gross profit & gross margin commentary : 2019 – 2020 gross profit : decreased 7 % , or $ 24.5 million ; gross margin was 23 % in both periods salt segment gross profit decreased $ 8.8 million primarily due to lower sales volumes , which were partially offset by higher average sales prices and lower logistics costs ( see “ —operating segment performance—salt ” for additional information ) . gross profit for the plant nutrition businesses , on a combined basis , decreased $ 16.5 million . plant nutrition north america segment gross profit decreased $ 13.3 million primarily due to lower average sales prices and higher product costs including an inventory adjustment of $ 7.4 million related to an overstatement of bulk sop stockpiles , feedstock inconsistency and unplanned downtime at our ogden facility , partially offset by higher sales volumes . plant nutrition south america segment gross profit decreased $ 3.2 million primarily due to a weaker brazilian real compared to the u.s. dollar , which was partially offset by higher agricultural product sales volumes . gross profit & gross margin commentary : 2018 – 2019 gross profit : increased 15 % , or $ 42.9 million ; gross margin increased 3 percentage points to 23 % from 20 % salt segment gross profit increased $ 54.0 million primarily due to higher average sales prices , which were partially offset by lower sales volumes , increased per-unit shipping and handling costs and higher product costs ( see “ —operating segment performance—salt ” for additional information ) . the plant nutrition business , on a combined basis , decreased $ 10.7 million . plant nutrition north america segment gross profit decreased $ 1.8 million primarily due to lower sales volumes and higher per-unit shipping and handling costs due to an unfavorable geographic sales mix , partially offset by improved per-unit product costs . plant nutrition south america segment gross profit decreased $ 8.9 million primarily due to higher raw material costs , lower chemical solutions product prices and a weaker brazilian real compared to the u.s. dollar . other expenses and income commentary : 2019 – 2020 sg & a : decreased $ 1.4 million ; increased 0.9 percentage points as a percentage of sales to 12.5 % from 11.6 % the reduction in sg & a expense was primarily due to lower travel expenses due to covid-19 , which was partially offset by higher corporate incentive compensation and higher corporate depreciation expense . interest expense : increased $ 2.8 million to $ 71.2 million the increase was primarily due to an increase in interest rates due to the refinancing of our debt in the fourth quarter of 2019 , which was partially offset by lower debt levels . net earnings in equity investee : increased from $ 0.7 million to $ 1.4 million net earnings in our equity investee increased by $ 0.7 million to $ 1.4 million due to higher sales volumes . story_separator_special_tag we have been able to manage our cash flows generated and used across compass minerals to permanently reinvest earnings in our foreign jurisdictions or efficiently repatriate those funds to the u.s. as of december 31 , 2020 , we had $ 14.8 million of cash and cash equivalents ( in our consolidated balance sheets ) that was either held directly or indirectly by foreign subsidiaries . due in large part to the seasonality of our deicing salt business , we have experienced large changes in our working capital requirements from quarter to quarter . historically , our working capital requirements have been the highest in the fourth quarter and lowest in the second quarter . when needed , we fund short-term working capital requirements by accessing our $ 300 million revolving credit facility . we have historically considered the undistributed earnings of our foreign subsidiaries to be permanently reinvested . in december 2017 , however , u.s. tax reform legislation was enacted , which included a one-time mandatory tax on previously deferred foreign earnings . as such , we revised our permanently reinvested assertion and we now expect to repatriate approximately $ 150 million of unremitted foreign earnings on which $ 4.3 million of income tax expense has been recorded for foreign withholding tax and state income taxes , consisting of $ 0.9 million recorded in 2019 and $ 3.4 million recorded in 2018. all of our non-u.s. undistributed earnings through december 31 , 2017 , were subject to the one-time mandatory tax for which we recorded a net tax expense of $ 52.1 million , which is comprised of tax expense of $ 55.2 million in 2017 offset by a benefit of $ 3.1 million in 2018. due to our ability to generate adequate levels of u.s. cash flow on an annual basis , it is our current intention to continue to reinvest the remaining undistributed earnings of our foreign subsidiaries indefinitely . we review our tax circumstances on a regular basis with the intent of optimizing cash accessibility and minimizing tax expense . as of december 31 , 2020 , we have $ 213.6 million of outside basis differences for which no deferred taxes have been recorded . see item 8 , note 8 to our consolidated financial statements for a discussion regarding u.s. tax reform . in addition , the amount of permanently reinvested foreign earnings is influenced by , among other things , the profits generated by our foreign subsidiaries and the amount of investment in those same subsidiaries . the profits generated by our u.s. and foreign subsidiaries are impacted by the transfer price charged on the transfer of our products between them . as discussed in item 8 , note 8 to our consolidated financial statements , our calculated transfer price on certain products between one of our foreign subsidiaries and a domestic subsidiary has been challenged by canadian federal and provincial governments . during 2018 , in accordance with the settlement agreement , our u.s. subsidiary made intercompany cash payments of $ 85.7 million to our canadian subsidiary and tax payments were made to canadian taxing authorities of $ 17.5 million . additional tax payments of $ 5.3 million were made during 2019 with the remaining liability of $ 1.4 million expected to be paid in 2021. corresponding tax refunds of $ 22.2 million have been received as of december 31 , 2020 , from u.s. taxing authorities with the remaining refund of approximately $ 0.9 million expected in 2021. additionally during 2018 , we reached a settlement agreement on transfer pricing and management fees as part of an advanced pricing agreement with federal canadian and u.s. tax authorities covering our 2013-2021 tax years . the recording of this settlement in 2018 resulted in increased sales for our canadian subsidiary of $ 106.1 million and offsetting expenses for our u.s. subsidiary causing a domestic loss and significant foreign income in 2018. during 2019 , in accordance with the settlement agreement , our u.s. subsidiary made an intercompany cash payment of $ 106.1 million to our canadian subsidiary and tax payments were made to canadian taxing authorities of $ 29.9 million with the remaining $ 1.4 million balance paid during 2020. corresponding tax refunds of $ 59.7 million have been received as of december 31 , 2020 , from u.s. taxing authorities , with the remaining refund of $ 1.9 million expected in 2021. canadian provincial taxing authorities continue to challenge our transfer prices of certain items . the final resolution of these challenges may not occur for several years . we currently expect the outcome of these matters will not have a material impact on our results of operations . however , it is possible the resolution could materially impact the amount of earnings attributable to our foreign subsidiaries , which could impact the amount of permanently reinvested foreign earnings . see item 8 , note 8 to our consolidated financial statements for a discussion regarding our canadian tax reassessments and settlements . principally due to the nature of our deicing business , our cash flows from operations have historically been seasonal , with the majority of our cash flows from operations generated during the first half of the calendar year ( see “ —seasonality ” for more information ) . when we have not been able to meet our short-term liquidity or capital needs with cash from operations , whether as a result of the seasonality of our business or other causes , we have met those needs with borrowings under our revolving credit facility . we expect to meet the ongoing requirements for debt service , any declared dividends and capital expenditures 46 2020 form 10-k compass minerals international , inc. from these sources . this , to a certain extent , is subject to general economic , financial , competitive , legislative , regulatory and other factors that are beyond our control . the table below provides a summary our

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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 any inability 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 item 8 , note 10 to our consolidated financial statements , at december 31 , 2020 , we had $ 1.41 billion of outstanding indebtedness consisting of $ 250.0 million under our 4.875 % notes , $ 500.0 million under our 6.75 % notes , $ 520.3 million of borrowings outstanding under our senior secured credit facilities ( consisting of term loans and a revolving credit facility ) , including $ 130.3 million borrowed against our revolving credit facility , and $ 92.8 million of debt related to our plant nutrition south american segment in brazil . letters of credit totaling $ 12.5 million as of december 31 , 2020 , reduced available borrowing capacity under the revolving credit facility to $ 157.2 million .

our home sales revenues and closings by division for the years ended december 31 , 2016 and 2015 were as follows ( dollars in thousands ) : replace_table_token_7_th home sales revenues for the year ended december 31 , 2016 were $ 838.3 million , an increase of $ 208.1 million , or 33.0 % , from $ 630.2 million for the year ended december 31 , 2015 . the increase in home sales revenues is primarily due to a 22.3 % increase in homes closed and an increase in the average selling price per home during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . we closed 4,163 homes during 2016 , as compared to 3,404 homes closed during 2015 . this increase in home closings was largely due to the increase in the number of active communities in 2016 . the average selling price per home closed during the year ended december 31 , 2016 was $ 201,374 , an increase of $ 16,228 , or 8.8 % , from the average selling price per home of $ 185,146 for the year ended december 31 , 2015 . this increase in the average selling price per home was primarily due to changes in product mix , higher price points in certain new markets and a favorable pricing environment . cost of sales and gross margin ( home sales revenues less cost of sales ) . cost of sales increased for the year ended december 31 , 2016 to $ 616.7 million , an increase of $ 153.4 million , or 33.1 % , from $ 463.3 million for the year ended december 31 , 2015 . this increase is primarily due to a 22.3 % increase in homes closed during 2016 as compared to 2015 as well as changes in our product mix and higher price points in certain new markets . gross margin for the year ended december 31 , 2016 was $ 221.6 million , an increase of $ 54.7 million , or 32.8 % , from $ 166.9 million for the year ended december 31 , 2015 . gross margin as a percentage of home sales revenues was 26.4 % for the year ended december 31 , 2016 and 26.5 % for the year ended december 31 , 2015 . the gross margin as a percentage of home sales revenues remained relatively consistent year over year , decreasing slightly as a result of increased construction costs , overall higher lot costs and higher carrying costs ( including capitalized interest ) attributed to closed homes offset by higher average home sales prices for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . selling expenses . selling expenses as a percentage of home sales revenues were 8.0 % and 8.4 % for the years ended december 31 , 2016 and 2015 , respectively . the decrease of selling expenses as a percentage of home sales revenues in 2016 was primarily due to leveraging our marketing spend and advertising during 2016 as compared to 2015 . selling expenses for the year ended december 31 , 2016 were $ 67.0 million , an increase of $ 14.0 million , or 26.4 % , from $ 53.0 million for the year ended december 31 , 2015 . sales commissions increased to $ 31.1 million for the year ended december 31 , 2016 from $ 25.1 million during 2015 largely due to a 22.3 % increase in homes closed during 2016 as compared to 2015 . advertising and direct mail costs increased to $ 11.3 million during the year ended december 31 , 2016 from $ 9.3 million for year ended december 31 , 2015 primarily due to the increase in the number of active communities in 2016 as compared to 2015 . general and administrative . general and administrative expenses as a percentage of home sales revenues were 5.1 % and 5.4 % for the years ended december 31 , 2016 and 2015 , respectively . the decrease in general and administrative expenses as a percentage of home sales revenues in 2016 reflects improved leverage realized from the increase in home sales revenues in 2016 . general and administrative expenses for the year ended december 31 , 2016 were $ 43.2 million , an increase of $ 8.9 million , or 26.0 % , from $ 34.3 million for the year ended december 31 , 2015 . the increase in the amount of general and administrative expenses during 2016 as compared to 2015 is primarily attributable to additional employees added and expenses incurred to support the increased number of active communities and the higher number of home closings . other income . other income , net of other expenses was $ 2.2 million for the year ended december 31 , 2016 , an increase of $ 1.6 million from $ 0.6 million for the year ended december 31 , 2015 . other income includes $ 1.0 million and $ 0.2 million from the sales of lots in 2016 and 2015 , respectively . operating income and net income . operating income for the year ended december 31 , 2016 was $ 111.5 million , an increase of $ 31.8 million , or 39.9 % , from $ 79.7 million for the year ended december 31 , 2015 . net income for the year ended december 31 , 2016 was $ 75.0 million , an increase of $ 22.2 million , or 42.0 % , from $ 52.8 million for the year ended december 31 , 2015 . the 33 increases are primarily attributed to a 22.3 % increase in homes closed , a higher average sales price and improved leverage realized during 2016 as compared to 2015 . year ended december 31 , 2015 compared to the year ended december 31 , 2014 homes sales . story_separator_special_tag the a & r credit agreement requires us to maintain a tangible net worth of not less than $ 202.5 million plus ( i ) 75 % of the net proceeds of any equity issuances and ( ii ) 50 % of the amount of our net income in any fiscal quarter after the date of the a & r credit agreement , a leverage ratio of not greater than 67.5 % , liquidity of at least $ 40.0 million and a ratio of ebitda to interest expense for the most recent four quarters of at least 2.50 to 1.0 . the a & r credit agreement contains various covenants that , among other restrictions , limit the amount of our additional debt and our ability to make certain investments . at december 31 , 2016 , we were in compliance with all of the covenants contained in the a & r credit agreement . on february 28 , 2017 , borrowing commitments of our lender group under the a & r credit agreement were increased by $ 15.0 million to $ 400.0 million in accordance with the accordion feature of the a & r credit agreement . convertible notes in november 2014 , we issued $ 85.0 million aggregate principal amount of our 4.25 % convertible notes due 2019 ( the “ convertible notes ” ) . the convertible notes mature on november 15 , 2019 and bear interest at a rate of 4.25 % , payable semiannually in may and november . prior to may 15 , 2019 , the convertible notes will be convertible only upon satisfaction of any of the specified conversion events . on or after may 15 , 2019 , note holders can convert their convertible notes at any time at their option . on april 30 , 2015 , our stockholders approved the flexible settlement provisions of the convertible notes which allows us to settle the conversion of the convertible notes using any combination of cash and shares of our common stock . it is our intent , and we believe we have the ability , to settle in cash the conversion of any convertible notes that the holders elect to convert . the initial conversion rate of the convertible notes is 46.4792 shares of our common stock for each $ 1,000 principal amount of convertible notes , which represents an initial conversion price of approximately $ 21.52 per share of our common stock . the conversion rate is subject to adjustments upon the occurrence of certain specified events . at december 31 , 2016 , the convertible notes became convertible because the closing sales price of our common stock was greater than 130 % of the $ 21.52 conversion price on at least 20 trading days during the 30 trading day period ending december 37 31 , 2016 . as a result , the holders of the convertible notes may elect to convert some or all of their convertible notes in accordance with the terms and provisions of the indenture governing the convertible notes during the conversion period of january 1 , 2017 through march 31 , 2017 ( inclusive ) . as of the date of the filing of this annual report on form 10-k , none of the holders of the convertible notes have elected to convert their convertible notes . the issuance of our convertible notes was recorded at the issuance date fair value of $ 76.5 million . the fair value was determined using a discount rate of 6.6 % based on the rate of return investors would require for a similar liability , reflecting an $ 8.5 million discount . $ 5.5 million of the remaining proceeds was recorded to additional paid-in capital to reflect the equity component of the convertible notes and $ 3.0 million was recorded as a deferred tax liability . the carrying amount of the convertible notes is being accreted over the term to maturity . the net proceeds from the offering of the convertible notes was approximately $ 82.0 million . of the $ 3.0 million of debt issuance costs , $ 2.7 million was allocated to the liability component and the remaining $ 0.3 million was allocated as an offset to the equity component of the convertible notes . at december 31 , 2016 , notes payable in our accompanying consolidated financial statements include $ 78.2 million representing the accreted principal amount of the convertible notes . concurrent with the issuance of the convertible notes , we utilized , approximately $ 16.6 million of the net proceeds from the sale of the convertible notes to repurchase 1.0 million shares of our common stock held as treasury stock . the remaining net proceeds from issuance of the convertible notes were used for the purchase of land and lots and general corporate purposes , including repayment of borrowings under our revolving credit facility . letters of credit , surety bonds and financial guarantees we are often required to provide letters of credit and surety bonds to secure our performance under construction contracts , development agreements and other arrangements . the amount of such obligations outstanding at any time varies in accordance with our pending development activities . in the event any such bonds or letters of credit are drawn upon , we would be obligated to reimburse the issuer of such bonds or letters of credit . under these letters of credit , surety bonds and financial guarantees , we are committed to perform certain development and construction activities and provide certain guarantees in the normal course of business . outstanding letters of credit , surety bonds and financial guarantees under these arrangements , totaled $ 29.8 million as of december 31 , 2016 . although significant development and construction activities have been completed related to the improvements at these sites , the letters of credit and surety bonds are not generally released until all development and construction activities are completed . we

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cash flows year ended december 31 , 2016 compared to year ended december 31 , 2015 net cash used in operating activities during the year ended december 31 , 2016 was $ 108.2 million as compared to $ 89.2 million during the year ended december 31 , 2015 . the $ 19.0 million increase in net cash used in operating activities was primarily attributable to a $ 32.2 million net increase in our investment in real estate inventory for 2016 as compared to 2015 . the increase in net cash used in operating activities between periods also reflects a $ 22.2 million increase in net income , and $ 21.7 million increase in accounts payable , and accrued expenses and other liabilities during the year ended december 31 , 2016 , as a result of our continued growth and the increased number of our active communities . net cash used in investing activities during the year ended december 31 , 2016 was $ 0.7 million as compared to $ 1.1 million used in investing activities during the year ended december 31 , 2015 and reflects the purchase of property and equipment . net cash provided by financing activities totaled $ 120.9 million during the year ended december 31 , 2016 as compared to $ 96.5 million during the year ended december 31 , 2015 .

the financial results of xpedx have been presented on a carve-out basis through the distribution date , while the financial results for veritiv , post spin-off , are prepared on a stand-alone basis . as such , the audited consolidated and combined financial statements as of and for the year ended december 31 , 2014 consist of the consolidated results of veritiv on a stand-alone basis for the six months ended december 31 , 2014 and the combined results of operations of xpedx for the six months ended june 30 , 2014 on a carve-out basis . for periods prior to the spin-off , the combined financial statements include expense allocations for certain functions previously provided by international paper . see note 1 of the notes to consolidated and combined financial statements for further information . results of operations , including business segments the following discussion compares the consolidated and combined operating results of veritiv for the years ended december 31 , 2016 , 2015 and 2014 . comparison of the years ended december 31 , 2016 , 2015 and 2014 replace_table_token_4_th * - not meaningful net sales 2016 compared to 2015 : net sales declined by $ 391.1 million , or 4.5 % , primarily due to declines in the print and publishing reportable segments . see the “ segment results ” section for additional discussion . 2015 compared to 2014 : net sales increased due primarily to the net sales contribution of $ 1,798.8 million , or 24.3 % , from the merger . excluding the impact of the merger , net sales declined by $ 487.6 million , or 6.6 % , due to declines in 28 the print , publishing and facility solutions reportable segments . effective january 1 , 2016 , the company harmonized its shipping terms to be f.o.b . destination . previously , certain revenue transactions for the legacy xpedx business were designated as f.o.b . shipping point . management determined that any shipments in transit at december 31 , 2015 would honor the f.o.b . destination terms resulting in a reduction of $ 27.0 million in net sales for the year ended december 31 , 2015. this change in shipping terms primarily impacts the print and publishing segments as they have a larger percentage of revenue derived from direct shipment from the supplier to the customer . cost of products sold 2016 compared to 2015 : cost of products sold decreased by $ 333.9 million , or 4.7 % , primarily due to the decline in sales as previously discussed . see the “ segment results ” section for additional discussion . 2015 compared to 2014 : cost of products sold increased due primarily to incremental costs of $ 1,456.3 million , or 23.6 % , attributable to the merger . this increase was partially offset by a $ 476.9 million , or 7.7 % , decrease in cost of products sold primarily driven by a decline in sales as previously discussed . the above-noted change in shipping terms resulted in a reduction to cost of products sold of $ 24.4 million for the year ended december 31 , 2015. distribution expenses 2016 compared to 2015 : distribution expenses decreased by $ 16.7 million or 3.2 % . the decline was mainly driven by ( i ) a $ 6.3 million decrease in facilities expenses due primarily to warehouse consolidations , ( ii ) a $ 5.9 million decrease in personnel costs due primarily to reductions in temporary employee expense , and ( iii ) a $ 5.3 million decrease in vehicle operating expenses primarily driven by reductions in third party freight expense and fuel . 2015 compared to 2014 : distribution expenses increased due primarily to incremental expenses of $ 121.8 million , or 28.6 % , attributable to the merger . excluding the impact of the merger , distribution expenses decreased by $ 26.2 million , or 6.1 % . the decline was driven by ( i ) a $ 16.8 million decrease in vehicle operation expenses due primarily to reductions in fuel and third-party freight expenses , ( ii ) a $ 4.7 million decrease in facilities expenses primarily driven by warehouse consolidations , ( iii ) a $ 1.8 million decrease in personnel costs due to lower sales volumes , ( iv ) a $ 1.1 million decrease in temporary labor and ( v ) a $ 1.8 million decrease in various other expenses . selling and administrative expenses 2016 compared to 2015 : selling and administrative expenses decreased by $ 27.7 million or 3.2 % . the decrease was primarily attributed to ( i ) a $ 11.2 million decrease in commission expense due in part to lower sales volume and ( ii ) a $ 13.6 million decrease in incentive compensation . in 2013 , xpedx advanced funds to commissioned sales representatives to compensate them for a change in the timing of commission payments . during 2016 , the company recovered $ 6.0 million of those advances which further reduced commission expense . these decreases were partially offset by $ 5.8 million of impairment charges attributable to the publishing and print segment 's customer relationship intangible assets . 2015 compared to 2014 : selling and administrative expenses increased due primarily to incremental expenses of $ 194.7 million , or 28.3 % , from the merger . excluding the impact of the merger , selling and administrative expenses decreased by $ 29.9 million , or 4.3 % . story_separator_special_tag replace_table_token_12_th the table below presents the components of the net sales change compared to the prior year : replace_table_token_13_th comparison of the years ended december 31 , 2016 and december 31 , 2015 the net sales decrease was primarily attributable to ( i ) foreign currency effects , ( ii ) strategic decisions to exit certain unprofitable customer relationships in 2015 and ( iii ) pricing pressure . the adjusted ebitda improvement was primarily due to ( i ) a $ 2.3 million decrease in commissions due to lower sales volume , ( ii ) a $ 2.1 million improvement attributable to cost of products sold decreasing at a faster rate than net sales due to improved sourcing , ( iii ) a $ 0.7 million decrease in bad debt expense due to favorable collections experience and ( iv ) a $ 0.5 million reduction in selling and administrative personnel costs . comparison of the years ended december 31 , 2015 and december 31 , 2014 the net sales increase is due primarily to the net sales contribution of $ 288.0 million from the merger . excluding the impact of changes in foreign currency exchange rates and the merger , net sales decreased 4.2 % , primarily due to the loss of four large customers . the change in shipping terms discussed previously resulted in a $ 1.3 million reduction in 2015 revenue . adjusted ebitda increased by $ 12.3 million as a result of the merger . excluding the merger , adjusted ebitda decreased by $ 4.2 million due to ( i ) a $ 11.3 million decrease due to the reduction in sales volume , ( ii ) a $ 4.7 million increase in personnel costs , which was partially attributable to a $ 2.9 million increase in commission expense due to the change in the sales commission allocations to the segments and ( iii ) a $ 1.7 million increase in various other expenses . these drivers were partially offset by ( i ) an $ 8.7 million decrease in distribution expenses due to lower sales volumes and ( ii ) a $ 4.8 million impact attributable to cost of goods sold decreasing at a faster rate than sales . corporate & other comparison of the years ended december 31 , 2016 and december 31 , 2015 net sales increased $ 8.6 million , or 7.7 % , due to continued growth in freight brokerage services . the adjusted ebitda improvement was primarily due to ( i ) the $ 6.0 million recovery of commission advances and ( ii ) a $ 2.5 million decrease in corporate personnel costs mainly attributable to a reduction in incentive compensation . 35 comparison of the years ended december 31 , 2015 and december 31 , 2014 the net sales increase is due to the net sales contribution of $ 50.5 million from the merger and continued growth in logistics services . adjusted ebitda decreased by $ 49.8 million as a result of the merger . excluding the merger , adjusted ebitda improved by $ 14.9 million . this improvement was attributable to ( i ) a $ 12.9 million decrease in personnel costs driven by restructuring initiatives , ( ii ) a $ 4.6 million reduction in allocated expenses from international paper and ( iii ) a $ 1.8 million increase due to higher logistics services sales . the improvement was partially offset by ( i ) a $ 1.4 million increase in outsourced services driven by the outsourcing of payroll services , ( ii ) a $ 0.8 million increase in distribution expenses and ( iii ) a $ 2.2 million increase in various other expenses . story_separator_special_tag the abl facility has a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing four-quarter basis , which will be tested only when specified availability is less than limits outlined under the abl facility . at december 31 , 2016 the above test was not applicable and is not expected to be applicable in the next 12 months . availability under the abl facility is determined based upon a monthly borrowing base calculation which includes eligible customer receivables and inventory , less outstanding borrowings , letters of credit and certain designated reserves . as of december 31 , 2016 , the available additional borrowing capacity under the abl facility was approximately $ 429.9 million . under the terms of the abl facility , interest rates are based upon libor or the prime rate plus a margin rate , or in the case of canada , a banker 's acceptance rate or base rate plus a margin rate . at both december 31 , 2016 and december 31 , 2015 , the weighted-average borrowing interest rate was 2.5 % . on november 23 , 2016 , the uwwh stockholder , one of veritiv 's existing stockholders and the former parent company of unisource , sold 1.76 million shares of veritiv common stock in an underwritten public offering . veritiv did not receive any of the proceeds . concurrently with the closing of the offering , veritiv repurchased 0.31 million of these offered shares from the underwriters at a price of $ 42.8625 per share , which is the price at which the underwriters purchased such shares from the selling stockholder , for an aggregate purchase price of approximately $ 13.4 million . in conjunction with these transactions , veritiv incurred approximately $ 0.8 million in transaction-related fees , of which approximately $ 0.2 million was recorded as part of the cost to acquire the treasury stock and the remainder was included in selling and administrative expenses on the consolidated and combined statements of operations . veritiv 's ability to fund its capital needs will depend on its ongoing ability to generate cash from operations , borrowings under the abl facility and funds received from capital markets offerings . if veritiv 's cash flows from operating activities

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liquidity and capital resources the cash requirements of the company are provided by cash flows from operations and borrowings under the abl facility . the following table sets forth a summary of cash flows : replace_table_token_14_th analysis of cash flows the company ended 2016 with $ 69.6 million in cash , an increase of $ 15.2 million during the year . the increase in cash was primarily due to improved cash flow from operating activities of $ 140.2 million in 2016 , compared with $ 113.0 million in 2015. the factors driving the increase in cash flow from operating activities were : ( i ) a $ 69.9 million increase in accounts payable and related party payable , ( ii ) a $ 14.3 million increase in other operating activities and ( iii ) a $ 13.1 million reduction in inventories . the increase in cash from operating activities was partially offset by : ( i ) lower net income , ( ii ) a $ 40.9 million decrease in accrued payroll and benefits , ( iii ) a $ 14.7 million increase in accounts receivable and related party receivable , ( iv ) an $ 11.4 million increase in other current assets and ( v ) a $ 3.6 million decrease in other accrued liabilities . the company also generated $ 18.9 million in positive cash flow from an increase in book overdrafts and $ 6.6 million related to proceeds from asset sales .

analyses of study patients ' microbiome data , a co-primary study endpoint of the trial , demonstrated that ser-287 induced dose-dependent engraftment of ser-287-derived bacterial species into the colonic microbiome of the patients treated with ser-287 . patients administered vancomycin pre-treatment followed by daily administration of ser-287 had the highest level of ser-287 engraftment , which was statistically significant . this patient cohort corresponded with the study arm where the most significant clinical benefits were observed , including clinical remission and endoscopic improvement . differences in the composition of the microbiome post treatment were also associated with clinical remission . bacterial engraftment signatures were durable throughout the dosing period of the trial and were also observed at four weeks post administration of the final ser-287 dose . the pharmacologic impact of the ser-287 engraftment was supported by metabolomic and transcriptomic data . analysis of metabolites and gene expression signatures associated with inflammation and immune modulation , were observed to be correlated with remission in ser-287 treated subjects . 72 in december 20 18 , we initiated our phase 2b trial , eco-reset , evaluating ser-287 in patients with active mild-to-moderate ulcerative colitis . based on feedback obtained from the fda on the ser-287 phase 2b study design , we believe that the study could serve as one of tw o required pivotal trials supporting potential future registration of ser-287 . the phase 2 b study is a three-arm placebo-controlled trial of approximately 200 patients with active mild-to-moderate uc . two groups of patients will receive different doses of ser-287 , both following pretreatment with a short course of oral vancomycin . a third study arm will receive placebo . the study 's primary endpoint will evaluate clinical remission measured after 10 weeks of ser-287 administration . endoscopic improvement wil l be measured as a secondary efficacy measure . we expect to complete study enrollment by mid-2020 . in june 2017 we initiated a phase 3 clinical study of ser-109 , termed ecospor iii , in approximately 320 patients with multiply recurrent cdi . based on analysis of the available clinical , microbiome , and chemistry , manufacturing and control data from our phase 1b and phase 2 clinical studies of ser-109 , diagnosis of cdi for both study entry and for endpoint analysis will be confirmed by c. difficile cytotoxin assay , rather than polymerase chain reaction , or pcr , which was used in the prior studies . patients in the ser-109 arm will receive a total ser-109 dose , administered over three days , approximately 10-fold higher than the dose used in the phase 2 clinical study . the study will evaluate patients for 24 weeks and the primary endpoint will compare the cdi recurrence rate in subjects who receive ser-109 verses placebo at up to eight weeks after dosing . ecospor iii enrolment continues to progress , with over 100 sites open across the united states and canada . several factors have impacted study enrollment , including the c. difficile cytotoxin test required for diagnosis , which has screened out some individuals who might otherwise have been included had we used pcr-based testing , and the widespread availability of unapproved and unregulated fecal microbiota transplantation . we continue to add and implement various operational measures to expedite study enrollment . additionally , we are considering alternatives , including study design modification , to expedite the availability of clinical results . we have initiated a phase 1b clinical study with our collaborators at md anderson cancer center , or md anderson , and the parker institute for cancer immunotherapy , or the parker institute , of ser-401 , a donor derived microbiome therapy designed to replicate the bacterial signature found in the approximately one third of patients who have a robust response to anti-pd-1 therapy . ser-401 is designed to modify the cancer immune set point and meaningfully improve patients ' response to checkpoint inhibitor therapy . the scientific basis for ser-401 is supported by published findings from our collaborator , dr. jennifer wargo of md anderson , indicating that a specific set of bacteria in the gastrointestinal microbiome can have an important role in determining the immunological response to checkpoint inhibitor therapy . our own preclinical research has extended these findings and continues to ascertain how specific bacterial species impact the response to checkpoint inhibitors . these data demonstrate the strong role of specific bacterial species in anti-tumor response to anti-pd-1 therapy and on the impact of the microbiome the immune system and on specific t cell classes , including cd8 and t regulatory cells . we continue to evaluate microbiome pharmacokinetic and pharmacodynamic data from the ser-262 phase 1b study and other completed clinical trials , in addition to insights gained from preclinical research efforts with our other rationally designed ecobiotic microbiome therapeutic candidates , in order to determine future steps in the development of both ser-262 and ser-155 . while we plan to focus our investment on our highest priority clinical programs in the near-term , our expenses may increase substantially in connection with our ongoing and planned activities , particularly as we : continue the clinical development of ser-109 , our lead product candidate , in the phase 3 clinical study ; continue the clinical development of ser-287 for the treatment of uc ; continue the clinical development of ser-401 , a microbiome therapeutic candidate for use with cpis in a phase 1b clinical trial in patients with metastatic melanoma ; conduct research and continue preclinical development of ser-301 , our rationally designed ibd product candidate ; make strategic investments in manufacturing capabilities ; maintain and augment our intellectual property portfolio and opportunistically acquire complementary intellectual property ; potentially establish a sales and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which we may obtain regulatory approval ; perform our obligations under the license and collaboration agreement with nestec ltd. , or nhs ; seek to obtain regulatory approvals for our product story_separator_special_tag under asc 605 , the upfront fee of $ 120,000 received by the company in the first quarter of 2016 was deferred and recognized on a straight-line basis over the estimated performance period of ten years . in addition , the company recognized revenue associated with substantive development milestones not considered probable at the inception of the license agreement with nhs in their entirety in the period in which the milestone was achieved , in accordance with asc 605-28 , revenue recognition-milestone method . 77 the cumulative effect of applying the new guidance to all contracts with customers that were not completed as of january 1 , 2018 , was recorded as an adjustment to the opening balance of accumulated deficit for 2018 , with an associated impact to deferred revenue , as of the adoption date as follows : replace_table_token_3_th further , the impact of adoption to our current year results in the consolidated statements of operations and comprehensive loss is as follows : replace_table_token_4_th finally , the impact of the adoption to our current year consolidated statements of cash flows is as follows : year ended december 31 , 2018 as reported under asc 606 pro forma as if accounted for under asc 605 net loss $ ( 98,942 ) $ ( 73,662 ) deferred revenue $ 13,476 ( 11,804 ) collaboration revenue arrangements with collaborators may include licenses to intellectual property , research and development services , manufacturing services for clinical and commercial supply , and participation on joint steering committees . we evaluate the promised goods or services to determine which promises , or group of promises , represent performance obligations . in contemplation of whether a promised good or service meets the criteria required of a performance obligation , we consider the stage of development of the underlying intellectual property , the capabilities and expertise of our customer relative to the underlying intellectual property , and whether the promised goods or services are integral to or dependent on other promises in the contract . when accounting for an arrangement that contains multiple performance obligations , we must develop judgmental assumptions , which may include market conditions , reimbursement rates for personnel costs , development timelines and probabilities of regulatory success to determine the stand-alone selling price for each performance obligation identified in the contract . when we conclude that a contract should be accounted for as a combined performance obligation and recognized over-time , we must then determine the period over which revenue should be recognized and the method by which to measure revenue . we generally recognize revenue using a cost-based input method . licenses of intellectual property if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenue allocated to the license when the license is transferred to our customer and our customer is able to use and benefit from the license . for licenses that are bundled with other promises , we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue associated with the bundled performance obligation . we evaluate the measure of progress each reporting period and , if necessary , adjust the measure of progress and related revenue recognition . 78 milestone payments at the inception of each arrangement that includes developmental and regulatory milestone payments , we evaluate whether the achievement of each milestone specifically relates to our efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation . if the achievement of a milestone is considered a direct result of our efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone , the associated milestone value is allocated to that distinct good or service , otherwise it will be allocated to all performance obligations of the arrangement based on the initial allocation . we evaluate each milestone to determine when and how much of the milestone to include in the transaction price . we first estimate the amount of the milestone payment that we could receive using either the expected value or the most likely amount approach . we primarily use the most likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome . then , we consider whether any portion of that estimated amount is subject to the variable consideration constraint ( that is , whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty . ) we update the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances . royalties for arrangements that include sales-based royalties , including milestone payments based on the level of sales , and the license is deemed to be the predominant item to which the royalties relate , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . to date , we have not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales . manufacturing supply services for arrangements that include a promise of supply of clinical or commercial product , we determine if the supply is a promise in the contract or a future obligation at our customer 's option . if determined to be a promise at inception of the contract

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cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_13_th operating activities during the year ended december 31 , 2018 , operating activities used $ 62.9 million of cash , primarily due to a net loss of $ 98.9 million and partially offset by cash provided by changes in our operating assets and liabilities of $ 11.8 million and non-cash charges of $ 24.3 million . net cash provided by changes in our operating assets and liabilities during the year ended december 31 , 2018 consisted of a $ 13.5 million increase in deferred revenue , a $ 0.8 million increase in accrued expenses and other liabilities , offset in part by a $ 2.1 million decrease in prepaid expenses and other current assets . the increase in deferred revenue is due to the receipt of the $ 40 million milestone payments under the license agreement offset by recognition of collaboration revenue during the year . the increase in accrued expenses was due to the timing of payments . during the year ended december 31 , 2017 , operating activities used $ 75.5 million of cash , primarily due to a net loss of $ 89.4 million and cash used from changes in our operating assets and liabilities of $ 10.6 million , partially offset by non-cash charges of $ 24.4 million . net cash used by changes in our operating assets and liabilities during the year ended december 31 , 2017 consisted of a $ 0.9 million decrease in accounts payable and a $ 11.9 million decrease in deferred revenue , offset in part by a $ 2.2 million increase in accrued expenses and other liabilities .

and currency rate fluctuations . the factors identified above are believed to be important factors ( but not necessarily all of the important factors ) that could cause actual results to differ materially from those expressed in any forward-looking statement . unpredictable or unknown factors could also have material adverse effects on us . all forward-looking statements included in this form 10-k are expressly qualified in their entirety by the foregoing cautionary statements . except as required under the federal securities laws and the rules and regulations of the sec , we undertake no obligation to update , amend , or clarify forward-looking statements , whether as a result of new information , future events , or otherwise . overview we design , manufacture , market and sell furnishings and accessories , textiles , fine leathers , and felt , for the workplace and home . our commitment to innovation and modern design has yielded a comprehensive portfolio of products and a brand recognized for high quality and a sophisticated image . our products are targeted at the middle to upper end of the market and are sold primarily in north america and europe through a direct sales force and a broad network of independent dealers , showrooms , and retailers . during the past decade , we have diversified our sources of revenue among our various operating segments . in february , 2014 , we furthered our strategic ambition to expand our position in the high design , high margin residential space with the acquisition of holly hunt enterprises . this acquisition while immediately financially accretive also provides us considerable scale to build upon in the residential market and will be a platform for future growth . our efforts to diversify our sources of revenue among our operating segments have not distracted us from our continued efforts to grow and improve the operating performance of our office segment . our office sales and marketing teams introduced our perspective on moving the workplace forward . r/evolution workplace tm is our platform that acknowledges that there is no one office of the future and that the twenty-first century workplace poses only one constant : change . r/evolution workplace tm illustrates the freedom and opportunity commercial , healthcare , education and government organizations have to reimagine the workplace by exploring distinct planning approaches that address real estate , technology and people 's needs . we supported this sales and marketing initiative with the introduction of 2014 best of neocon award-winning designs , including the technologically advanced remix chair collection by formway design and the antenna ® telescope height-adjustable desks . these initiatives coupled with investments in our supply chain resulted in office segment sales growth of almost 10 % in 2014 with 110 basis point improvement in operating margin . 29 on a consolidated basis , during 2014 , we generated operating profit of $ 76.8 million , or 7.3 % of net sales , compared to operating profit of $ 41.4 million , or 4.8 % of net sales , during 2013. operating profit for 2014 includes a pension settlement and opeb curtailment charge of $ 6.5 million and restructuring charges of $ 1.5 million . operating profit for 2013 includes restructuring charges of $ 5.1 million and an $ 8.9 million intangible asset impairment charge . for further information regarding the pension settlement and opeb curtailment , see note 17. restructuring charges and the intangible asset impairment are further described in notes 21 and 22 , respectively . during 2014 , we generated net income of $ 46.6 million , or diluted earnings per share of $ 0.97 , compared to $ 23.2 million , or diluted earnings per share of $ 0.49 in 2013. we continued to aggressively manage our balance sheet during 2014. as of december 31 , 2014 , our bank leverage ratio was 2.41:1 , down from 3.21:1 as of the first quarter of 2014. the acquisition of holly hunt in the first quarter of 2014 added approximately $ 95.0 million of debt , however , our ebitda generation and debt pay down during 2014 enabled the de-leveraging of our business . at december 31 , 2013 , our leverage ratio was 2.23:1. the calculation of our leverage ratio under our credit facility includes the use of adjusted ebitda , a non-gaap financial measure . for details on the leverage ratio calculations , see `` reconciliation of non-gaap financial measures `` below . during 2014 and 2013 , we used free cash to pay dividends to our shareholders totaling $ 22.7 million and $ 22.5 million , respectively , or $ 0.48 per share . during 2014 , we also spent $ 41.6 million on capital expenditures . this represents an increase of $ 12.5 million when compared with $ 29.1 million in 2013. the increases in capital spending can be mainly attributed to our technology infrastructure upgrades with the implementation of a new enterprise resource planning system , site capacity and supply chain improvements , the opening of new showrooms , and new product development . according to our industry trade association , the business and institutional furniture manufacturer 's association , or bifma , industry sales and orders grew 4.5 % and 3.8 % , respectively , in 2014 when compared with 2013. bifma is currently forecasting 4.1 % and 4.2 % growth , respectively , in sales and orders for 2015. we expect sales to increase modestly in 2015 across all operating segments . story_separator_special_tag million due to changes in foreign exchange rates when compared to 2012. excluding the impact of $ 2.7 million of restructuring charges , adjusted operating profit for the office segment was $ 16.1 million in 2013 , an decrease of $ 36.1 million , or ( 69.1 ) % , when compared with 2012 . as a percent of net sales , excluding restructuring charges , office segment adjusted operating profit was 2.7 % for the year ended december 31 , 2013 and 8.1 % for the year ended december 31 , 2012 . net sales for the studio segment in 2013 were $ 154.1 million , an increase of $ 6.5 million , or 4.4 % , when compared with 2012 . sales growth in north america outpaced europe within the studio segment during 2013. studio segment sales in 2013 were negatively impacted by $ 0.8 million due to changes in foreign exchange rates when compared to 2012 . adjusted operating profit for the studio segment was $ 18.3 million , a decrease of $ 3.5 million , or 16.0 % when compared with 2012 . as a percentage of net sales , excluding restructuring charges , studio segment adjusted operating profit was 11.9 % for the year ended december 31 , 2013 and 14.8 % for the year ended december 31 , 2012 . net sales for the coverings segment in 2013 were $ 109.0 million , an increase of $ 2.4 million , or 2.3 % , when compared with 2012 . increased sales of our textiles products was the main cause of this increase . coverings segment sales in 2013 were positively impacted by $ 0.1 million due to changes in foreign exchange rates when compared to 2012. excluding the $ 8.9 million intangible asset impairment charge , adjusted operating profit for the coverings segment was $ 21.0 million , an increase of $ 3.5 million , or 20.1 % , when compared to 2012 . as a percentage of net sales , excluding the impairment charge , the coverings segment adjusted operating profit was 19.3 % for the year ended december 31 , 2013 and 16.4 % for the year ended december 31 , 2012 . 36 liquidity and capital resources the following table highlights certain key cash flows and capital information pertinent to the discussion that follows : replace_table_token_14_th historically , we have carried significant amounts of debt , and cash generated by operating activities has been used to fund working capital , capital expenditures , repurchase shares , pay quarterly dividends , and make payments of principal and interest on our indebtedness . our capital expenditures include new product tooling and manufacturing equipment . these capital expenditures support new products and continuous improvements in our manufacturing processes . in addition , our previously announced plan of strategic investments and initiatives , continued expenditures related to our technology infrastructure upgrades with the implementation of a new enterprise resource planning system , and costs associated with opening new showrooms increased capital spending in 2014. at december 31 , 2014 , cash held outside of the united states was $ 13.2 million . in february 2013 , we announced a three-year plan of strategic investments and initiatives intended to enable us to achieve our longer-term revenue and profitability goals . this plan increased capital expenditures in 2013 and 2014. story_separator_special_tag style= `` line-height:120 % ; font-size:10pt ; padding-left:24px ; `` > ( a ) contractual obligations for long-term debt and short-term borrowings include principal and interest payments . interest payments have been computed based on an estimated variable interest as of december 31 , 2014. the estimated variable interest rate is based on the company 's expected consolidated leverage ratio and the forecasted libor rate for each period presented . the computation of interest , as included in the above table , is based on our amended and restated credit agreement , dated may 20 , 2014 . ( b ) due to the uncertainty of future cash outflows , contributions to the other post-retirement benefit plans subsequent to 2015 have been excluded from the table above . ( c ) other long-term liabilities consists of a contingent payout due to holly hunt , which is based on the future performance of the business through fiscal year 2016 . * due to the uncertainty of future cash outflows , uncertain tax positions have been excluded from the table above . environmental matters our past and present business operations and the past and present ownership and operation of manufacturing plants on real property are subject to extensive and changing federal , state , local and foreign environmental laws and regulations , including those relating to discharges to air , water and land , the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances . as a result , we are involved from time-to-time in administrative and judicial proceedings and inquiries relating to environmental matters and could become subject to fines or penalties related thereto . we can not predict what environmental legislation or regulations will be enacted in the future , how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist . compliance with more stringent laws or regulations , or stricter interpretation of existing laws , may require additional expenditures by us , some of which may be material . we have been identified as a potentially responsible party pursuant to the comprehensive environmental response , compensation and liability act of 1980 ( `` cercla `` ) for remediation costs associated with waste disposal sites that we previously used . the remediation costs and our allocated share at some of these cercla sites are unknown . we may also be subject to claims for personal injury or contribution relating to cercla sites . we reserve amounts for such matters when expenditures are probable and reasonably estimable .

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cash provided by operating activities was $ 88.2 million in 2014 , $ 54.6 million in 2013 , and $ 70.6 million in 2012 . for the year ended december 31 , 2014 , cash provided by operating activities consisted of $ 68.6 million from net income and various non-cash charges , which included $ 8.1 million of stock compensation expense , and $ ( 19.6 ) million of unfavorable changes in assets and liabilities . for the year ended december 31 , 2013 , cash provided by operating activities consisted of $ 58.0 million from net income and various non-cash charges , which included $ 10.5 million of stock compensation expense , and $ ( 3.4 ) million of unfavorable changes in assets and liabilities . for the year ended december 31 , 2014 , we used available cash , including $ 88.2 million of cash from operating activities , to fund $ 41.6 million in capital expenditures , fund dividend payments to shareholders totaling $ 22.7 million , and to fund working capital . for the year ended december 31 , 2013 , we used available cash , including the $ 54.6 million of cash from operating activities , to repay $ 20.0 million of debt , fund $ 29.1 million in capital expenditures , and fund dividend payments to shareholders totaling $ 22.5 million , and to fund working capital .

a core tenet of our strategy is to leverage our relationships with the top internationally-recognized hotel brands . we strongly believe that the premier global hotel brands create significant value as a result of each brand 's ability to produce incremental revenue with the result being that branded hotels are able to generate greater profits than similar unbranded hotels . the dominant global hotel brands typically have very strong reservation and reward systems and sales organizations , and most of our hotels are operated under a brand owned by one of the top global lodging brand companies ( marriott , starwood or hilton ) . we are primarily interested in owning hotels that are currently operated under , or can be converted to , a globally-recognized brand . in addition to leveraging global brands , we are interested in creating relationships with select non-branded boutique hotels in urban markets . we would consider opportunities to acquire other non-branded hotels located in top-tier or unique markets as we believe that the returns on certain of these hotels may be higher than if the hotels were operated under a globally recognized brand . innovative asset management we believe that we create significant value in our portfolio by utilizing our management team 's extensive experience and encouraging innovative asset management strategies . our senior management team has established a broad network of hotel - 39 - industry contacts and relationships , including relationships with hotel owners , financiers , operators , project managers and contractors and other key industry participants . we use our broad network of hotel industry contacts and relationships to maximize the value of our hotels . under the federal income tax rules governing reits , we are required to engage a hotel manager that is an eligible independent contractor to manage each of our hotels pursuant to a management agreement with one of our subsidiaries . our philosophy is to negotiate management agreements that give us the right to exert significant influence over the management of our properties , annual budgets and all capital expenditures ( all , to the extent permitted under the reit rules ) , and then to use those rights to continually monitor and improve the performance of our properties . we cooperatively partner with our hotel managers in an attempt to increase operating results and long-term asset values at our hotels . in addition to working directly with the personnel at our hotels , our senior management team also has long-standing professional relationships with our hotel managers ' senior executives , and we work directly with these senior executives to improve the performance of our portfolio . we continue to explore strategic options to maximize the growth of revenue and profitability . we persist in impressing upon our hotel managers the importance of maximizing hotel revenues and property-level profits . we maintain our practice of working closely with managers to optimize business at our hotels in order to maximize revenue and we remain committed to the objective of maintaining conservative corporate expenses . we believe we can create significant value in our portfolio through innovative asset management strategies such as rebranding , renovating and repositioning and we engage in a process of regular evaluations of our portfolio in order to determine if there are opportunities to employ these value-add strategies . conservative capital structure our current debt outstanding consists of primarily fixed interest rate mortgage debt with no significant maturities until late 2014 and limited outstanding borrowings under our senior unsecured credit facility , which bears interest at what we believe is an attractive floating rate . we prefer that a significant portion of our portfolio remain unencumbered by debt in order to provide maximum balance sheet flexibility . in addition , to the extent that we incur additional debt , our preference is non-recourse secured mortgage debt . we expect that our strategy will enable us to maintain a balance sheet with an appropriate amount of debt throughout all phases of the lodging cycle . we believe that it is not prudent to increase the inherent risk of highly cyclical lodging fundamentals through the use of a highly leveraged capital structure . we prefer a relatively simple but efficient capital structure . we have not invested in joint ventures and have not issued any operating partnership units or preferred stock . we endeavor to structure our hotel acquisitions so that they will not overly complicate our capital structure ; however , we will consider a more complex transaction if we believe that the projected returns to our stockholders will significantly exceed the returns that would otherwise be available . key indicators of financial condition and operating performance we use a variety of operating and other information to evaluate the financial condition and operating performance of our business . these key indicators include financial information that is prepared in accordance with u.s. gaap , as well as other financial information that is not prepared in accordance with u.s. gaap . in addition , we use other information that may not be financial in nature , including statistical information and comparative data . we use this information to measure the performance of individual hotels , groups of hotels and or our business as a whole . we periodically compare historical information to our internal budgets as well as industry-wide information . these key indicators include : occupancy percentage ; average daily rate ( or adr ) ; revenue per available room ( or revpar ) ; earnings before interest , income taxes , depreciation and amortization ( or ebitda ) and adjusted ebitda ; and funds from operations ( or ffo ) and adjusted ffo . occupancy , adr and revpar are commonly used measures within the hotel industry to evaluate operating performance . story_separator_special_tag income ( loss ) from discontinued operations represents the operating results of the renaissance waverly , renaissance austin , marriott griffin gate resort , and atlanta westin north at perimeter , which were sold in 2012. the following table summarizes the income from discontinued operations for the years ended december 31 , 2012 and 2011 ( in thousands ) : - 46 - replace_table_token_19_th income taxes . we recorded an income tax benefit on continuing operations of $ 6.2 million for the year ended december 31 , 2012 and income tax expense on continuing operations of $ 3.3 million in 2011. the 2012 income tax benefit includes $ 5.9 million of income tax benefit incurred on the $ 15.1 million pre-tax loss from continuing operations of our taxable reit subsidiary , or trs and foreign income tax benefit of $ 0.3 million related to the taxable reit subsidiary that owns frenchman 's reef . the 2011 income tax expense from continuing operations includes a $ 4.6 million income tax expense incurred on the $ 10.9 million pre-tax income from continuing operations of our trs and foreign income tax benefit of $ 1.3 million related to the taxable reit subsidiary that owns frenchman 's reef . comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 . our net loss for the year ended december 31 , 2011 was $ 7.7 million as compared to a net loss of $ 9.2 million for the year ended december 31 , 2010 . revenue . revenue consists primarily of room , food and beverage and other operating revenues from our hotels . our revenues from continuing operations increased $ 98.3 million from $ 523.9 million for the year ended december 31 , 2010 to $ 622.2 million for the year ended december 31 , 2011 . this increase includes amounts that are not comparable year-over-year as follows : $ 21.4 million increase from the hilton minneapolis , which was purchased on june 16 , 2010 . $ 6.4 million increase from the renaissance charleston , which was purchased on august 6 , 2010 . $ 7.6 million increase from the hilton garden inn chelsea , which was purchased on september 8 , 2010 . $ 13.1 million increase from the jw marriott denver , which was purchased on may 19 , 2011 . $ 34.4 million increase from the lexington hotel new york , which was purchased on june 1 , 2011 . $ 4.1 million increase from the courtyard denver downtown , which was purchased on july 22 , 2011. food and beverage revenues increased $ 11.3 million from the comparable period in 2010 due primarily to a $ 13.6 million increase in revenues from our 2010 and 2011 acquisitions , which was offset by a decrease of $ 2.3 million at our comparable hotels . the decrease at our comparable hotels was primarily driven by a $ 5.8 million lower food and beverage revenues at frenchman 's reef due to the partial closure during 2011 for the renovation project . other revenues , which primarily represent spa , golf , and parking revenues , as well as tenant retail lease income and attrition and cancellation fees , increased $ 4.5 million primarily due to a $ 3.6 million increase in revenues from our 2010 and 2011 acquisitions . the following pro-forma key hotel operating statistics for the years ended december 31 , 2011 and 2010 , respectively , for the hotels reported in continuing operations include the prior year operating statistics for the comparable year period to our 2010 ownership period . replace_table_token_20_th - 47 - hotel operating expenses . our operating expenses from continuing operations for the years ended december 31 , 2011 and 2010 consisted of the following ( in millions ) : replace_table_token_21_th our hotel operating expenses increased $ 67.0 million , or 16.5 percent , from $ 405.9 million for the year ended december 31 , 2010 to $ 472.9 million for the year ended december 31 , 2011 . the increase in hotel operating expenses includes amounts that are not comparable period-over-period as follows : $ 15.5 million increase from the hilton minneapolis , which was purchased on june 16 , 2010 . $ 4.1 million increase from the renaissance charleston , which was purchased on august 6 , 2010 . $ 4.4 million increase from the hilton garden inn chelsea , which was purchased on september 8 , 2010 . $ 8.8 million increase from the jw marriott denver , which was purchased on may 19 , 2011 . $ 20.3 million increase from the lexington hotel new york , which was purchased on june 1 , 2011 . $ 2.2 million increase from the courtyard denver downtown , which was purchased on july 22 , 2011. the remaining increase in hotel operating expenses of $ 11.7 million is primarily due to higher rooms and other departmental costs , driven by higher wages and benefits , and increased support costs , specifically sales and marketing and repairs and maintenance expenses . property taxes at our comparable hotels increased by $ 2.8 million , or 15 percent , primarily as a result of tax reductions achieved at our downtown chicago hotels in 2010 and the expiration of our pilot program at the westin boston waterfront hotel . base management fees are calculated as a percentage of total revenues and incentive management fees are based on the level of operating profit at certain hotels . the $ 2.9 million increase in total management fees reflected in the table above is primarily due to our 2010 and 2011 acquisitions and increased hotel revenues and profits from improvement in lodging fundamentals . depreciation and amortization . our depreciation and amortization expense increased $ 10.8 million from the year ended december 31 , 2010 to the year ended december 31 , 2011 due primarily to our 2010 and 2011 acquisitions and the $

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sources and uses of cash our principal sources of cash are net cash flow from hotel operations , borrowings under mortgage debt and our credit facility and the proceeds from our equity offerings . our principal uses of cash are acquisitions of hotel properties , debt service , capital expenditures , operating costs , corporate expenses and dividends . as of december 31 , 2012 , we had $ 9.6 million of unrestricted corporate cash , $ 76.1 million of restricted cash , and $ 180.0 million of borrowing capacity under our credit facility . our net cash provided by operations was $ 93.1 million for the year ended december 31 , 2012 . our cash from operations generally consists of the net cash flow from hotel operations offset by cash paid for corporate expenses , cash paid for interest , funding of lender escrow reserves and other working capital changes . our net cash used in investing activities was $ 369.1 million for the year ended december 31 , 2012 primarily as a result of the acquisitions of the hilton boston downtown , westin washington , d.c. city center , westin san diego , hilton burlington , and hotel rex ( $ 444.7 million , collectively ) and capital expenditures at our hotels ( $ 49.3 million ) , partially offset by the proceeds from the sale of four hotels ( collectively , $ 131.1 million ) . our net cash provided by financing activities was $ 259.3 million for the year ended december 31 , 2012 and consisted of $ 199.8 million of proceeds from our follow-on equity offering , $ 244.4 million of loan proceeds from the financings of the lexington hotel new york and westin washington d.c. city center , offset by net repayments on our senior unsecured credit facility of $ 80 million , $ 56.0 million of dividend payments , $ 6.9 million paid for financing costs , $ 3.0 million paid to repurchase shares upon the vesting of restricted stock for the payment of tax withholding obligations , $ 27.0 million prepayment of the mortgage debt secured by the courtyard denver downtown , as well as $ 11.1

. a number of local and national factors influence activity in each of our lines of business , including demographic trends , interest rates , employment levels , business investment , supply and demand for housing stock , availability of credit , foreclosure rates , consumer confidence , and general economic conditions . activity in the construction industry is seasonal , typically peaking in the summer months . because installation of insulation historically lags housing starts by several months , we generally see a corresponding benefit in our operating results during the third and fourth quarters . competitive advantages we believe we are well positioned to organically grow our business as a result of a number of competitive advantages including : national scale . our national scale enables us to drive supply chain efficiencies and provide the tools necessary for our branches and distribution centers to effectively compete locally . given the highly fragmented homebuilding industry , our leadership positions in installation , distribution , and building science services allow us to tailor our approach to each local market , which differs in characteristics such as customer mix , competitive activity , building codes , and labor availability . moreover , serving multiple lines of business provides additional revenue growth potential with which to leverage our fixed costs , and reduces our exposure to the cyclical swings in residential new construction . strong local presence . competition for the installation and sale of insulation and other building products to builders occurs in localized geographic markets across the country . builders in each local market have different options in terms of choosing among insulation installers and distributors for their projects and value local relationships , quality , and timeliness . our national footprint includes over 180 installation services branches which are locally branded businesses that are recognized within the communities in which they operate . we have over 70 distribution centers primarily servi ng local contractors , lumberyards , retails stores , and others who , in turn , service local homebuilders and other customers . 21 through both businesses we have developed local , long-tenured relationships with a reputation for quality , service , and timeliness . two avenues to reach the builder . being a leader in both installation and distribution allows us to more effectively reach a broader set of builder customers , regardless of their size or geographic location with the united states , and leverage housing growth wherever it occurs . strategy our long-term strategy is to grow net sales , income , and operating cash flows and remain the leading insulation installer and distributor by revenue . in order to achieve these goals we plan to : · c apitalize on the u.s. housing market recovery through focused organic growth and accretive aligned acquisitions · g ain share in commercial construction · c ontinue to leverage our expertise in building science to benefit from the increasing focus on energy efficiency and trends in building codes our operating results depend heavily on residential new construction activity and , to a lesser extent , on residential repair/remodel and commercial construction activity , all of which are cyclical . we are also dependent on third-party suppliers and manufacturers providing us with an adequate supply of high-quality products . we are optimistic on housing and expect the current moderate pace of improvement to continue for several years . the u.s. housing market has grown from approximately 587,000 housing starts in 2010 to approximately 1,1 11 , 4 00 housing starts in 2015 , well below the 50-year historical average of approximately 1.5 million starts per year . we believe that while the current headwinds of credit availability , student debt , and labor shortages within the construction industry are moderating the rate of recovery , they are also extending the recovery cycle . we believe there is pent-up demand for housing , and this demand will eventually be satisfied with higher levels of new construction . 2015 results in 2015 our results were positively affected by increased sales volume of residential new construction and commercial construction activity and increased selling prices . our sales volume i ncreased across our businesses . compared to 2014 , our installation segment contributed sales volume increases of 4.5 percent and our distribution segment contributed sales volume increases of 0.6 percent to our total sales increase , prior to intercompany eliminations . selling price increases , primarily in our installation segment , increased our sales by 1.9 percent compared to 2014. our operating results were positively affected by increased sales volume and a more favorable relationship between selling prices and commodity costs . we also benefitted from our past business rationalizations and other cost savings initiatives , including headcount reductions . story_separator_special_tag style= `` margin:0pt ; line-height:100 % ; text-align : justify ; text-justify : inter-ideograph ; font-family : times new roman , times , serif ; font-size : 10pt ; `` > costs of environmental responsibilities and compliance with existing environmental laws and regulations have not had , nor do we expect them to have , a material effect on our capital expenditures , financial position , or results of operations . results of operations we report our financial results in conformity with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . however , we believe that certain non ‑gaap performance measures and ratios , used in managing the business , may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods . non ‑gaap performance measures and ratios should be viewed in addition to , and not as an alternative for , our reported results . story_separator_special_tag intangible assets with finite useful lives are amortized using the straight ‑line method over their estimated useful lives . we evaluate the remaining useful lives of amortizable identifiable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization . income taxes accounting guidance for income taxes requires that the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods . possible sources of taxable income include taxable income in carryback periods , the future reversal of existing taxable temporary differences recorded as a deferred tax liability , tax planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period , and projected future taxable income . if , based upon all available evidence , both positive and negative , it is more likely than not ( more than 50 percent likely ) such deferred tax assets will not be realized , a valuation allowance is recorded . significant weight is given to positive and negative evidence that is objectively verifiable . a company 's three year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of deferred tax assets . in a prior period , we had recorded a valuation allowance against our u.s. federal and certain state deferred tax assets as a non ‑cash charge to income tax expense . in reaching this conclusion , we considered the significant decline in residential new construction , high level of foreclosure activity , and the slower than anticipated recovery in the u.s. housing market which led to u.s. operating losses , causing us to be in a three ‑year cumulative u.s. loss position . during the years ended december , 31 , 2010 , 2011 , and 2012 , objective and verifiable negative evidence , such as continued u.s. operating losses and significant impairment charges for u.s. goodwill in 2010 , continued to outweigh positive evidence necessary to reduce the valuation allowance . as a result , we recorded increases in the valuation allowance against our u.s. federal and certain state deferred tax assets as a non-cash charge to income tax expense during the years ended december 31 , 2010 , 2011 , and 2012. a return to sustainable profitability in the u.s. is required before we would change our judgment regarding the need for a valuation allowance against our deferred tax assets . although the strengthening in residential new construction activity resulted in profitability for our operations in 2013 and 2014 , we continued to record a full valuation allowance against the u.s. federal and certain state deferred tax assets . we arrived at this conclusion due to the company 's ( i ) low amount of profit in 2013 and 2014 , ( ii ) continued the three year cumulative loss position throughout the year ended december 31 , 2014 , and ( iii ) lack of taxable income after evaluating the four sources of taxable income generally allowed under asc 740 in determining whether or not a deferred asset may be realized . 30 in the fourth quarter of 2015 we recorded a $ 35.5 million tax benefit ( $ 13.5 million of federal and $ 22.0 million of state & local net of federal benefit ) from the release of the valuation allowance against its u.s. federal and certain state deferred tax assets due primarily to a return to sustainable profitability in our u.s. operations . in reaching this conclusion , we considered the company 's strong results in the third and fourth quarters reflecting ( i ) continued improvement in both new home construction and repair/remodel activity in the u.s. and ( ii ) the company 's ability to function as a standalone business . we also considered our progress on strategic initiatives to reduce costs and expand the breadth of our market positions , which contributed to the continued improvement in our operations over the past few years . the reduction in the valuation allowance in 2015 resulted in a net positive income tax benefit of $ 5.0 million and a negative effective tax rate of 7 % for the year . excluding the valuation allowance release of $ 35.5 million , our effective tax rate would have been 41 % for the year ended december 31 , 2015 , comprised of a 35 % u.s. federal statutory rate and 6 % of state and local taxes , net of u.s. federal tax benefit and other , net . this rate is higher than would normally be expected due to various nondeductible expenses related to the separation transaction and other adjustments primarily related to the separation . for the activity through the first six months of 2015 , we will file tax returns as a member of the masco consolidated group for federal and certain state jurisdictions . as a result , certain tax attributes , primarily the net operating loss carryforwards , are treated as an asset of the masco group and may be utilized by the masco group through the end of december 31 , 2015 , masco 's tax year-end . it is anticipated that all of our u.s. federal net operating loss carryforward and certain state net operating loss carryforwards will be utilized by the masco consolidated group . in accordance , the deferred tax assets relating to the net operating loss carryforwards for federal and certain state jurisdictions were transferred to masco , in the amount of $ 401 million , with a similar transfer of the related valuation allowance . due to the fact that topbuild 's current income tax expense is based on a full year , notwithstanding that it was a member of masco 's consolidated group through june 30 , 2015 , an adjustment of $

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liquidity and capital resources prior to the separation , we largely funded our growth through cash provided by our operations combined with support from masco through its operating cash flows , its long ‑term bank debt , and its issuance of securities in the financial markets , including issuances for certain mergers and acquisitions . subsequent to the separation , we have had access to liquidity through our cash from operations and available borrowing capacity under our revolving credit facility . cash flows are seasonally stronger in the third and fourth quarters as a result of increased new construction activity . 22 on june 9 , 2015 , we entered into a credit agreement with a bank group . the credit agreement consists of a senior secured term loan facility of $ 200 million , which was used to finance a $ 200 million cash distribution to masco in connection with the separation , an d a senior secured revolving facility , which provides for borrowing and or standby letter of credit issuances of up to $ 125 million . together , the term loan facility and revolving facility are referred to as the “ credit facility. ” additional borrowing capacity under the credit facility may be accessed by the company in an aggregate amount not to exceed $ 100 million without the consent of the lenders , subject to certain conditions ( including existing or new lenders providing commitments in respect of such additional borrowing capacity ) . for additional information , see item 8 , financial statements and supplementary data , note 5 - lo ng-term debt . undrawn capacity under our credit facility provides additional borrowing capacity for working capital and other general corporate purposes . as of december 31 , 2015 , we had standby letters of credit outstanding of approximately $ 55.1 million . the standby letters of credit were issued to secure financial obligations related to our workers compensation , general insurance , and auto liability programs . our historical financial statements for periods prior to the separation include letter of credit costs , as masco allocated these costs to us in related party interest expense .

the company recorded net income of $ 33.2 million in fiscal 2016 compared to $ 18.1 million in fiscal 2015 . the primary reason for the increase in net income was a significant rise in non-interest income , bolstered by growth in net interest income . in fiscal 2016 , non-interest income increased to $ 100.8 million from $ 58.2 million in fiscal 2015 , due to tax product fee income and an increase in card fee income . the company 's net interest income grew to $ 77.3 million in fiscal 2016 , compared to $ 59.2 million in fiscal 2015 . the increase was driven by growth in both loan and investment volumes as well as the expansion in yields on these interest-earning assets . additionally , the continuous improvement in the overall asset mix also contributed to the increased net interest income , which was highlighted by loan growth and purchases of highly rated tax-exempt municipal securities at relatively high tax equivalent yields . partially offsetting the higher non-interest income and net interest income was non-interest expense , which rose $ 38.1 million , from $ 96.5 million in fiscal 2015 , to $ 134.6 million in fiscal 2016 and income tax expense which rose from $ 19.4 million to $ 38.8 million year over year . the company 's banking segment 2016 fiscal year income before tax was $ 16.1 million , compared to $ 14.8 million in fiscal 2015 . retail bank total loans increased $ 146.8 million during the fiscal year , or 25 % , to $ 737.4 million , from strong growth in residential real estate and commercial and multi-family real estate . retail bank checking balances continued to grow from $ 88.7 million at september 30 , 2015 , to $ 97.7 million , or 10 % , at september 30 , 2016 . the company 's payments segment 2016 fiscal year income before tax was $ 29.7 million , compared to $ 14.1 million in fiscal 2015 . this improvement was primarily the result of increases in card fee income from new and existing business partners along with tax product fee income . average mps deposits increased $ 398.9 million during fiscal 2016 , or 25 % , to $ 2.00 billion , compared to fiscal 2015 . overall , the cost of funds at metabank averaged 0.15 % during fiscal 2016 , compared to 0.11 % for 2015 . tangible book value per common share increased by $ 6.97 , or 28 % , to $ 31.57 per share at september 30 , 2016 , from $ 24.60 per share at september 30 , 2015 . this growth is attributable to increases in net income and accumulated other comprehensive income ( “ aoci ” ) along with higher additional paid-in capital due to the company 's first quarter capital raise of approximately $ 11.7 million . the tangible book value per common share , excluding ( “ aoci ” ) was $ 28.89 as of september 30 , 2016 , compared to $ 24.30 as of september 30 , 2015 . book value per common share outstanding increased by $ 6.06 , or 18 % , to $ 39.30 per share at september 30 , 2016 , from $ 33.24 per share at september 30 , 2015 . 74 the company 's non-performing assets ( “ npas ” ) were 0.03 % of total assets at september 30 , 2016 , compared to 0.31 % at september 30 , 2015 . the decrease from september 2015 was mainly due to the previously reported partial charge-off of a large non-performing agriculture relationship , which has no remaining loan balance . excluding the afs/ibex portfolio , npas were 0.01 % of total assets at september 30 , 2016 . financial condition as of september 30 , 2016 , the company 's assets grew by $ 1.48 billion , or 58 % , to $ 4.01 billion , compared to $ 2.53 billion at september 30 , 2015 . the growth in assets resulted from a variety of factors , including increases in the company 's cash and cash equivalents , loan balances , and investment securities portfolio . total cash and cash equivalents was $ 773.8 million at september 30 , 2016 , an increase of $ 746.1 million from $ 27.7 million at september 30 , 2015 . the majority of this increase was related to a temporary repositioning of the balance sheet in september 2016 to prepare the company for potential strategic opportunities , including the h & r block® agreement signed in october 2016. the company anticipated utilizing the excess cash it held at its fiscal year end to repay overnight borrowings in october 2016. in general , the company maintains its cash investments in interest-bearing overnight deposits with the fhlb of des moines and the frb of minneapolis . at september 30 , 2016 , the company had no federal funds sold . the total of mbs and investment securities increased $ 487.3 million , or 30 % , to $ 2.09 billion at september 30 , 2016 , compared to september 30 , 2015 , as investment purchases exceeded related maturities , sales and principal pay downs . the company 's portfolio of securities consists primarily of mbs , which have relatively short expected lives , non-bank qualified obligations of states and political subdivisions ( “ nbq ” ) which mature in approximately 15 years or less , and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities . all mbs held by the company are issued by a u.s. government agency or instrumentality . of the total $ 692.7 million of mbs , $ 558.9 million are classified as available for sale ( “ afs ” ) , and $ 133.8 million are classified as held to maturity ( “ htm ” ) . story_separator_special_tag the increase in net income was primarily caused by a $ 9.9 million increase in loan income , a $ 5.8 million increase in card fee income , a $ 3.1 million increase related to the securities portfolio and a decrease in tax expense of $ 1.5 million . the net income increase was offset in part by an increase in compensation and benefits expense of $ 8.3 million , increased occupancy and equipment expense of $ 2.4 million , an increased loss on sale of securities of $ 1.7 million , increased intangible amortization expense of $ 1.3 million , increased regulatory expense of $ 1.1 million and increased card processing expense of $ 1.0 million . net interest income . net interest income for fiscal 2015 increased by $ 12.9 million , or 28.0 % , to $ 59.2 million from $ 46.3 million for the prior year . net interest margin increased to 3.03 % in fiscal 2015 as compared to 2.80 % in 2014 . the company 's average earning assets increased $ 363.8 million , or 20.0 % , to $ 2.2 billion during fiscal 2015 from $ 1.8 billion during 2014 . the increase is primarily the result of the increase in the company 's investment securities and non-bank qualified , high-quality municipal portfolios as well as loans receivable . the company 's average total deposits and interest-bearing liabilities increased $ 343.2 million , or 19.7 % , to $ 2.1 billion during fiscal 2015 from $ 1.7 billion during 2014. the increase resulted mainly from an increase in the company 's non-interest-bearing deposits and federal funds purchased . the average outstanding balance of non-interest-bearing deposits increased from $ 1.3 billion in fiscal 2014 to $ 1.6 billion in fiscal 2015. the company 's cost of total deposits and interest-bearing liabilities declined three basis points to 0.11 % during fiscal 2015 from 0.14 % during 2014 , primarily due to continued migration to low- and no-cost deposits provided by mps . provision for loan losses . in fiscal 2015 , the company recorded $ 1.5 million in provision for loan loss , compared to $ 1.2 million in 2014 . the increased provision was primarily due to loan growth . non-interest income . non-interest income increased by $ 6.4 million , or 12.4 % , to $ 58.2 million for fiscal 2015 from $ 51.7 million for 2014 primarily due to an increase in fees earned on prepaid debit cards , credit products and other payment systems products of $ 5.8 million due to the addition of multiple new partners and growth in existing mps programs . loan fees also increased by $ 1.4 million from retail loan growth and the addition of afs/ibex . these increases in non-interest income were partially offset by an increased loss on the securities available for sale of $ 1.7 million sold primarily to fund the afs/ibex transaction . non-interest expense . non-interest expense increased by $ 18.3 million , or 23.4 % , to $ 96.5 million for fiscal 2015 from $ 78.2 million for fiscal 2014 . compensation expense increased $ 8.3 million during fiscal 2015 compared to 2014 , occupancy and equipment increased $ 2.4 million , and intangible amortization expense increased $ 1.3 million . these increases were principally due to the refund advantage and afs/ibex acquisitions and to additional product development and it developer staffing to support the company 's growth initiatives and prepare for other business opportunities . in addition , regulatory expense increased $ 1.1 million primarily relating to an increase in fdic insurance due to brokered deposit classification guidance published in january 2015 and higher deposit balances . 80 income tax expense . income tax expense for fiscal 2015 was $ 1.4 million , resulting in an effective tax rate of 7.0 % , compared to a tax expense of $ 2.9 million and an effective tax rate of 15.6 % , in fiscal 2014. the decrease in the company 's recorded income tax expense for 2015 was impacted primarily by an increase in the amount of tax-exempt municipal bond income as a percent of net income before tax . critical accounting estimates the company 's financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the financial information contained within these statements is , to a significant extent , financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred . based on its consideration of accounting policies that : ( i ) involve the most complex and subjective decisions and assessments which may be uncertain at the time the estimate was made , and ( ii ) different estimates that reasonably could have been used in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , would have a material impact on the financial statements , management has identified the policies described below as critical accounting policies . allowance for loan losses . the company 's allowance for loan loss methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance for loan loss that management believes is appropriate at each reporting date . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , changes in non-performing loans and other factors . quantitative factors also incorporate known information about individual loans , including borrowers ' sensitivity to interest rate movements . qualitative factors include the general economic environment in the company 's markets , including economic conditions throughout the midwest and , in particular , the state of certain industries . size and complexity of individual credits in relation to loan structure , existing loan policies and pace of portfolio growth are other qualitative factors that are considered in the methodology . although management believes the

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liquidity and capital resources on august 15 , 2016 , the company announced that it had completed the public offering of $ 75 million of its 5.75 % fixed-to-floating rate subordinated debentures due august 15 , 2026. use of proceeds from the offering are for general purposes , acquisitions and investments in metabank as tier 1 capital to support growth the company 's primary sources of funds are deposits , derived principally through its mps division , and to a lesser extent through its retail bank division , borrowings , principal and interest payments on loans and mortgage-backed securities , and maturing investment securities . while scheduled loan repayments and maturing investments are relatively predictable , deposit flows and early loan repayments are influenced by the level of interest rates , general economic conditions and competition . the company relies on advertising , quality customer service , convenient locations and competitive pricing to attract and retain its retail bank deposits and primarily solicits these deposits from its core market areas . based on its experience , the company believes that its consumer checking , savings and money market accounts are relatively stable sources of deposits . the company 's ability to attract and retain time deposits has been , and will continue to be , affected by market conditions . however , the company does not foresee any significant retail bank funding issues resulting from the sensitivity of time deposits to such market factors .

initially , we entered into certain exclusive agreements with kwit and its shareholders through ttgt hk , which obligated ttgt hk to absorb all of the risk of loss from kwit 's activities and entitled ttgt hk to receive all of their residual returns . in addition , we initially entered into certain agreements with authorized parties through ttgt hk , including management and consulting services , voting proxy , equity pledge and option agreements ( the “vie agreements” ) . on december 31 , 2011 , ttgt hk assigned all of its rights and obligations under the vie agreements to a newly formed wholly foreign-owned enterprise ( “wfoe” ) , techtarget ( beijing ) information technology consulting co. , ltd. the wfoe is established and existing under the laws of the prc , and is a wholly owned subsidiary of ttgt hk . 32 based on these contractual arrangements , we consolidate the financial results of kwit as required by accounting standards codification ( “asc” ) subtopic 810-10 ( “asc 810-10” ) , consolidation : overall ( pre-codification : financial accounting standards board ( “fasb” ) interpretation no . 46r , consolidation of variable interest entities , an interpretation of arb no . 51 ) , because we hold all the variable interests of kwit through ttgt hk and the wfoe , the latter of which is the primary beneficiary of the financial results of kwit . despite the lack of technical majority ownership , there exists a parent-subsidiary relationship between us and kwit through certain of the vie agreements , whereby the shareholders of kwit assigned all of their voting rights underlying their equity interest in kwit to the wfoe . in addition , through the other aforementioned agreements , we demonstrate our ability and intention to continue to exercise the ability to obtain substantially all of the profits and absorb all of the expected losses of kwit . on april 26 , 2011 we announced that we had completed the acquisition of the websites , product offerings , and events associated with computer weekly and its sister channel-targeted brand , microscope , from reed business information limited for $ 2.0 million in cash . computer weekly , through its websites and events ( and print properties , which were not continued ) , has served united kingdom-based managers , directors and cios monitoring the technology landscape , and the advertisers looking to reach them . computer weekly and microscope also serve united kingdom it decision makers by bringing technology news and it management focused content . these two websites complement our established offerings in the region , including searchdatamanagement.co.uk , searchnetworking.co.uk , searchsecurity.co.uk , searchstorage.co.uk , and searchvirtualdatacentre.co.uk , by giving advertisers new ways to reach key uk and european it decision makers . on december 17 , 2012 we announced that we had acquired e-magine médias sas , which we call lemagit , a strategic partner with techtarget since 2010 , for $ 2.2 million in cash plus a potential future earnout valued at $ 0.7 million at the time of the acquisition . approximately $ 1.2 million of the cash payment was made at closing , with the remainder due in two equal installments in fiscal years 2013 and 2014. the third installment is subject to certain revenue growth targets and may be reduced based on actual results . since its launch in 2008 , lemagit 's network of sites has offered french-language news and analysis for it decision makers on core enterprise it topics such as cloud computing , virtualization , security , and storage and attracts over 250,000 visits per month . the acquisition strengthens our value proposition to deliver focused content , targeted audiences and innovative capabilities to enterprise it providers trying to make progress in europe . the second installment , to be paid in 2013 , is included in accrued liabilities in our consolidated balance sheet ; the earnout and final installment payment are included in long-term liabilities on our consolidated balance sheet . executive summary during 2011 and 2012 , we made significant progress on our strategy to grow our business and increase the reach of our offerings . it continues to be the case that , central to these efforts , is the progress that we are making with our new product platform , activity intelligence , and the continued expansion of our direct international capabilities . key strategic activities during the period ended december 31 , 2012 included : activity intelligence – approximately 520 of our customers now have access to the activity intelligence dashboard and we continue to see growth in purchases of our nurture & notify™ offering , an add-on service that has been sold onto over 125 lead generation campaigns . we also have other product initiatives designed to leverage this platform in the development pipeline that we currently anticipate will increase our penetration of our accounts , as well as potentially leverage our core capabilities in complementary offerings . the first such offering , it deal alert™ , went through a successful paid beta test in the fourth quarter of 2012 and was launched into the market in january of 2013. we are encouraged by the feedback we are receiving in the market . international update – international geo-targeted revenue increased by more than 50 % in the year ended december 31 , 2012 as compared to the same period a year ago . we believe that our integrated product offering across regions continues to resonate with international marketers and is contributing to our successful results . we plan on continuing to invest in these capabilities as we seek opportunities to increase our global reach . story_separator_special_tag scheduled end dates of advertising campaigns sometimes need to be extended , pursuant to the terms of the arrangement , to satisfy lead guarantee obligations . we estimate a revenue reserve necessary to adjust revenue recognition for extended advertising campaigns . these estimates are based on our experience in managing and fulfilling these offerings . the customer has cancellation privileges which generally require advance notice by the customer and require proportional payment by the customer for the portion of the campaign period that has been provided . additionally , we offer sales incentives to certain customers , primarily in the form of volume rebates , which are classified as a reduction of revenues and are calculated based on the terms of the specific customer 's contract . we accrue for these sales incentives based on contractual terms and historical experience . in 2011 , revenue for elements of lead generation campaigns was recognized as follows : white papers . white paper revenue was recognized ratably over the period in which the white paper was available on our websites . webcasts , podcasts , videocasts and virtual trade shows . webcast , podcast , videocast , virtual trade show and similar content revenue was recognized ratably over the period in which the webcast , podcast , videocast or virtual trade show was available on our websites . revenue for other online media offerings is recognized as follows for 2011 as well as 2012 : custom content creation . custom content revenue is recognized when the creation is completed and delivered to the customer , with the exception of microsites which are recognized over the period during which they are live . 37 content sponsorships . content sponsorship revenue is recognized ratably over the period in which the related content vehicle is available on our websites . list rentals . list rental revenue is recognized in the period in which the list is sent to our customers . banners . banner revenue is recognized in the period in which the banner impressions or clicks occur . third party revenue sharing arrangements . revenue from third party revenue sharing arrangements is recognized on a net basis in the period in which the services are performed . for certain third party agreements where we are the primary obligor , revenue is recognized on a gross basis in the period in which the services are performed . we recognize revenue from cost per lead advertising in the period during which the leads are delivered , which is typically less than six months . during fiscal 2010 and prior , because objective evidence of fair value did not exist for all elements in our bundled advertising campaigns , no allocation could be made among the various elements , so we recognized revenue as one unit of accounting ratably over the term of the arrangement . event sponsorships . we recognize sponsorship revenue from events in the period in which the event occurs . the majority of our events are free to qualified attendees ; however , certain events are based on a paid attendee model . we recognize revenue for paid attendee events upon completion of the event . amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue . long-lived assets our long-lived assets consist primarily of property and equipment , capitalized software , goodwill and other intangible assets . goodwill and other intangible assets have arisen principally from our acquisitions . the amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation techniques , such as discounted cash flow and replacement cost models . our long-lived assets , other than goodwill , are amortized over their estimated useful lives , which we determine based on the consideration of several factors including the period of time the asset is expected to remain in service . intangible assets are amortized over their estimated useful lives , which range from one to ten years , using methods of amortization that are expected to reflect the estimated pattern of economic use . we evaluate the carrying value and remaining useful lives of long-lived assets , other than goodwill , whenever indicators of impairment are present . we evaluate the carrying value of goodwill annually , and whenever indicators of impairment are present , using a discounted cash flow approach to fair value determinations . fair value of financial instruments financial instruments consist of cash and cash equivalents , short-term and long-term investments , accounts receivable , accounts payable and contingent consideration . the carrying value of these instruments approximates their estimated fair values . allowance for doubtful accounts we offset gross trade accounts receivable with an allowance for doubtful accounts . the allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable . we review our allowance for doubtful accounts on a regular basis , and all past due balances are reviewed individually for collectability . account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . provisions for doubtful accounts are recorded in general and administrative expense . if our historical collection experience does not reflect our future ability to collect outstanding accounts receivable , our future provision for doubtful accounts could be materially affected . to date , we have not incurred any write-offs of accounts receivable significantly different than the amounts reserved . the allowance for doubtful accounts was $ 0.9 million and $ 1.1 million at december 31 , 2012 and 2011 , respectively . 38 stock-based compensation we measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation in our results of operations using the straight-line method over the vesting period of the award or using the accelerated method if the

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liquidity and capital resources resources at december 31 , 2012 , we had $ 66.6 million of working capital , and our cash and cash equivalents totaled $ 48.4 million . our cash , cash equivalents and investments increased $ 13.1 million during fiscal 2012 , primarily from cash generated from our operations and proceeds from the exercise of stock options . these cash sources were partially offset by our investing activities , primarily for purchases of property and equipment and for the acquisition of a business . we believe that our existing cash , cash equivalents , and investments , our cash flow from operating activities and available bank borrowings will be sufficient to meet our anticipated cash needs for at least the next 12 months . our future working capital requirements will depend on many factors , including the operations of our existing business , our potential strategic expansion internationally , future acquisitions we might undertake , and the expansion into complementary businesses . to the extent that our cash and cash equivalents , investments and cash flow from operating activities are insufficient to fund our future activities , we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings . we also may need to raise additional funds in the event we determine in the future to effect one or more additional acquisitions of businesses . replace_table_token_18_th cash , cash equivalents and investments our cash , cash equivalents and investments at december 31 , 2012 were held for working capital purposes and were invested primarily in money market accounts , municipal bonds and government agency bonds . we do not enter into investments for trading or speculative purposes . accounts receivable , net our accounts receivable balance fluctuates from period to period , which affects our cash flow from operating activities . the fluctuations vary depending on the timing of our service delivery and billing activity , cash collections , and changes to our allowance for doubtful accounts . we use days ' sales outstanding , ( “dso” ) , as a measurement of the quality and status of our receivables .

billion , representing growth across all segments , with strong growth of 12.7 % in engineered systems , and increases of 5.9 % in communications technologies , 5.5 % in energy and 2.4 % in printing & identification . overall , the book-to-bill of 1.00 slightly improved over the prior year . backlog increased 4.6 % to $ 1.6 billion . from a geographic perspective for the year , our north american markets were solid . our european markets continued to show improvement throughout the year with incremental growth , driven by our short cycle business activity , complemented by project shipments . china and the rest of the world markets were strong . on may 23 , 2013 , dover announced its board of directors approved a preliminary plan to spin-off certain of its communication technologies businesses into a stand-alone , publicly-traded company known as knowles corporation ( `` knowles `` ) . on february 6 , 2014 , dover announced that its board of directors approved the separation of knowles from dover through the pro rata distribution by dover of 100 % of the common stock of knowles to dover 's stockholders on february 28 , 2014. in addition , on february 10 , 2014 , the u.s. securities and exchange commission declared knowles ' registration statement on form 10 effective . as a result , the following is expected to occur : ( 1 ) the distribution of knowles ' shares would be made on february 28 , 2014 to dover stockholders of record as of the close of business on february 19 , 2014 , the record date for the distribution , ( 2 ) on the distribution date , dover stockholders will receive one share of knowles common stock for every two shares of dover 26 common stock held as of the record date , and ( 3 ) following the distribution , knowles will be an independent , publicly traded company on the new york stock exchange ( utilizing ticker symbol `` kn `` ) and dover will retain no ownership interest in knowles . the distribution has been structured to be tax-free to dover and its shareholders for u.s. federal income tax purposes . the results of operations , financial condition and cash flows for the businesses to be transferred to knowles and included in the spin-off are , and will continue to be , presented within dover 's consolidated financial statements as continuing operations within the communication technologies segment until the spin-off is complete ( which is expected to occur on february 28 , 2014 ) , upon which the financial presentation of these businesses will be included within dover 's discontinued operations . one-time costs associated with the transaction are expected to be in the range of $ 60.0 to $ 70.0 million , of which $ 30.1 million has been incurred by dover through december 31 , 2013. following the spin-off of knowles , dover expects to align its segment structure to ensure it is properly organized to execute its future growth plans . as previously disclosed , in the fourth quarter of 2012 in connection with our periodic review for our businesses ' strategic fit within dover , we announced our intention to divest dek international and everett charles technologies ( including the multitest business , collectively `` ect `` ) within the printing & identification segment . these businesses were reclassified to discontinued operations , and in 2013 , we recorded a pre-tax goodwill impairment charge of $ 54.5 million , as well as a $ 25.5 million tax benefit in the discontinued operations deferred income tax provision for 2013. the company completed the sale of ect in the fourth quarter of 2013 for total proceeds of $ 92.7 million , which resulted in an after-tax loss on sale of $ 2.8 million . in 2013 , the company signed a definitive agreement to sell dek . based on the anticipated proceeds from this sale , the company recognized an impairment loss of $ 14.0 million in the fourth quarter of 2013. management intends to complete the sale of dek in the first half of 2014. other actions that we undertook in order to strengthen our position in 2014 and beyond included raising 300.0 million in the euro debt market in 2013. some of the proceeds were used to repay commercial paper of approximately $ 381.0 million in the fourth quarter of 2013. in addition , we expanded our competitive position with ten business acquisitions during the year for net cash consideration of approximately $ 323.0 million , notably in the fluids and downstream energy spaces . dover expects additional acquisitions to be closed in the first quarter of 2014. under our november 2012 $ 1.0 billion share repurchase program , we repurchased 6.0 million shares during the year for a total of $ 457.3 million . there is $ 292.6 million remaining under this program , and we expect to complete the balance of this program in the first quarter of 2014. in addition , we continued our history of increasing our annual dividend payments to shareholders by paying $ 247.8 million in dividends in 2013. regarding our business activity , near term we expect : continued positive performance in energy driven by expanding international activity , and the ongoing improvement in drilling ; strong results in our fluids markets from the benefits of our recent acquisitions and positive markets ; solid results in our refrigeration and food equipment markets ; and normal seasonality in our fast moving consumer goods markets . if global or domestic economic conditions accelerate or deteriorate , our operating results for 2014 could be materially different than currently projected . story_separator_special_tag the communication technologies segment incurred restructuring charges of $ 5.5 million , primarily relating to a facility consolidation and related headcount reductions within its operations that serve the telecom infrastructure market to better reflect the current market dynamics , along with headcount reductions undertaken to facilitate management changes and optimize the cost structure of its businesses serving the consumer electronics market . restructuring initiatives in 2011 were limited to a few targeted facility consolidations . we incurred restructuring charges of $ 5.6 million relating to such activities . see note 9. restructuring activities in the consolidated financial statements in item 8 of this form 10-k for additional details regarding our recent restructuring activities . 32 segment results of operations this summary that follows provides a discussion of the results of operations of each of our four reportable operating segments ( energy , engineered systems , printing & identification , and communication technologies ) . each of these segments is comprised of various product and service offerings that serve multiple end markets . see note 17. segment information in the consolidated financial statements in item 8 of this form 10-k for a reconciliation of segment revenue , earnings , and operating margin to our consolidated revenue , earnings from continuing operations , and operating margin . segment ebitda and segment ebitda margin , which are presented in the segment discussion that follows , are non-gaap measures and do not purport to be alternatives to operating income as a measure of operating performance . we believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years , as well as in evaluating operating performance in relation to our competitors . for further information , see the non-gaap disclosures at the end of this item 7. energy our energy segment serves the oil , gas and power generation industries , with products that promote the efficient and cost-effective drilling , extraction , storage and movement of oil and gas products , or constitute critical components for power generation equipment . the energy segment operates through the following business lines : production , which comprises products and components facilitating the extraction and movement of fuel from the ground ; downstream , which comprises systems and products that support the efficient , safe , and environmentally-sensitive handling of fuel , hazardous liquids , and dry-bulk commodities ; and drilling , which comprises products supporting the cost-effective drilling of oil and gas wells . replace_table_token_7_th 33 2013 versus 2012 energy segment revenue for the year increased $ 123.9 million , a 5.7 % increase over the prior year due to organic growth of 2.9 % , as well as acquisition-related growth of 3.4 % , slightly offset by a ( 0.6 ) % impact from foreign currency translation . acquisition-related growth was driven by the following : the production control services and upco , inc. , acquisitions that occurred in the second and fourth quarters of 2012 ; klaus enterprise , ltd. , and spirit global energy solutions that occurred in the second and third quarters of 2013 ; and fibresec holdings ltd. , kungsors plast ab ( kps ) and lianyungang jump equipment co. , ltd. acquisitions that occurred in the fourth quarter of 2013. production revenue ( representing 53.5 % of 2013 segment revenue ) increased $ 45.5 million , or 3.8 % , with 5.0 % growth from acquisitions , partially offset by a 1.0 % decline in organic revenue . increased demand for artificial lift products , particularly outside north america and europe , contributed to the increase in revenue , as well as the impact from recent acquisitions , while softer demand for winch products for the energy and recovery markets drove a partially offsetting decline in revenue . downstream revenue ( representing 28.0 % of 2013 segment revenue ) increased $ 62.0 million , or 10.7 % , due to stronger demand for loading equipment and fuel delivery systems for the transportation and chemical/industrial markets . drilling revenue ( representing 18.5 % of 2013 segment revenue ) increased approximately $ 16.3 million , or 4.0 % , compared to 2012 due to market share gains and expansion in international growth , especially within china . energy earnings in 2013 increased $ 14.2 million , or 2.6 % , primarily due to higher volume in the production and downstream sectors . operating margin decreased 70 basis points due to unfavorable product mix and higher acquisition-related depreciation and amortization . bookings for the year ended december 31 , 2013 increased 5.5 % compared to 2012 primarily due to strong international growth , offset in part by softer demand for winch products in the production sector . backlog at december 31 , 2013 remained relatively stable as compared to the prior year , decreasing 0.5 % . 2012 versus 2011 revenue generated by our energy segment increased $ 271.9 million , or 14.3 % , compared with 2011 . the increase was driven by organic revenue growth of 9.4 % , growth from the acquisitions of production control services ( in april 2012 ) and oil lift ( in september 2011 ) totaling 5.3 % , and a negligible impact from foreign currency translation . pricing actions , mainly in response to increased raw material costs , represented approximately 2.0 % of the revenue increase . production revenue ( representing 54.4 % of 2012 segment revenue ) increased by $ 213.0 million , or 22.0 % , with 12.0 % due to organic growth and 10.0 % from acquisitions . organic growth was driven by an increased number of active u.s. oil wells and wells with natural gas liquids driving demand for artificial lift products , higher international sales , and increased demand for compressor related products and winch products serving the infrastructure and

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cash flows from discontinued operations in 2013 , our businesses reported as discontinued operations used cash flow of $ 30.0 million as compared to cash generated of $ 4.9 million and $ 117.3 million in 2012 and 2011 , respectively . the 2011 amounts reflect cash flows generated from from the three businesses sold in 2011 ( paladin brands , crenlo , and heil trailer ) , as well as cash flows from the two businesses reclassified as held for sale in 2012 ( dek and everett charles technologies ) . cash flows from discontinued operations in 2013 and 2012 reflect only those businesses classified as held for sale in 2012. higher investments in working capital in 2013 led to the decline in cash flows from discontinued operations relative to the prior year , due primarily to the timing of customer and vendor payments . liquidity and capital resources free cash flow in addition to measuring our cash flow generation and usage based upon the operating , investing , and financing classifications included in the consolidated statements of cash flows , we also measure free cash flow ( a non-gaap measure ) . we believe that free cash flow is an important measure of operating performance because it provides management and investors a measurement of cash generated from operations that is available to repay debt , pay dividends , fund acquisitions , and repurchase our common stock . for further information , see the non-gaap disclosures at the end of this item 7 . 43 the following table reconciles our free cash flow to cash flow provided by operating activities : replace_table_token_12_th for 2013 , we generated free cash flow of $ 941.9 million , representing 10.8 % of revenue and 97.5 % of earnings from continuing operations . free cash flow in 2012 was $ 964.1 million or 11.9 % of revenue , compared to $ 686.2 million , or 9.3 % of revenue in 2011 .

year ended december 31 , 2018 and 2017 oil & gas industry 2018 net sales as a % of total sales 64 % oil & gas industry 2017 net sales as a % of total sales 78 % 12 foreign joint venture : summary financial information of bomay in u.s. dollars was as follows at december 31 , 2018 and 2017 : replace_table_token_2_th the company 's investments in and advances to its foreign joint venture 's operations were as follows as of december 31 , 2018 and 2017 in u.s. dollars : replace_table_token_3_th * accumulated statutory reserves in equity method investments of $ 2.8 million at both december 31 , 2018 and 2017 , respectively , are included in aeti 's consolidated retained earnings . in accordance with the people 's republic of china , ( “ prc ” ) , regulations on enterprises with foreign ownership , an enterprise established in the prc with foreign ownership is required to provide for certain statutory reserves , namely ( i ) general reserve fund , ( ii ) enterprise expansion fund and ( iii ) staff welfare and bonus fund , which are appropriated from net profit as reported in the enterprise 's prc statutory accounts . a non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors . the aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends . the company accounts for its investments in foreign joint venture operations using the equity method of accounting . under the equity method , the company 's share of the joint venture operations earnings or loss is recognized in the consolidated statements of operations as equity income ( loss ) from foreign joint venture operations . joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value . dividends received from the joint ventures reduce the carrying value . 13 the equity income for the company 's interest in the bomay joint venture for 201 8 and 201 7 was $ 0 . 95 million vs. $ 0 . 43 million . historically , the operating results of bomay have appeared almost seasonal as budgets were established for new years in march and the company worked to complete production to meet targets . most of bomay 's production is for bomco for the chinese national petroleum corporation , ( “ cnpc ” ) , for land drilling in china and in other international markets where bomco or cnpc have relationships . at december 31 , 2018 , there were inventories and work in progress at bomay of approximately $ 25.58 million compared to approximately $ 17.88 million at december 31 , 2017. we expect much of this will be invoiced in 2019 after new budgets are established and products accepted . additionally , new international orders will be completed and recognized . bomay has addressed the recent downturn in the chinese market with reduced staff and other cost cutting measures . results of operations the table below summarizes our consolidated operations for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_4_th 14 year ended december 31 , 201 8 compared to year ended december 31 , 201 7 revenue and gross profit brazil revenue increased 33 % , or $ 1.9 million , to $ 7.6 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. this growth was driven by the company 's brazil 's sales progress in downstream oil and gas market . gross profit increased 66 % , or $ 0.8 million , to $ 1.9 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. gross profit as a percentage of revenues increased to 25 % for the year ended december 31 , 2018 , compared to 20 % for the year ended december 31 , 2017. this increase was primarily attributable to the corresponding increase in revenue for the period . selling and marketing expenses selling and marketing expenses decreased 16 % , or less than $ 0.1 million , to $ 0.4 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. selling and marketing expenses , as a percentage of revenues , decreased 5 % for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. general and administrative expenses general and administrative expenses decreased by 20 % , or $ 0.9 million , to $ 3.3 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily due to lower payroll and related expenses totaling $ 0.6million compared to the prior period . general and administrative expenses , as a percentage of revenues , decreased 29 % to 44 % for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. foreign joint venture equity net equity income from the foreign joint venture increased 48 % , or $ 0.2 million , to $ 0.6 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily due to an increase in revenues at our chinese foreign joint venture , partially offset by the loss on the disposal of miefe . story_separator_special_tag 2016-01 is effective for fiscal years beginning after december 15 , 2017 with early adoption permitted . the adoption of asu no . 2016-01 , effective january 1 , 2018 , did not have a material impact on the company 's consolidated financial position , results of operations and disclosures . 18 in february 2016 , the fas b issued asu no . 2016-02 , leases , which requires lessees to recognize the following for all leases ( with the exception of short-term leases ) at the commencement date : ( 1 ) a lease liability , which is a lessee 's obligation to make lease payments arising fro m a lease , measured on a discounted basis ; and ( 2 ) a right-of-use asset , which is an asset that represents the lessee 's right to use , or control the use of , a specified asset for the lease term . under asu no . 2016-02 , lessor accounting is largely unchanged . asu no . 2016-02 is effective for fiscal years beginning after december 15 , 2018 with early application permitted . lessees and lessors must apply a modified retrospective transition approach for leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements . the modified retrospective approach would not require any transition accounting for leases expiring before the earliest comparative period presented . lessees and lessors may not apply a full retrospective transition approach . the company adopted asu no . 2016-02 on january 1 , 2019. as of the date of this filing , management is refining its estimates and assumptions , however , anticipates the implementation of this standard will result in an increase in assets and liabilities of approximately $ 0.6 million to $ 0.8 million . in april 2016 , the fasb issued asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing , to clarify two aspects of topic 606 : ( i ) identifying performance obligations ; and ( ii ) the licensing implementation guidance . the amendments do not change the core principle of the guidance in topic 606. the effective date and transition requirements for asu no . 2016-10 are the same as the effective date and transition requirements for asu no . 2014-09. this standard was adopted effective january 1 , 2018 , see asu no . 2014-09 above for additional information . in may 2016 , the fasb issued asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients . asu no . 2016-12 provides narrow-scope improvements to the guidance on collectability , noncash consideration , and completed contracts at transition . the amendment also provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers and are expected to reduce the judgment necessary to comply with topic 606. the effective date and transition requirements for asu no . 2016-12 are the same as the effective date and transition requirements for asu no . 2014-09. this standard was adopted effective january 1 , 2018. see asu no . 2014-09 above for additional information . in june 2016 , the fasb issued asu no . 2016-13 , financial instruments – credit losses ( topic 326 ) : measurement of credit losses on financial instruments . asu no . 2016-13 eliminates the probable initial recognition threshold in current u.s. gaap and , instead , requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience , current conditions , and reasonable and supportable forecasts . in addition , asu no . 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration . asu no . 2016-13 is effective for annual periods beginning after december 15 , 2019 , with early application permitted in annual periods beginning after december 15 , 2018. the amendments of asu no . 2016-13 should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective . management is currently evaluating the future impact of asu no . 2016-13 on the company 's consolidated financial position , results of operations and disclosures . in august 2016 , the fasb issued asu no . 2016-15 , statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments . asu no . 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows . asu no . 2016-15 is effective for reporting periods beginning after december 15 , 2017. early adoption is permitted . the adoption of asu no . 2016-15 , effective january 1 , 2018 , did not have a significant impact on the company 's consolidated financial position , results of operations and disclosures . in december 2016 , the fasb issued asu no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers . asu no . 2016-20 allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and require entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures . the amendment also clarifies narrow aspects of asc 606 , including contract modifications , contract costs , and the balance sheet classification of items as contract assets versus receivables , or corrects unintended application of the guidance . the effective date and transition requirements for asu no . 2016-20 are the same as the effective date and transition requirements for asu no . 2014-09. the adoption of

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liquidity and capital resources replace_table_token_5_th * “ consolidated net worth ” represents the company 's consolidated total assets less consolidated total liabilities . see note 7 , notes payable in the notes to consolidated financial statements included elsewhere in this report for discussion of recent financing activity . 15 financing on march 23 , 2017 the company entered into a $ 7.00 million senior secured term note ( “ the note ” ) with a third-party lender . the note is payable in monthly interest only payments in arrears at a fixed rate of 11.50 % . principal of $ 0.50 million was paid on june 30 , 2017. the note was amended november 13 , 2017 requiring minimum principal reductions of $ 30,000 per month beginning in april 2018 and with the remaining balance due march 23 , 2021. this debt was repaid in full from proceeds received on the sale of the company 's u.s. operations in august 2018. the company continues to monitor its liquidity position closely and depending on the business needs may raise cash in the form of debt , equity or a combination of both . however , there can be no assurance that additional capital can be obtained or that it can be obtained at terms that are favorable to us and our existing stockholders .

principal stockholder at such time . pursuant to the terms of the exchange agreement , the china net bvi shareholders transferred to us all of the china net bvi shares in exchange for the issuance of 13,790,800 shares ( the “ exchange shares ” ) in the aggregate of our common stock ( the “ share exchange ” ) . as a result of the share exchange , china net bvi became our wholly owned subsidiary and we are now a holding company which , through certain contractual arrangements with operating companies in the people 's republic of china ( the “ prc ” ) , is engaged in providing advertising , marketing , communication and brand management and sales channel building services to small and medium companies in china . our wholly owned subsidiary , china net bvi , was incorporated in the british virgin islands on august 13 , 2007. on april 11 , 2008 , china net bvi became the parent holding company of a group of companies comprised of cnet online technology limited , a hong kong company ( “ china net hk ” ) , which established , and is the parent company of , rise king century technology development ( beijing ) co. , ltd. , a wholly foreign-owned enterprise ( “ wfoe ” ) established in the prc ( “ rise king wfoe ” ) . we refer to the transactions that resulted in china net bvi becoming an indirect parent company of rise king wfoe as the “ offshore restructuring . ” prc regulations prohibit direct foreign ownership of business entities providing internet content , or icp services in the prc , and restrict foreign ownership of business entities engaging in the advertising business . in october 2008 , a series of contractual arrangements ( the “ contractual agreements ” or the “ vie agreements ” ) were entered between rise king wfoe and business opportunity online ( beijing ) network technology co. , ltd. ( “ business opportunity online ” ) , beijing cnet online advertising co. , ltd. ( “ beijing cnet online ” ) ( collectively the “ prc operating entities ” ) and its common individual owners ( the “ prc shareholders ” or the “ control group ” ) . the contractual agreements allowed china net bvi through rise king wfoe to , among other things , secure significant rights to influence the prc operating entities ' business operations , policies and management , approve all matters requiring shareholder approval , and receive 100 % of the income earned by the prc operating entities . in return , rise king wfoe provides consulting services to the prc operating entities . in addition , to ensure that the prc operating entities and the prc shareholders perform their obligations under the contractual arrangements , the prc shareholders have pledged all of their equity interests in the prc operating entities to rise king wfoe . they have also entered into an option agreement with rise king wfoe which provides that at such time as when the current restrictions under prc law on foreign ownership of chinese companies engaging in the internet content , information services or advertising business in china are lifted , rise king wfoe may exercise its option to purchase the equity interests in the prc operating entities directly . pursuant to the contractual agreements , all of the equity owners ' rights and obligations of the vies were assigned to rise king wfoe , which resulted in the equity owners lacking the ability to make decisions that have a significant effect on the vies , rise king wfoe 's ability to extract the profits from the operation of the vies and assume the residual benefits of the vies . due to the fact that rise king wfoe and its indirect parent are the sole interest holders of the vies , we included the assets , liabilities , revenues and expenses of the vies in our consolidated financial statements , which is consistent with the provisions of fasb accounting standards codification ( “ asc ” ) topic 810 , “ consolidation ” subtopic 10. as of the date of the share exchange , through a series of contractual agreements , we operate our business in china primarily through business opportunity online and beijing cnet online . beijing cnet online owns 51 % of shanghai borongdingsi computer technology co. , ltd. ( “ shanghai borongdingsi ” ) . business opportunity online , beijing cnet online and shanghai borongdingsi , were incorporated on december 8 , 2004 , january 27 , 2003 and august 3 , 2005 , respectively . 43 shanghai borongdingsi is 51 % owned by beijing cnet online . beijing cnet online and shanghai borongdingsi entered into a cooperation agreement in june 2008 , followed up with a supplementary agreement in december 2008 , to conduct a bank kiosk advertisement business . the business is based on a bank kiosk cooperation agreement between shanghai borongdingsi and henan provincial branch of china construction bank which allows shanghai borongdingsi or its designated party to conduct in-door advertisement business within the business outlets throughout henan province . the bank kiosk cooperation agreement has a term of eight years beginning in august 2008. however , shanghai borongdingsi was not able to conduct the advertisement business as a stand-alone business due to the lack of an advertisement business license and supporting financial resources . pursuant to the aforementioned cooperation agreements , beijing cnet online committed to purchase equipment and to provide working capital , technical and other related support to shanghai borongdingsi . beijing cnet online owns the equipment used in the kiosk business , is entitled to sign contracts in its name on behalf of the business , and holds the right to collect the advertisement revenue generated from the bank kiosk business exclusively until it recovers the cost of purchasing the equipment . story_separator_special_tag 47 revenue recognition our revenue recognition policies are in compliance with asc topic 605. in accordance with asc topic 605 , revenues are recognized when all four of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) the service has been rendered , ( iii ) the fees are fixed or determinable , and ( iv ) collectability is reasonably assured . sales include revenues from reselling of advertising time purchased from tv stations , internet advertising and providing related value added technical services , reselling of internet advertising spaces and other advertisement related resources . no revenue from advertising-for-advertising barter transactions was recognized because the transactions did not meet the criteria for recognition in asc topic 605 , subtopic 20. advertising contracts establish the fixed price and advertising services to be provided . pursuant to advertising contracts , we provide advertisement placements in different formats , including but not limited to banners , links , logos , buttons , rich media and content integration . revenue is recognized ratably over the period the advertising is provided and , as such , we consider the services to have been delivered . we treat all elements of advertising contracts as a single unit of accounting for revenue recognition purposes . value added technical services are provided based on two types of contracts : ( i ) fixed price and ( ii ) fixed price with minimum performance threshold . for contracts with fixed price term , revenue is recognized on a pro-rata basis over the engaged service period . for fixed price contracts with minimum performance threshold , revenue is recognized when the specified performance criteria is met . based upon our credit assessments of our customers prior to entering into contracts , we determine if collectability is reasonably assured . in situations where collectability is not deemed to be reasonably assured , we recognize revenue upon receipt of cash from customers , only after services have been provided and all other criteria for revenue recognition have been met . taxation 1. income tax we adopt asc topic 740 “ income taxes ” and use liability method to account for income taxes . under this method , deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse . we record a valuation allowance to offset deferred tax assets , if based on the weight of available evidence , it is more-likely-than-not that some portion , or all , of the deferred tax assets will not be realized . the effect on deferred taxes of a change in tax rates is recognized in income statement in the period that includes the enactment date . we adopt asc topic 740-10-25-5 through 740-10-25-7 and 740-10-25-13 , which prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . this interpretation also provides guidance on recognition of income tax assets and liabilities , classification of current and deferred income tax assets and liabilities , accounting for interest and penalties associated with tax positions , accounting for income taxes in interim periods , and income tax disclosures . we did not have any interest and penalties associated with tax positions for the years ended december 31 , 2013 and 2012 and did not have any significant unrecognized uncertain tax positions as of december 31 , 2013 and 2012. i ) . we were incorporated in the state of nevada . under the current laws of nevada we are not subject to state corporate income tax . we became a holding company and do not conduct any substantial operations of our own after the share exchange . no provision for federal corporate income tax has been made in our financial statements as no assessable profits for the years ended december 31 , 2013 and 2012 , or any prior periods . we do not provide for u.s. taxes or foreign withholding taxes on undistributed earnings from non-u.s. subsidiaries and vies because such earnings are intended to be reinvested indefinitely . if undistributed earnings were distributed , foreign tax credits could become available under current law to reduce the resulting u.s. income tax liability . ii ) . china net bvi was incorporated in the british virgin islands ( “ bvi ” ) . under the current laws of the bvi , we are not subject to tax on income or capital gains . additionally , upon payments of dividends by china net bvi to us , no bvi withholding tax will be imposed . 48 iii ) . china net hk was incorporated in hong kong and does not conduct any substantial operations of its own . no provision for hong kong profits tax have been made in our financial statements as no assessable profits for the years ended december 31 , 2013 and 2012 , or any prior periods . additionally , upon payments of dividends by china net hk to its sole shareholder , china net bvi , no hong kong withholding tax will be imposed . iv ) . our prc operating subsidiary and vies , being incorporated in the prc , are governed by the income tax law of the prc and are subject to prc enterprise income tax ( “ eit ” ) . the eit rate of prc is 25 % , which applies to both domestic and foreign invested enterprises . · rise king wfoe is a software company qualified by the related prc governmental authorities and was approved by the local tax authorities of beijing , the prc , to be entitled to a two-year eit exemption from its first profitable year and a 50 % reduction of its applicable

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net cash provided by operating activities : for the year ended december 31 , 2013 , our net cash provided by operating activities of approximately us $ 2.76 million were primarily attributable to : ( 1 ) net income excluding approximately us $ 1.74 million of non-cash expenses of depreciation , amortizations , share-based compensation ; approximately us $ 2.70 million of non-cash charge of bad debts provisions ; approximately us $ 0.18 million of share of losses in equity investment affiliates ; approximately us $ 0.32 million of disposal of intangible assets , approximately us $ 0.54 million of loss on disposal of subsidiaries ; and approximately us $ 0.49 million of deferred income tax benefit , of approximately us $ 4.72 million ; ( 2 ) the receipt of cash from operations from changes in operating assets and liabilities such as : - other receivables decreased by approximately us $ 0.10 million , which was primarily due to the partial collection of the loan made for the production of the tv series “ xiao zhan feng yun ” , which amount was partially offset by the increase of overdue contract guarantee deposits during the year ended december 31 , 2013 ; - prepayments and deposits to suppliers decreased by approximately us $ 0.38 million , primarily due to the decrease in prepayments and deposits paid for the tv advertisement time purchased for reselling in 2013 ; - accounts payable increased by approximately us $ 0.30 million ; - taxes payable increased by approximately us $ 1.52 million ; and - other current assets decreased by approximately us $ 0.11 million .

we have identified the following accounting policies and related judgments as critical to understanding the results of our operations : allowance for doubtful accounts and notes receivable we establish reserves for uncollectible accounts and notes receivable based on overall receivable aging levels and a specific evaluation of accounts and notes for franchisees and other customers with known financial difficulties . balances are charged off against the allowance after recovery efforts have ceased . noncontrolling interests the company has the following four joint ventures in which there are noncontrolling interests as of december 28 , 2014 : joint venture redemption feature location within the consolidated balance sheet recorded value star papa , lp redeemable temporary equity carrying value pj denver , llc redeemable temporary equity redemption value colonel 's limited , llc no redemption feature permanent equity carrying value pj minnesota , llc no redemption feature permanent equity carrying value consolidated net income is required to be reported separately at amounts attributable to both the parent and the noncontrolling interest . disclosures are required to clearly identify and distinguish between the interests of the parent company and the interests of the noncontrolling owners , including a disclosure on the face of the consolidated statements of income attributable to the noncontrolling interest holder . see “note 6” of “notes to consolidated financial statements” for additional information . stock based compensation compensation expense for equity grants is estimated on the grant date , net of projected forfeitures and is recognized over the vesting period ( generally in equal installments over three years ) . restricted stock is valued based on the market price of the company 's shares on the date of grant . stock options are valued using a black-scholes option pricing model . 26 our specific assumptions for estimating the fair value of options include the following : replace_table_token_7_th the risk-free interest rate for the periods within the contractual life of an option is based on the u.s. treasury yield curve in effect at the time of grant . the expected dividend yield was estimated as the annual dividend divided by the market price of the company 's shares on the date of grant . expected volatility was estimated by using the company 's historical share price volatility for a period similar to the expected life of the option . see “note 18” of “notes to consolidated financial statements” for additional information . intangible assets — goodwill we evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount . such tests are completed separately with respect to the goodwill of each of our reporting units , which includes our domestic company-owned restaurants , china and the united kingdom ( “pjuk” ) . we may perform a qualitative assessment or move directly to the quantitative assessment for any reporting unit in any period if we believe that it is more efficient or if impairment indicators exist . we elected to perform the two-step quantitative assessment for all reporting units in 2014. our domestic company-owned restaurants fair value calculation considered both an income approach and a market approach and our china and united kingdom fair value calculations considered an income approach . the income approach used projected net cash flows , with various growth assumptions , over a ten-year discrete period and a terminal value , which were discounted using appropriate rates . the selected discount rate considered the risk and nature of each reporting unit 's cash flow and the rates of return market participants would require to invest their capital in the reporting unit . in determining the fair value from a market approach , we considered earnings before interest , taxes , depreciation and amortization ( “ebitda” ) multiples that a potential buyer would pay based on third-party transactions in similar markets . the results of our quantitative assessments indicated the fair values significantly exceeded the carrying amounts . subsequent to completing our annual quantitative goodwill impairment tests , no indications of impairment were identified . insurance reserves our insurance programs for workers ' compensation , owned and non-owned automobiles , general liability , property , and health insurance coverage provided to our employees are funded by the company up to certain retention levels . losses are accrued based upon undiscounted estimates of the aggregate retained liability for claims incurred using certain third-party actuarial projections and our claims loss experience . the estimated insurance claims losses could be significantly affected should the frequency or ultimate cost of claims differ significantly from historical trends used to estimate the insurance reserves recorded by the company . see “note 12” of “notes to consolidated financial statements” for additional information . 27 deferred income tax accounts and tax reserves papa john 's is subject to income taxes in the united states and several foreign jurisdictions . significant judgment is required in determining papa john 's provision for income taxes and the related assets and liabilities . the provision for income taxes includes income taxes paid , currently payable or receivable and those deferred . deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities , and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse . deferred tax assets are also recognized for the estimated future effects of tax loss carryforwards . the effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted . valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize . as of december 28 , 2014 , we had a net deferred income tax liability of approximately $ 10.0 million . tax authorities periodically audit the company . story_separator_special_tag 36 the comparable sales base and average weekly sales for 2014 and 2013 for domestic company-owned and north america franchised restaurants consisted of the following : replace_table_token_15_th * includes 150 traditional units in 2014 and 185 in 2013 and 213 non-traditional units in 2014 and 184 in 2013. north america franchise and development fees were approximately $ 700,000 in 2014 , a decrease of approximately $ 500,000 from 2013 primarily due to lower franchise renewal fees . domestic commissary sales increased 8.7 % to $ 629.5 million in 2014 , from $ 578.9 million in the prior year . as previously discussed , the increase was primarily due to increases in the prices of certain commodities ( primarily cheese and meats ) , higher sales volumes and higher overall margins . our commissaries charge a fixed dollar mark-up on the cost of cheese . cheese prices are based upon the block price , which increased to an average of $ 2.12 per pound in 2014 from $ 1.76 per pound in 2013. other sales increased $ 20.9 million to $ 74.2 million in 2014 primarily due to focus equipment sales to franchisees . see the focus system section above for additional information . international royalties and franchise and development fees increased approximately $ 3.8 million primarily due to a 17.5 % increase in franchised units and a comparable sales increase of 7.8 % , calculated on a constant dollar basis . international franchise restaurant sales were $ 553.0 million in 2014 , compared to $ 460.0 million in 2013. international franchise restaurant sales are not included in our consolidated statements of income ; however , our international royalty revenue is derived from these sales . international restaurant and commissary sales increased $ 10.1 million , or 15.1 % , primarily due to an increase in commissary revenues from increases in units and higher comparable sales , including the united kingdom . as previously noted , the 2013 year includes an additional month of revenues at our china company-owned operations in the amount of $ 2.1 million . costs and expenses . the restaurant operating margin at domestic company-owned units was 18.5 % in both 2014 and 2013 with the following differences by income statement category : · cost of sales was 0.4 % higher as a percentage of revenues in 2014 primarily due to higher commodity costs , primarily cheese and meats , somewhat offset by a higher ticket average . · salaries and benefits were 0.4 % lower as a percentage of sales in 2014 , primarily due to the benefit of higher sales . · advertising and related costs as a percentage of revenues were 0.3 % lower as a percentage of sales in 2014 , primarily due to the benefit of higher sales . 37 · occupancy costs and other restaurant operating costs , on a combined basis , were 0.3 % higher as a percentage of revenues in 2014 primarily due to higher restaurant driver insurance claims costs of approximately $ 3.5 million . domestic commissary operating margin was 7.1 % and 7.7 % in 2014 and 2013 , respectively , with the following differences by income statement category : · cost of sales was 0.8 % higher as a percentage of revenues in 2014 primarily due to higher cheese costs , which have a fixed-dollar markup . as cheese prices are higher , food cost as a percentage of sales is higher . · salaries and benefits and other commissary operating expenses were 0.2 % lower as a percentage of sales due to the benefit of higher sales . the costs were $ 6.3 million higher in 2014 primarily due to higher sales volumes , higher workers ' compensation and automobile insurance claims costs of $ 2.6 million and higher costs associated with various ongoing commissary initiatives . other operating expenses as a percentage of other sales were 95.8 % in 2014 , compared to 90.0 % in 2013. the higher operating expenses were primarily due to the low margin associated with sales of focus systems to franchisees , higher infrastructure costs to support our online operations and the impact of an increased number of reduced cost direct mail campaigns offered to our domestic franchised restaurants by preferred . international restaurant and commissary expenses were 83.0 % in 2014 compared to 84.9 % in 2013 , as a percentage of total restaurant and commissary sales . the decrease of 1.9 % is primarily due to lower operating expenses for the united kingdom primarily due to the benefit of higher sales . general and administrative ( “g & a” ) expenses were $ 140.6 million , or 8.8 % of revenues for 2014 , as compared to $ 134.2 million , or 9.3 % of revenues for 2013. the decrease as a percentage of sales was primarily the result of leverage from higher sales . the increase of $ 6.3 million was primarily due to the following : · unallocated corporate g & a expenses increased primarily due to higher legal and management incentive compensation costs , partially offset by lower travel costs . · domestic company-owned restaurant supervisor expenses increased , including higher bonuses from higher profits . · international g & a costs were higher due to increased infrastructure , marketing and other support costs . 38 other general expenses reflected net expense of $ 8.2 million in 2014 , as compared to $ 6.7 million in 2013 as detailed below ( in thousands ) : replace_table_token_16_th ( a ) incentives provided to franchisees for opening restaurants . ( b ) includes higher disposition related costs of approximately $ 700,000 for china company-owned restaurant closures and divestitures . ( c ) the perfect pizza lease obligation relates to rents , taxes , insurance and other costs associated with the former perfect pizza operations in the united kingdom . ( d ) see “items impacting comparability ; non-gaap measures” above for further information about the

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liquidity and capital resources our debt is comprised entirely of an unsecured revolving credit facility with outstanding balances of $ 230.5 million as of december 28 , 2014 and $ 157.9 million as of december 29 , 2013. the increase in the outstanding balance was primarily due to borrowings to fund increased share repurchases and to pay dividends . on october 31 , 2014 , we amended our unsecured revolving line of credit facility ( “amended line” ) to increase the amount available from $ 300 million to $ 400 million and extend the maturity date from april 30 , 2018 to october 31 , 2019. additionally , we have the option to increase the amended line an additional $ 100 million . the interest rate charged on outstanding balances is libor plus 75 to 175 basis points . the commitment fee on the unused balance ranges from 15 to 25 basis points . the increment over libor and the commitment fee are determined quarterly based upon the ratio of total indebtedness to consolidated earnings before interest , taxes , depreciation and amortization ( “ebitda” ) , as defined by the amended line . the remaining availability under the amended line , reduced for outstanding letters of credit approximates $ 148.2 million . we use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our revolving credit facility . on july 30 , 2013 , we terminated our $ 50 million interest rate swap agreement , which had a fixed rate of 0.56 % .

we are pioneering the future of medical , wellness and adult-use cannabis and hemp research , cultivation , processing and distribution , globally . we are one of the leading suppliers of adult-use cannabis in canada , medicinal cannabis in germany , and a leading supplier of hemp products in north america . we have supplied high-quality medical cannabis products to tens of thousands of patients in fifteen countries spanning five continents through our subsidiaries in australia , canada , germany , latin america and portugal , and through agreements with established pharmaceutical distributors . we cultivate medical and adult-use cannabis in canada and medical cannabis in portugal . we only operate in countries where cannabis or hemp-derived cannabinoids are legal , and are permitted under all applicable federal , state , provincial and local laws . we are witnessing a global paradigm shift regarding regulatory and consumer sentiment about cannabis and hemp . this shift is transforming a multibillion-dollar industry from a state of prohibition to one of legalization . medical cannabis is now authorized at the national or federal level in forty-two countries . the legal market for medical cannabis is still in its early stages and we believe the number of countries with legalized regimes will continue to increase over time . as this transformation occurs , we believe trusted global brands with multinational supply chains will become market leaders by earning the confidence of patients , doctors , governments , and adult consumers around the world . we are a leader in the canadian adult-use market . we have agreements to supply certain provinces and territories with our adult-use products for sale through their established retail distribution systems . adult-use legalization occurred in canada on october 17 , 2018. on october 17 , 2019 , the canadian adult-use regulations were amended to permit the sale of new classes of cannabis products including edibles , beverages and vape products . 53 during the year ended december 31 , 2020 , in an effort to better align our cost structure with the current business environment , we reduced headcount in different areas of the organization . we eliminated a total of 529 positions with an expected annualized savings impact , net of severance costs , of $ 40 million . in addition to headcount reductions , we took actions to increase operating efficiencies which will result in additional annualized cost savings of approximately $ 17 million , for a total of approximately $ 57 million annual ized cost savings versus our q4 2019 annualized run rate cost structure . we continue to evaluate our cost structure in light of evolving business conditions and covid-19 and may take additional actions if deemed appropriate . during the year ended december 31 , 2020 , we issued 16,131,487 shares of class 2 common stock for gross proceeds of approximately $ 127 million under the at-the-market equity offering program . on february 28 , 2020 , we entered into a credit agreement for a senior secured credit facility , denominated in canadian dollars , for a maximum aggregate principal amount of $ 59.6 million ( c $ 79.8 million ) ( the “ senior facility ” ) . an aggregate principal amount equal to $ 49.7 million ( c $ 66.5 million ) was drawn on february 28 , 2020. as a result of covid-19 related financial market conditions that affected the lender , and not because of any material changes to the business of tilray or its subsidiaries , the lender requested that we withdraw our then outstanding request for the additional draw of $ 9.9 million made on may 4 , 2020. we agreed and , as a result , on june 5 , 2020 , we entered into the first amendment to the senior facility ( “ the first amendment ” ) . the first amendment provides that the senior facility will only require interest payments for the remainder of its term and all outstanding principal payments will be due at maturity , february 28 , 2022. we have been , and currently are , in full compliance with all terms of the senior facility and did not incur any fees or penalties in connection with the first amendment . additionally , and at such time as the lender 's business may allow , the lender may make the additional proceeds of $ 9.9 million available during the term of the credit agreement , at its sole discretion . on march 17 , 2020 , we closed an underwritten registered offering of 7,250,000 shares of class 2 common stock for $ 4.76 per share and 11,750,000 pre-funded warrants for $ 4.7599 ( the “ pre-funded warrants ” ) accompanied by 19,000,000 warrants with an exercise price of $ 5.95. the pre-funded warrants have an exercise price per share of class 2 common stock of $ 0.0001 and were exercisable at any time after their original issuance and expire on the fifth anniversary date of issuance . the pre-funded warrants were exercised in full during march 2020. the 19,000,000 warrants ( the “ warrants ” ) have an exercise price of $ 5.95 and allow the holder to purchase 19,000,000 shares of the company 's class 2 common stock . all 19,000,000 warrants remained outstanding as of december 31 , 2020 , and are exercisable at any time after the first trading day following the six-month anniversary of the issuance and will expire on the fifth anniversary date from the date they become exercisable . our net proceeds ( exclusive of any warrant exercise proceeds ) from this offering was $ 85.3 million ( gross proceeds of $ 90.4 million ) . story_separator_special_tag the average cost per gram sold increased 37 % during 2020 compared to 2019 partially due to fewer kilograms sold as a result of reduced bulk sales , increased sales of cannabis 2.0 products that have higher costs than dried flower , and partially due to limited absorption of costs at our facility in portugal as we brought new growing capacity on line . we expect to see improvement in our cost per gram as the full benefit of our cost reductions , including the closure of growing operations at high park gardens which was a relatively high cost facility to operate , are realized and as we generate more throughput and cost absorption at our facility in portugal . however , as cannabis 2.0 products become a larger portion of our mix , and while these products will result in better throughput and cost absorption at our high park holdings processing facility , we may see fluctuations in our cost per gram as our product mix changes in order to meet customer demand . the average cost per gram sold decreased during 2019 compared to 2018 primarily the result of improved harvest quantities . in 2018 , all the products sold were primarily from tilray canada , a gmp indoor grow facility , compared to three greenhouses in operation during 2019. average gross selling price per unit – hemp products . the average gross selling price per unit is an indicator of our pricing trends over time on a unit basis for our hemp products and is impacted by sales mix , channel and product type . we exclude revenue associated with cannabis , accessories and freight sales to arrive at hemp product-related revenue . we calculate average gross selling price per unit by dividing hemp product-related revenue by units sold . the average gross selling price per unit for hemp products increased by 2 % during 2020 from 2019 , as the mix of products sold favored larger sizes and organic product sales versus non-organic . going forward , this trend may continue as some large format retail customers shift to larger size private label offerings . factors impacting our business we believe our future success will primarily depend on the following factors : global medical market expansion . we have a significant opportunity to capitalize on cannabis markets globally as medical cannabis becomes legal in more markets . medical cannabis is now authorized at the national or federal level in 42 countries . we have a production footprint in north american and europe that will allow us to efficiently respond to the expansion of the medical cannabis market globally . we have also established regional offices in portugal , germany and australia and invested significant resources in personnel , partnerships and in-country sales and marketing to build the foundation for new and existing export channels . our products have been made available in 17 countries , and we will continue to explore market expansion opportunities as more countries legalize medical cannabis . adult-use expansion in canada . the legalization of the adult-use cannabis market in canada , and the expansion of the adult-use cannabis market to include new form factors ( edibles , beverages and vape products ) , represents another significant opportunity . we have invested , and will continue to invest , significant resources into production capacity , brand development , business development and corporate infrastructure so we can serve the current and future adult-use market in canada . expanding household penetration . we acquired the manitoba harvest business in february 2019 , which is a leading provider of hemp seeds and related food products that are sold in over 16,000 retail locations in the united states and canada . the household penetration of hemp seed products is approximately 4.5 % in canada and roughly 1.5 % in the united states . hemp seed products have been available in canada for a longer period of time relative to the united states and we believe that creating awareness of the wellness benefits of these products provides an opportunity to increase household penetration in the united states . additionally , the household penetration of broad-spectrum hemp oil containing cbd in the united states is at its early stages and we believe there is significant opportunity to expand our presence in this relatively new product category . expanding capacity . at this early stage of the industry , we believe it is beneficial to be vertically integrated and control our entire production process to generate consistency and quality on a large scale . as we expand into new and existing markets , we may need to invest additional resources into cultivation and production facilities , which may require us to raise additional capital . 58 new product innovation . we believe there is a significant market opportunity for non-combustible products as global medical markets mature . in certain developed cannabis markets , non-combustible products have surpassed dried flower on a market share basis . we believe our success will depend on our ability to continually develop , introduce , and leverage non-combustible products and brands , which we believe will have higher gross profits compared to combustible products . critical accounting policies and significant judgments and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . a detailed discussion of our significant accounting policies can be found in part ii , item 8 of this form 10-k in the notes to consolidated financial statements in note 2 , “ summary of significant accounting policies ” , and the impact and risks associated with our accounting policies are discussed throughout this form 10‑k and in the notes to the consolidated financial statements . we have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to ( i

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liquidity and capital resources as at december 31 , 2020 , we had cash and cash equivalents of $ 189.7 million , which were held for working capital and general corporate purposes . this represents an overall increase of $ 92.9 million since december 31 , 2019. our primary need for liquidity is to fund working capital requirements , capital expenditures , debt service obligations and for general corporate purposes . our ability to fund operations and make planned capital expenditures and debt service obligations depends on future operating performance and cash flows which are subject to prevailing economic , business , and financial conditions , and other factors . during the year ended december 31 , 2020 , we successfully raised funds with the following financing activities : on february 28 , 2020 , we entered into a credit agreement for a senior secured credit facility , denominated in canadian dollars , for a maximum aggregate principal amount of $ 59.6 million ( c $ 79.8 million ) . an aggregate principal amount equal to $ 49.7 million ( c $ 66.5 million ) was drawn on february 28 , 2020. on march 17 , 2020 , we closed an underwritten registered offering of 7,250,000 shares of class 2 common stock for $ 4.76 per share and 11,750,000 pre-funded warrants for $ 4.7599 accompanied by 19,000,000 warrants with an exercise price of $ 5.95 per warrant . the pre-funded warrants had an exercise price per share of class 2 common stock of $ 0.0001. all the pre-funded warrants have been exercised . the 19,000,000 total accompanying warrants allow the holder to purchase 19,000,000 shares of the company 's class 2 common stock .

we have more than 30 million consumers with access to their free score through the fico ® score open access program and with the addition of new participants we expect this to grow to more than 60 million in early 2015. in addition , we introduced the fico ® custom credit education program where lenders can license enhanced credit education tools to include in their consumer financial education programs . we continued to make acquisitions that deliver solutions to the financial services industry and adjacent vertical industries ; our recent acquisitions of infocentricity and karmasphere are expected to benefit customers of all sizes and across all industries by leveraging cloud-based analytics modeling technology along with the big data analytics for hadoop technology capabilities . we also returned significant cash to shareholders through our stock repurchase program . during fiscal 2014 , we repurchased approximately 3.7 million shares for a total cost of $ 214.9 million . as of september 30 , 2014 , we had $ 250.0 million remaining under our current stock repurchase program . 26 bookings management uses bookings as an indicator of our business performance . bookings represent contracts signed in the current reporting period that generate current and future revenue streams . we consider contract terms , knowledge of the marketplace and experience with our customers , among other factors , when determining the estimated value of contract bookings . bookings calculations have varying degrees of certainty depending on the revenue type and individual contract terms . our revenue types are transactional and maintenance , professional services and license . our estimate of bookings is as of the end of the period in which a contract is signed , and we do not update initial booking estimates in future periods for changes between estimated and actual results . actual revenue and the timing thereof could differ materially from our initial estimates . the following paragraphs discuss the key assumptions used to calculate bookings and the susceptibility of these assumptions to variability . transactional and maintenance bookings we calculate transactional bookings as the total estimated volume of transactions or number of accounts under contract , multiplied by the contractual rate . transactional contracts generally span multiple years and require us to make estimates about future transaction volumes or number of active accounts . we develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements . differences between estimated bookings and actual results occur due to variability in the volume of transactions or number of active accounts estimated . this variability is primarily caused by the following : the health of the economy and economic trends in our customers ' industries ; individual performance of our customers relative to their competitors ; and regulatory and other factors that affect the business environment in which our customers operate . we calculate maintenance bookings directly from the terms stated in the contract . professional services bookings we calculate professional services bookings as the estimated number of hours to complete a project multiplied by the rate per hour . we estimate the number of hours based on our understanding of the project scope , conversations with customer personnel and our experience in estimating professional services projects . estimated bookings may differ from actual results primarily due to differences in the actual number of hours incurred . these differences typically result from customer decisions to alter the mix of fico and customer resources used to complete a project . license bookings licenses are sold on a perpetual or term basis and bookings generally equal the fixed amount stated in the contract . bookings trend analysis replace_table_token_4_th ( 1 ) bookings yield represents the percentage of revenue recognized from bookings for the periods indicated . ( 2 ) nm — measure is not meaningful as our estimate of bookings is as of the end of the period in which a contract is signed , and we do not update our initial booking estimates in future periods for changes between estimated and actual results . transactional and maintenance bookings were 28 % and 40 % of total bookings for the quarters ended september 30 , 2014 and 2013 , respectively . professional services bookings were 51 % and 41 % of total bookings for the quarters ended september 27 30 , 2014 and 2013 , respectively . license bookings were 21 % and 19 % of total bookings for the quarters ended september 30 , 2014 and 2013 , respectively . transactional and maintenance bookings were 29 % and 37 % of total bookings for the years ended september 30 , 2014 and 2013 , respectively . professional services bookings were 47 % and 41 % of total bookings for the years ended september 30 , 2014 and 2013 , respectively . license bookings were 24 % and 22 % of total bookings for the years ended september 30 , 2014 and 2013 , respectively . the weighted-average term of bookings achieved measures the average term over which the bookings are expected to be recognized as revenue . as the weighted-average term increases , the average amount of revenues expected to be realized in a quarter decreases ; however , the revenues are expected to be recognized over a longer period of time . as the weighted-average term decreases , the average amount of revenues expected to be realized in a quarter increases ; however , the revenues are expected to be recognized over a shorter period of time . management regards the volume of bookings achieved , among other factors , as an important indicator of future revenues , but they are not comparable to , nor substituted for , an analysis of our revenues , and they are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance . story_separator_special_tag in the event additional needs for cash arise , or if we refinance our existing debt , we may raise additional funds from a combination of sources , including the potential issuance of debt or equity securities . additional financing might not be available on terms favorable to us , or at all . if adequate funds were not available or were not available on acceptable terms , our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited . summary of cash flows replace_table_token_17_th cash flows from operating activities our primary method for funding operations and growth has been through cash flows generated from operating activities . net cash provided by operating activities totaled $ 175.0 million in fiscal 2014 compared to $ 136.1 million in fiscal 2013 . the $ 38.9 million increase was mainly attributable to a $ 40.4 million increase caused by the timing of receipts and payments in our ordinary course of business , including a $ 29.2 million increase caused by timing of payment on accrued compensation and employee benefits . net cash provided by operating activities totaled $ 136.1 million in fiscal 2013 compared to $ 129.7 million in fiscal 2012 . the $ 6.4 million increase , despite $ 1.9 million decrease in net income , was mainly attributable to an increase in non-cash charges to depreciation and amortization , deferred income taxes and share-based compensation , partially offset by a decrease caused by the timing of receipts and payments in our ordinary course of business . cash flows from investing activities net cash used in investing activities totaled $ 19.8 million in fiscal 2014 compared to $ 35.0 million in fiscal 2013 . the $ 15.2 million decrease was primarily attributable to a $ 25.6 million decrease in net cash used for acquisitions and an $ 11.6 million decrease in net cash used for purchases of property and equipment , partially offset by a $ 22.0 million decrease in proceeds from maturities of marketable securities . net cash used in investing activities totaled $ 35.0 million in fiscal 2013 compared to $ 65.7 million in fiscal 2012 . the $ 30.7 million decrease was primarily attributable to a $ 90.8 million decrease in net cash used for acquisitions , partially offset by a $ 61.6 million decrease in proceeds from sales and maturities of marketable securities , net of purchases . cash flows from financing activities net cash used in financing activities totaled $ 130.4 million in fiscal 2014 compared to $ 86.6 million in fiscal 2013 . the $ 43.8 million increase was primarily due to a $ 134.3 million increase in common stock repurchased and a $ 23.7 million 37 decrease in cash generated from stock option exercises , partially offset by a $ 72.7 million increase in proceeds , net of payments from our revolving line of credit and a $ 41.0 million decrease in payment on our senior notes . net cash used in financing activities totaled $ 86.6 million in fiscal 2013 compared to $ 128.5 million in fiscal 2012 . the $ 41.9 million decrease was primarily due to a $ 108.3 million decrease in common stock repurchased , partially offset by a $ 40.5 million decrease in cash generated from stock option exercises . in addition , there was a $ 26.0 million increase in payment on our senior notes and revolving line of credit , net of proceeds from revolving line of credit . repurchases of common stock from time to time , we repurchase our common stock in the open market . during fiscal 2014 , 2013 and 2012 , we expended $ 214.9 million , $ 84.9 million and $ 184.3 million , respectively , in connection with our repurchase of common stock . in august 2012 , our board of directors approved an open-ended stock repurchase program to acquire shares of our common stock up to an aggregate cost of $ 150.0 million in the open market or through negotiated transactions . following the completion of the august 2012 program , our board of directors approved another open-ended stock repurchase program in april 2014 to acquire shares of our common stock up to an aggregate cost of $ 150.0 million in the open market or through negotiated transactions . following the completion of the april 2014 program , our board of directors approved a new stock repurchase program in august 2014. the new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $ 250.0 million in the open market or in negotiated transactions . as of september 30 , 2014 , we had $ 250.0 million remaining under this authorization . dividends we paid quarterly dividends of two cents per share during each of fiscal 2014 , 2013 and 2012 . our dividend rate is set by the board of directors on a quarterly basis taking into account a variety of factors , including among others , our operating results and cash flows , general economic and industry conditions , our obligations , changes in applicable tax laws and other factors deemed relevant by the board . although we expect to continue to pay dividends at the current rate , our dividend rate is subject to change from time to time based on the board 's business judgment with respect to these and other relevant factors . revolving line of credit we have a $ 200 million unsecured revolving line of credit with a syndicate of banks that expires on september 28 , 2016. proceeds from the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt , acquisitions , and the repurchase of the company 's common stock . interest on amounts borrowed under the credit facility is based on ( i ) a base rate , which is the greater of

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debt manager product . the decrease in customer management solutions was primarily attributable to a decrease in software revenue driven by a large license transaction in fiscal 2012. the decrease in marketing solutions was primarily attributable to the early termination of a large customer in december 2012. scores replace_table_token_8_th scores segment revenues increased $ 5.7 million in fiscal 2014 from 2013 due to a $ 3.5 million increase in our myfico ® business-to-consumer services revenues and a $ 2.2 million increase in our business-to-business scores revenues . the increase in our myfico business-to-consumer services was attributable to a $ 4.2 million increase in direct sales generated from the myfico.com website , partially offset by a $ 0.7 million decrease in royalties derived from scores sold indirectly to consumers 29 through credit reporting agencies . the increase in our business-to-business scores revenues was primarily attributable to increased software revenue related to our global fico ® score . scores segment revenues increased $ 5.2 million in fiscal 2013 from 2012 due to a $ 5.8 million increase in our myfico ® business-to-consumer services revenues partially offset by a $ 0.6 million decrease in our business-to-business scores revenues . the increase in our myfico business-to-consumer services was attributable to a $ 6.8 million increase in direct sales generated from the myfico.com website , partly driven by the availability of fico ® scores generated using the consumer data of one credit reporting agency following an agreement with the credit reporting agency in may 2013. the increase was partially offset by a $ 1.0 million decrease in royalties derived from scores sold indirectly to consumers through credit reporting agencies . during fiscal 2014 , 2013 and 2012 , revenues generated from our agreements with equifax , transunion and experian , collectively accounted for approximately 15 % , 16 % and 18 % , respectively , of our total revenues , including revenues from these customers recorded in our other segments .

in addition , our determination of the amount of the allowance for loan losses is subject to review by the new jersey department of banking and insurance and the fdic , as part of their examination process . after a review of the information available , our regulators might require the establishment of an additional allowance . any increase in the loan loss allowance required by regulators would have a negative impact on our earnings .  other-than-temporary impairment of securities  if the fair value of a security is less than its amortized cost , the security is deemed to be impaired . management evaluates all securities with unrealized losses quarterly to determine if such impairments are “ temporary ” or “ other-than-temporary ” in accordance with accounting standards codification ( “ asc ” ) topic 320 , investments – debt and equity securities .  accordingly , temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity . temporary impairments on available for sale securities are recognized , on a tax-effected basis , through other comprehensive income ( “ oci ” ) with offsetting entries adjusting the carrying value of the securities and the balance of deferred taxes . conversely , the carrying values of held to maturity securities are not adjusted for temporary impairments . information concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is generally disclosed in the notes to the con solidated financial statements .  other-than-temporary impairments are accounted for based upon several considerations . first , other-than-temporary impairments on debt securities that the company has decided to sell as of the close of a fiscal period , or will , more likely than not , be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost , are recognized in earnings . if neither of these conditions regarding the likelihood of the sale of debt securities are applicable , then the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components . a credit-related impairment represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost . the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related . credit-related other-than-temporary impairments are recognized in earnings and noncredit-related other-than-temporary impairments are recognized in oci . equity securities on which there is an unrealized loss that is deemed other-than-temporary are written down to fair value with the writ e-down recognized in earnings .  deferred income taxes  the company records income taxes using the asset and liability method . accordingly , deferred tax assets and liabilities : ( i ) are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or the consolidated and separate entity tax returns ; ( ii ) are attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases ; and ( iii ) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled .  in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized . in making this assessment , management considers the profitability of current core operations , future market growth , forecasted earnings , future taxable income , and ongoing , feasible and permissible tax planning strategies . deferred tax assets have been reduced by a valuation allowance for all portions determined not likely to be realized . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment . the valuation allowance is adjusted , by a charge or credit to income tax expense , as changes in facts and circumstances warrant .  fair value measurements  management uses its best judgment in estimating fair value measurements of the company 's financial instruments ; however , there are inherent weaknesses in any estimation technique . management utilized various inputs to determine fair value including but not limited to the use of , valuation techniques based on various assumptions , including , but not limited to cash flows , discount rates , rate of return , adjustments for nonperformance and liquidity , quoted market prices , and appraisals . therefore , for substantially all financial instruments , the fair value estimates herein are not necessarily indicative of the amounts the company could have realized in a sales transaction on the dates indicated . the estimated fair value amounts have been measured as of their respective year-ends and have not been re- evaluated or updated for purposes of these consolidated financial statements  to those respective dates . as such , the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amo unts reported at each year-end . 33 financial condition at december 31 , 201 6 and 201 5  total assets increased by $ 89.8 million , or 5.5 % , to $ 1.708 billion at december 31 , 2016 from $ 1.618 billion at december 31 , 2015. total assets increased primarily as a result of increases in net loans receivable , securities available for sale , and net premises and equipment , partially offset by a decrease in total cash and cash equivalents . management is focusing on maintaining adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities to purchase loans in the secondary market that provide competitive returns but meet our internal underwriting guidelines . story_separator_special_tag communication , and other fees and expenses .  the income tax provision increased by $ 444,000 , or 9.2 % , to $ 5.3 million for the year ended december 31 , 2016 from $ 4.8 million for the year ended december 31 , 2015 . the increase in the income tax provision was a result of higher taxable income during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. the consolidated effective tax rate for the year ended december 31 , 2016 was 39.7 % compared to 40.7 % for the year ended december 31 , 2015 .  38 results of operations for the years ended december 31 , 2015 and 20 14  net income was $ 7.0 million for the year ended december 31 , 2015 , compared with $ 7.6 million for the year ended december 31 , 2014. net income decreased due to higher non-interest expense , partially offset by increases in net interest income and non-interest income for the year ended december 31 , 2015 , as compared with the year ended december 31 , 2014 .  net interest income increased by $ 3.6 million , or 7.3 % , to $ 53.5 million for the year ended december 31 , 2015 from $ 49.9 million for the year ended december 31 , 2014. the increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $ 223.7 million , or 18.4 % , to $ 1.439 billion for the year ended december 31 , 2015 from $ 1.215 billion for year ended december 31 , 2014 , partly offset by a decrease in the average yield on interest-earning assets of 28 basis points to 4.68 % for the year ended december 31 , 2015 from 4.96 % for the year ended december 31 , 2014. the average balance of interest-bearing liabilities increased by $ 200.3 million , or 19.8 % , to $ 1.215 billion for the year ended december 31 , 2015 from $ 1.014 billion for the year ended december 31 , 2014 , and the average cost of interest bearing liabilities increased by 12 basis points to 1.14 % for year ended december 31 , 2015 from 1.02 % for the year ended december 31 , 2014. net interest margin was 3.72 % for the year ended december 31 , 2015 , and 4.11 % for the year ended december 31 , 2014 .  interest income on loans receivable increased by $ 8.7 million , or 15.2 % , to $ 66.6 million for the year ended december 31 , 2015 from $ 57.9 million for the year ended december 31 , 2014. the increase was primarily attributable to an increase in the average balance of loans receivable of $ 243.6 million , or 21.8 % , to $ 1.360 billion for the year ended december 31 , 2015 from $ 1.117 billion for the year ended december 31 , 2014 , partially offset by a decrease in the average yield on loans receivable to 4.90 % for the year ended december 31 , 2015 from 5.18 % for the year ended december 31 , 2014 . the increase in the average balance of loans receivable was the result of our comprehensive loan growth strategy . the decrease in average yield reflects the competitive price environment prevalent in the company 's primary market area on loan facilities as well as the repricing downward of certain variable rate loans .  interest income on securities decreased by $ 1.6 million , or 71.5 % , to $ 651,000 for the year ended december 31 , 2015 from $ 2.3 million for the year ended december 31 , 2014. this decrease was primarily due to a decrease in the average balance of securities of $ 53.6 million or 73.0 % to $ 19.8 million for the year ended december 31 , 2015 from $ 73.4 million for the year ended december 31 , 2014 , partly offset by an increase in the average yield of securities to 3.28 % for the year ended december 31 , 2015 from 3.11 % for the year ended december 31 , 2014 . investment securities totaling approximately $ 100.5 million were sold in the third quarter of 2014 .  interest income on other interest-earning assets increased by $ 46,000 , or 83.6 % , to $ 101,000 for the year ended december 31 , 2015 from $ 55,000 for the year ended december 31 , 2014. this increase was primarily due to an increase of 136.3 % , in the average balance of other interest-earning assets to $ 58.4 million for the year ended december 31 , 2015 from $ 24.7 million for the year ended december 31 , 2014 , partly offset by a decrease in the average yield on other interest-earning assets to 0.17 % for the year ended december 31 , 2015 from 0.22 % for the year ended december 31 , 2014 .  total interest expense increased by $ 3.6 million , or 34.6 % , to $ 13.9 million for the year ended december 31 , 2015 from $ 10.3 million for the year ended december 31 , 2014. the increase resulted primarily from an increase in in the average balance of interest-bearing liabilities of $ 200.3 million , or 19.8 % , to $ 1.215 billion for the year ended december 31 , 2015 from $ 1.015 billion for the year ended december 31 , 2014 and an increase in the cost of interest-bearing liabilities of 12 basis points to 1.14 % for the year ended december 31 , 2015 from 1.02 % for the year ended december 31 , 2014. the increase in the average rate on interest-bearing liabilities was due to competitive forces in attracting new deposits and a change in the mix of funding sources and

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and capital resources  the overall objective of our liquidity management practices is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities . the company manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity , to repay borrowings and other obligations as they mature , and to fund loan and investment portfolio opportunities as they arise .  the company 's primary sources of funds to satisfy its objectives are net growth in deposits ( primarily retail ) , principal and interest payments on loans and investment securities , proceeds from the sale of originated loans and fhlb and other borrowings . the scheduled amortization of loans is a predictable source of funds . deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . the company has other sources of liquidity if a need for additional funds arises , including unsecured overnight lines of credit and other collateralized borrowings from the fhlb and other correspondent banks .  at december 31 , 201 6 , the company had $ 20.0 million in overnight borrowings outstanding wi th the fhlb compared to $ 0 at december 31 , 201 5 .

as a result , all of the assets and liabilities of the nf group and boqi zhengji were reclassified as assets and liabilities of a discontinued operation in the statement of position as of december 31 , 2020 and 2019 , and the results of the operation are presented under the line item net loss from discontinued operations for the years ended december 31 , 2020 and 2019 . 32 on march 18 , 2020 , we completed the guanzan acquisition . the rationale for the acquisition was for us to further expand our healthcare operation by acquiring a medical devices and pharmaceuticals distribution business . we believed that guanzan has strong sales capabilities and procurement resources in the local area of chongqing , the largest city in southwest region of the prc . the acquisition was is in line with our expansion strategy , which focuses on deeper penetration of the healthcare market in the southwest region of china and gaining a wider footprint in the prc . on february 2 , 2021 , we acquired guoyitang , the owner and operator of a private general hospital in chongqing with 50 hospital beds and 98 employees , including 14 doctors , 28 nurses , 43 other medical staff and 13 non-medical staff . the guoyitang acquisition will enable us to serve more individuals with medical needs and is the first step in our efforts to building a hospital chain specializing in obstetrics and gynecology . on february 8 , 2021 , we acquired zhongshan , a private hospital in the southeast region of china with 160 hospital beds ( of which 110 beds are currently in use ) and 95 employees , including 20 doctors , 48 nurses , 10 other medical staff and 17 non-medical staff . zhongshan is a general hospital known for its complex minimally invasive surgeries and equipped with high-end diagnostics equipment and surgical instruments for gynecology and obstetrics use . the zhongshan acquisition marks the second step in our effort to establish a nationwide hospital chain specializing in obstetrics and gynecology . going concern uncertainties the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern , which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future . as reflected in the accompanying consolidated financial statements , for the years ended december 31 , 2020 and 2019 , we incurred net losses of $ 1.8 million and $ 4.5 million , respectively . in addition , we reported continuing cash out flow of $ 4.36 million and $ 1.07 million from our operating activities for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 12.91 million . management believes these factors raise substantial doubt about our ability to continue as a going concern for the next twelve months . the continuation of our company as a going concern through the next twelve months is dependent upon ( 1 ) the continued financial support from our stockholders or external financing . management believes that our existing stockholders will provide the additional cash to meet our obligations as they become due , and ( 2 ) that it will be able to implement its business plan to expand our company 's operations and generate sufficient revenues to meet its obligations . while we believe in the viability of our strategy to increase sales volume and in our ability to raise additional funds , there can be no assurance to that effect , nor that the company will be successful in securing sufficient funds to sustain the operations . these conditions raise substantial doubt about our company 's ability to continue as a going concern . these financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties . management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for our company to continue as a going concern . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue , receivable , inventory , and accrued expenses . we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . changes in estimates are recorded in the period in which they become known . 33 we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we adopted accounting standard codification ( “ asc ” ) topic 606 , revenues from contract with customers ( “ asc 606 ” ) for all periods presented . story_separator_special_tag the increase of $ 12,844,902 is due to the acquisition of the guanzan group in 2020. wholesale sales of medical devices and pharmaceuticals generated revenues of $ 3,059,462 and $ 9,701,353 , respectively , in the year ended december 31 , 2020. revenues from the retail pharmacy segment for the year ended december 31 , 2020 were $ 84,087 compared to no revenues in the year ended december 31 , 2019. during the last quarter of 2020 , we entered into the release agreement with the four individuals from whom we purchased boqi zhengji . in the agreement , we and the sellers confirmed that the performance targets relating to the cash consideration would not be met and as a consequence they would not be eligible to receive any further consideration with respect to the sale of boqi zhengji to us . subsequently , on december 11 , 2020 , we entered into an agreement to sell boqi zhengji in consideration of $ 1.7 million , which was paid to us on december 18 , 2020 . 38 cost of revenues cost of revenues consists of primarily of the cost of the medical devices , pharmaceuticals and other products sold to customers . cost of revenues for the year ended december 31 , 2020 was $ 10,402,085 compared with $ 0 for the year ended december 31 , 2019. the increase reflected the costs associated with operations of the guanzan group . cost of revenue from the wholesale medical devices and the wholesale pharmaceuticals segments for the year ended december 31 , 2020 were $ 2,481,616 and $ 7,850,315 respectively . cost of revenue from the retail pharmacy segment for the year ended december 31 , 2020 was $ 70,154. during 2020 , the company recorded an impairment loss of $ 9,294 with respect to inventories , which was included in cost of revenues . due to covid-19 , a large portion of the inventory maintained by boqi zhengji 's retail stores were unsold and expired . we also closed several boqi zhengji stores in 2020 due to poor performance , which resulted in the expiration of some of our inventory . gross profit for the year ended december 31 , 2020 we had a gross profit margin of 19 % compared with gross profit margin of 0 % for the year ended december 31 , 2019. the gross profit margin of our wholesale medical devices and wholesale pharmaceuticals segments for the year ended december 31 , 2020 were 18.9 % and 19.1 % , respectively . our retail pharmacy segment 's gross profit margin for the year ended december 31 , 2020 was 16.6 % . operating expenses operating expenses consist mainly of amortization of convertible notes , convertible notes issuance-related costs , auditing and legal service fees , other professional service fees and promotional expenses . operating expenses were $ 6,255,098 for the year ended december 31 , 2020 compared to $ 985,974 for the year ended december 31 , 2019 , an increase of $ 5,269,124 , or 534 % . the increase is mainly due to amortization of convertible notes , and issuance-related costs for the convertible notes . operating expenses for the year ended december 31 , 2020 consist mainly of amortization of the convertible notes in the amount of $ 2,091,927 , meeting and promotional expenses in the amount of $ 938,086 , depreciation and amortization expense of $ 56,041 , audit fee of $ 329,693 , convertible notes issuance-related costs in the amount of $ 211,425 , legal fees of $ 172,575 and other professional service fees in the amount of $ 880,505. for the year ended december 31 , 2020 , operating expenses of $ 4,365,751 were allocated to the parent company , which include amortization of convertible notes of $ 2,091,927 and professional service fees of $ 903,573. operating expenses of the wholesale medical devices segment for the year ended december 31 , 2020 were $ 88,932. operating expenses of the wholesale pharmaceuticals segment for the year ended december 31 , 2020 were $ 842,421. operating expenses of the retail pharmacy segment for the year ended december 31 , 2020 were $ 376,415. other income ( expenses ) for the year ended december 31 , 2020 , we reported other income of $ 460,552 compared to other expense of $ 550,057 for the year ended december 31 , 2019. for the year ended december 31 , 2020 , other income mainly consisted of the exchange gains resulting from the appreciation of the rmb against the us dollar during 2020 ; and amortization of the discount applicable to the issuance of convertible promissory notes . in 2020 , the exchange rate of chinese rmb to us dollars increased from $ 1 = ¥6.9762 to $ 1 = ¥ 6.5249. as substantially all of our assets and revenues are denominated in rmb , we reported exchange gains of $ 547,114 for the year ended december 31 , 2020 , as a result of such exchange rate change and exchange gains/losses related to non-currency assets and liabilities , compared to exchange gains of $ nil for the year ended december 31 , 2019 . 39 for the year ended december 31 , 2019 , other loss of $ 550,057 mainly consisted of : ( i ) the change in fair value of derivative liabilities related to the convertible promissory notes issued during 2019 ; and ( ii ) amortization of the discount applicable to the issuance of convertible promissory notes . net loss from continuing operation net loss from continuing operations was $ 3,786,035 for the year ended december 31 , 2020 compared to a net loss of $ 1,536,031 for the year ended december 31 , 2019 , an increase of $ 2,250,004 , which was primarily a result of the significantly increased operating expense of the parent company and the operating expenses of the guanzan group . income ( loss ) from

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liquidity and capital resources liquidity is the ability of a company to generate funds to support its current and future operations , satisfy its obligations and otherwise operate on an ongoing basis . at december 31 , 2020 , we had cash of $ 135,309 and working capital of $ 9,619,274 as compared to cash of $ 1,601 and working capital of $ 8,512,585 at december 31 , 2019. beginning on september 27 , 2019 , we sold $ 1,534,250 of convertible notes to various investors that matured during the period beginning september 27 , 2020 and ending on march 13 , 2021. each of these notes was issued for a term of 12 months , carrying 6 % annual interest rate and convertible into the company 's common stock . according to the applicable agreements , each holder of such notes had the right during the period beginning one hundred eighty ( 180 ) calendar days following the date of their issuance and ending on the maturity date , to convert all or any part of the outstanding and unpaid principal into shares of common stock . all of the above notes were converted into shares of our common stock during the year ended december 31 , 2020. on february 1 , 2020 , we entered into a stock purchase agreement to acquire guanzan . pursuant to the agreement , we agreed to purchase all the issued and outstanding equity interests in guanzan and its subsidiary , shude , for rmb 100,000,000 ( approximately $ 14,285,714 ) to be paid by the issuance of 950,000 shares of our common stock and the cash payment of rmb 80,000,000 ( approximately $ 11,428,571 . ) on march 18 , 2020 , we closed the guanzan acquisition by delivering 950,000 shares of our common stock . in addition , we assumed bank indebtedness of $ 1,135,884 in connection with the acquisition .

also included are stores that were relocated during the year within a specified distance serving the same market where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store . operating expenses consist of all items directly related to the operation of the company 's stores , including salaries and related payroll costs , rent , utilities , facilities maintenance , advertising , property taxes , licenses , supplies and security . administrative expenses consist of items relating to the operation of the corporate offices , including the compensation and benefit costs of corporate management , area supervisors and other operations management personnel , collection operations and personnel , accounting and administrative costs , information technology costs , liability and casualty insurance , outside legal and accounting fees and stockholder-related expenses . 35 replace_table_token_8_th ( 1 ) store operating profit is an amount equal to net revenues less store operating expenses less depreciation expense . discontinued operations during fiscal 2014 , the company discontinued cash & go , ltd. , which owned and operated 37 check cashing and financial services kiosks located inside convenience stores in the state of texas . cash & go , ltd. was a joint venture in which the company owned a 50 % interest . the company recorded an after-tax loss upon the liquidation of cash & go , ltd. of $ 272,000 , or $ 0.01 per share , in fiscal 2014 , which was reported as a loss from discontinued operations . in fiscal 2013 , the company recorded a charge of $ 844,000 , net of tax , or $ 0.03 per share , and the after-tax earnings from operations for cash & go , ltd. were $ 211,000 , or $ 0.01 per share . all revenue , expenses and income reported in these consolidated financial statements have been adjusted to reflect reclassification of these discontinued operations . there were no assets or liabilities for discontinued operations as of december 31 , 2015 and 2014 . 36 critical accounting policies the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities , related revenue and expenses , and disclosure of gain and loss contingencies at the date of the financial statements . such estimates , assumptions and judgments are subject to a number of risks and uncertainties , which may cause actual results to differ materially from the company 's estimates . the significant accounting policies that the company believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following : customer loans and revenue recognition - receivables on the balance sheet consist of pawn loans and consumer loans . pawn loans are collateralized by pledged tangible personal property . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn for all pawns for which the company deems collection to be probable based on historical pawn redemption statistics . the typical pawn loan term is generally 30 days plus an additional grace period of 15 to 90 days depending on geographical markets and local regulations . pawn loans may be either paid in full with accrued pawn loan fees and service charges or , where permitted by law , may be renewed or extended by the customer 's payment of accrued pawn loan fees and service charges . if the pawn is not repaid , the principal amount loaned becomes the carrying value of the forfeited collateral , which is recovered through sales to other customers at prices above the carrying value . the company 's pawn merchandise sales are primarily retail sales to the general public in its pawn stores . the company acquires pawn merchandise inventory through forfeited pawns and through purchases of used goods directly from the general public . the company also retails limited quantities of new or refurbished merchandise obtained directly from wholesalers and manufacturers . the company records sales revenue at the time of the sale . the company presents merchandise sales net of any sales or value-added taxes collected . the company does not provide direct financing to customers for the purchase of its merchandise , but does permit its customers to purchase merchandise on an interest-free layaway plan . should the customer fail to make a required payment pursuant to a layaway plan , the previous payments are forfeited to the company . interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as income during the period in which final payment is received or when previous payments are forfeited to the company . some jewelry is melted at a third-party facility and the precious metal content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer . the company records revenue from these transactions when a price has been agreed upon and the company ships the precious metals to the buyer . the company recognizes credit services fees ratably over the life of the extension of credit made by the independent lender . the extensions of credit made by the independent lender to credit services customers have terms of 7 to 180 days . the company accrues consumer loan service fees on a constant-yield basis over the term of the consumer loan . consumer loans have terms that range from 7 to 365 days . credit loss provisions - the company has determined that no allowance related to credit losses on pawn loans is required , as the fair value of the collateral is significantly in excess of the pawn loan amount . story_separator_special_tag the decline in the store-level operating margin related primarily to a 41 % decrease ( 67 % on a constant currency basis ) in net revenue from wholesale scrap jewelry and a 25 % decrease ( 24 % on a constant currency basis ) in net revenue from payday lending . as a result of the 23 consumer loan store closures during fiscal 2015 and the continued significant deterioration in payday lending market conditions , primarily due to increased regulatory pressure , the company recognized non-recurring expenses related to the restructuring of the u.s. consumer loan operations of $ 965,000 during fiscal 2015. the majority of these non-recurring expenses are included in store operating expenses in the accompanying consolidated statements of income . 42 goodwill impairment - u.s. consumer loan operations during the third quarter of 2015 , the company determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment analysis for the u.s. consumer loan operations reporting unit . these indicators included , among others , the impacts of recently enacted and additional proposed local , state and federal regulatory restrictions affecting short-term and long-term profitability expectations for payday and title lending products , the company 's long-term ongoing strategy to reduce non-core consumer lending operations along with continued store closures and the significant deterioration in payday lending market conditions . as a result of the company 's interim goodwill impairment analysis , a $ 7,913,000 goodwill impairment charge was recorded in the third quarter of 2015 leaving no remaining goodwill or other intangible assets associated with its u.s. consumer loan operations reporting unit . administrative expenses , interest , taxes and income administrative expenses were flat at $ 54,758,000 during fiscal 2015 compared to $ 54,586,000 during fiscal 2014 , primarily as a result of a 19 % decline in the average value of the mexican peso which reduced administrative expenses in mexico , and reduced incentive compensation expense related to current year operating results , partially offset by a 9 % increase in the weighted-average store count resulting in additional management and supervisory compensation and other support expenses required for such growth . as a percentage of revenue , administrative expenses were 8 % during fiscal 2015 and 2014 . interest expense increased to $ 16,887,000 during fiscal 2015 compared to $ 13,527,000 for fiscal 2014 , primarily due to the issuance of the company 's 6.75 % senior notes in march 2014 and , to a lesser extent , an increase in the amount outstanding on the company 's 2015 credit facility , as defined below . see “ —liquidity and capital resources . ” for fiscal 2015 and 2014 , the company 's effective federal income tax rates were 30.8 % and 27.0 % , respectively . the company recognized an estimated non-recurring income tax benefit of $ 5,841,000 during fiscal 2014 as a result of a change in its estimated u.s. federal liability associated with the 2013 termination of its election to include foreign subsidiaries in its consolidated u.s. federal income tax return . excluding the non-recurring net benefits , the consolidated tax rate for fiscal 2014 was 32.0 % . net income decreased 29 % to $ 60,710,000 during fiscal 2015 compared to $ 85,166,000 during fiscal 2014 . the decrease was primarily due to the non-cash goodwill impairment and other non-recurring charges related to the company 's u.s. consumer loan operations , the weaker value of the mexican peso versus the u.s. dollar , the continued declines in non-core jewelry scrapping and non-core payday lending operations and an increase in interest expense primarily due to the issuance of the company 's 6.75 % senior notes in march 2014. these decreases were partially offset by the continued growth in core pawn operations , a non-recurring tax benefit and a reduction in incentive compensation expense . comprehensive income decreased 60 % to $ 22,578,000 during fiscal 2015 compared to $ 56,649,000 during fiscal 2014 , as a result of the translation of the company 's net assets denominated in local currencies into u.s. dollars as of december 31 , 2015 . 43 twelve months ended december 31 , 2014 compared to twelve months ended december 31 , 2013 . the following table details the components of the company 's revenue for the fiscal year ended december 31 , 2014 as compared to the fiscal year ended december 31 , 2013 ( in thousands ) . constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates . the average value of the mexican peso to the u.s. dollar decreased 4 % from 12.8 to 1 during fiscal 2013 to 13.3 to 1 during fiscal 2014. the end-of-period value of the mexican peso to the u.s. dollar decreased 12 % , from 13.1 to 1 at december 31 , 2013 to 14.7 to 1 at december 31 , 2014. as a result of these currency exchange movements , revenue from mexican operations translated into fewer u.s. dollars relative to the prior year , and net assets of mexican operations as of year end translated into fewer u.s. dollars relative to the prior year end . while the strength of the u.s. dollar compared to the mexican peso decreased the translated dollar-value of revenue generated in mexico , the cost of sales and operating expenses decreased as well . the scrap jewelry generated in mexico was exported and sold in u.s. dollars , which did not contribute to the company 's peso-denominated revenue stream . for the year ended december 31 , 2014 , the company 's latin american revenues and net income would have been approximately $ 15,269,000 and $ 2,100,000 higher , respectively , had foreign currency exchange rates remained consistent with those for the year ended december 31 , 2013. see “ —non-gaap financial information—constant currency results ” below . replace_table_token_13_th u.s. revenue accounted for approximately

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net cash provided by operating activities decreased $ 4,930,000 , or 5 % , from $ 97,679,000 for fiscal 2014 to $ 92,749,000 for fiscal 2015 , due primarily to a decrease in net income of $ 24,456,000 partially offset by the $ 7,913,000 non-cash goodwill impairment charge and other net changes in certain operating assets and liabilities ( as noted in the statements of cash flows ) . net cash used in investing activities decreased $ 13,690,000 , or 16 % , from $ 85,366,000 during fiscal 2014 to $ 71,676,000 during fiscal 2015 . cash flows from investing activities are utilized primarily to fund pawn store acquisitions , growth of pawn loans and purchases of property and equipment . the company paid $ 46,887,000 in cash related to acquisitions during fiscal 2015 compared to $ 58,942,000 in fiscal 2014 . the company funded $ 3,716,000 of loans in fiscal 2015 compared to $ 2,470,000 of loans in fiscal 2014 . net cash provided by financing activities increased $ 18,225,000 , or 200 % , from net cash used in financing activities of $ 9,098,000 for fiscal 2014 to net cash provided by financing activities of $ 9,127,000 for fiscal 2015 . net payments on the company 's credit facilities were $ 159,600,000 during fiscal 2014 compared to net proceeds of $ 35,600,000 during fiscal 2015. the company also paid $ 407,000 and $ 1,410,000 of debt issuance costs related to the company 's credit facilities during fiscal 2015 and 2014 , respectively . the company received proceeds from the offering of the notes of $ 200,000,000 and paid $ 5,200,000 of related debt issuance costs during fiscal 2014. the company repurchased shares of its common stock ( $ 39,974,000 during fiscal 2015 compared to $ 43,947,000 during fiscal 2014 ) , and realized proceeds from the exercise of stock options and the related tax benefit of $ 15,021,000 during fiscal 2015 compared to $ 9,411,000 during fiscal 2014 .

the process of conducting pre-clinical studies , clinical trials and regulatory activities necessary to obtain fda approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , regulatory , manufacturing capabilities and commercial viability . as a result of the uncertainties discussed above , the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . development timelines , probability of success and development costs vary widely . r & d expenses for the year ended december 31 , 2015 decreased compared to the year ended december 31 , 2014 , due to the completion of our phase iii clinical trial during 2014. r & d expenses for the year ended december 31 , 2015 were primarily comprised of regulatory consulting fees and other costs incurred from the filing of our bla for ri-002 with the fda , testing and validation expenses and close out study costs from our phase iii clinical study along with wages and benefits for employees , including stock-based compensation . general and administrative expense general and administrative , or g & a expense , consists of wages , stock-based compensation and benefits for senior management and staff unrelated to r & d , consulting fees for commercialization planning and infrastructure costs , market research , legal fees , accounting and auditing fees , information technology , rent , maintenance and utilities , insurance , travel and other expenses related to the general operations of the business . other income and expense interest income consists of interest earned on our cash and cash equivalents and short-term investments . interest expense consists of interest incurred on our notes payable , as well as the amortization and write-off of deferred financing costs , end of term fees , prepayment penalties for the repayment of debt to our prior debt lender and debt discounts amortization for each of the prior and current lender 's , end of term fees , back end fees , value of warrants issued , facility and financing fees . segment reporting we are engaged in the development and commercialization of human plasma and plasma-derived therapeutics . we also operate two fda-licensed source plasma collection facilities located in norcross , georgia and marietta , georgia . we define our segments as those business units whose operating results are regularly reviewed by the chief operating decision maker ( “ codm ” ) to analyze performance and allocate resources . our codm is our president and chief executive officer . the plasma collection center segment includes our operations in georgia . the research and development segment includes our plasma development operations in new jersey . summarized financial information concerning reportable segments is included in note 11 of the consolidated financial statements . 40 results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 summary table the following table presents a summary of our results of operations for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. replace_table_token_4_th revenue we recorded revenue of $ 7,177,633 during the year ended december 31 , 2015 compared to $ 5,915,545 during the year ended december 31 , 2014. product revenue was $ 7,050,283 for the year ended december 31 , 2015 , which is attributable to our adma biocenters plasma collection centers segment and derived from the sale of human source plasma collected in our fda-licensed , gha and mfds-certified norcross and marietta , georgia-based plasma collection centers , compared to product revenue of $ 5,839,989 for the year ended december 31 , 2014. product revenue for the year ended december 31 , 2015 was primarily attributed to sales made pursuant to our plasma supply agreement with biotest under which biotest purchases normal source plasma from adma biocenters to be used in their manufacturing . the increase in product revenue of $ 1,210,294 was primarily attributable to revenue generated from the sale of normal source plasma collected at our marietta , georgia , plasma collection center , which received approval from the fda during the third quarter 2015. we sold a majority of the normal source plasma collected from our plasma centers throughout the year . the normal source plasma and high-titer rsv plasma we did not sell was allocated to inventory in anticipation of commercial manufacturing . for the years ended december 31 , 2015 and 2014 , license and other revenue was $ 127,350 and $ 75,556 , respectively , which primarily relates to services and a financial payment by biotest in accordance with our license agreement and other third parties . we have not generated any revenue from our therapeutics , research and development business segment . cost of product revenue cost of product revenue was $ 4,311,461 for the year ended december 31 , 2015 , and $ 3,742,367 for the year ended december 31 , 2014. the increased cost of product revenues of $ 569,094 for the year ended december 31 , 2015 was directly related to the increase in product revenues primarily related to our second plasma center , for the year ended december 31 , 2015 . story_separator_special_tag as a result of the increase in warrant liability , we recorded an expense of $ 74,356 from the change in the fair value of warrant liability . during the first quarter ended march 31 , 2015 , we recorded $ 408,900 as the fair value of the warrant for the purchase of 58,000 shares of common stock . as a result of the decrease in warrant liability , we recorded a change in the fair value of stock warrants of $ 67,860 from the december 31 , 2014 balance . the key assumptions used to value the warrants included the expected date of the next round of equity financing , volatility of 58 % based upon a pro rata percentage of our common stock and similar public companies ' volatilities , an expected dividend yield of 0.0 % , a risk-free rate of 1.99 % and a term of 10 years . this warrant liability was adjusted from the date of the prior loan agreement on february 24 , 2014 , to fair value each reporting period using a lattice-based option model and the debt discount will be amortized to interest expense over the term of the loan . the down round warrant protection feature resulting in the warrant liability 's quarterly “ mark-to-market ” valuation has terminated as of february 24 , 2015 , which was the end of the one-year period following the amended loan closing on february 24 , 2014 and as a result the warrant liability of $ 408,900 was reclassified to additional paid-in capital . future financing needs we expect to continue to spend substantial amounts on product development , including commercialization activities , procuring raw material plasma , manufacturing , conducting potential future clinical trials for our product candidates and purchasing clinical trial materials from our suppliers . we anticipate that , based upon our projected revenue and expenditures , our current cash and cash equivalents , short term investments will be sufficient to fund our operations into the second half of 2016. in order to have sufficient cash to fund our operations thereafter , we will need to raise additional equity or debt capital by the end of the second half of 2016 in order to continue as a going concern , and we can not provide any assurance that we will be successful in doing so . this time frame may change based upon the timing of our commercial manufacturing scale up activities , how aggressively we execute on our commercial initiatives and when the fda approves our bla , if at all . we currently do not have arrangements to obtain additional financing . any such financing could be difficult to obtain or only available on unattractive terms and could result in significant dilution of stockholders ' interests . failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our business plan and financial performance and we could delay , discontinue or prevent product development , clinical trial or commercialization activities , delay or discontinue the approval of any of our potential products , or potentially cease operations . in addition , we could be forced to reduce or forego sales and marketing efforts and forego attractive business opportunities . we recognize that if the financial markets are not receptive , or if we are otherwise not able to raise additional capital , or if we incur delays in receiving fda approval for ri-002 , we can delay commercialization efforts , postpone research and development activities and otherwise reduce expenditures to maintain operations into the first quarter of 2017. our long-term liquidity depends on our ability to raise additional capital , to fund our research and development and commercial programs and meet our obligations on a timely basis . because of numerous risks and uncertainties associated with the research , development and future commercialization of our product candidate , we are unable to estimate with certainty the amounts of increased capital outlays and operating expenditures associated with our anticipated clinical trials and development activities . we have reported losses since inception in june 2004 through december 31 , 2015 , and we have as of december 31 , 2015 , an accumulated deficit of $ 87.4 million . we believe that we will continue to incur losses and negative cash flows from operating activities to fund our research and development , commercial programs and meet our obligations on a timely basis through the foreseeable future . as such , these conditions raise substantial doubt about our ability to continue as a going concern . if we are unable to successfully raise sufficient additional capital , we will likely not have sufficient cash flow and liquidity to fund our business operations as we currently operate , forcing us to delay , discontinue or prevent product development and clinical trial activities or the approval of any of our potential products , curtail our activities and potentially significantly reduce , or potentially cease operations . even if we are able to raise additional capital , such financings may only be available on unattractive terms , or could result in significant dilution to stockholders and , in such event , the value and potential future market price of our common stock may decline . in addition , the incurrence of indebtedness would result in increased fixed obligations and could result in covenants that would restrict our operations or other financing alternatives . 46 financial markets in the united states , canada , europe and asia continue to experience disruption , including , among other things , significant volatility in security prices , declining valuations of certain investments , as well as severely diminished liquidity and credit availability . business activity across a wide range of industries and regions continues to be greatly reduced and local governments and many businesses are still suffering from the lack of consumer spending and the lack of liquidity

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net cash used in operating activities net cash used in operating activities was $ 15,418,403 for the year ended december 31 , 2015. the net loss for this period was higher than net cash used in operating activities by $ 2,551,527 , which was primarily attributable to increases in inventories of $ 1,737,010 related to allocating additional plasma to inventory in preparation for commercial manufacturing activities anticipated in 2016 , increased deferred revenue of $ 1,500,000 from a milestone payment received from biotest resulting from the bla filing of ri-002 , increases in accounts receivable of $ 540,507 related to sales of our normal source plasma , offset by stock-based compensation of $ 1,711,047 , a loss on extinguishment of debt of $ 719,097 attributable to the refinancing of previous debt with a new venture debt lender and depreciation and amortization of $ 863,173. net cash used in operating activities was $ 14,704,910 for the year ended december 31 , 2014. the net loss for this period was higher than net cash used in operating activities by $ 2,108,253 , which was primarily attributable to stock-based compensation of $ 1,248,454 , associated hercules note charges related to amortization of debt discount , deferred financing costs , warrant liability and payment-in-kind interest charges of $ 509,575 , increases in accrued expenses of $ 1,351,937 partly offset by an increase in accounts receivable of $ 383,961 and a decrease of accounts payable of $ 937,779. net cash used in investing activities net cash used in investing activities was $ 1,741,575 for the year ended december 31 , 2015 , whichwas related to the increase in short term investments of $ 1,715,502 , and $ 26,073 in purchases of computers and equipment .

we believe that the impact on our business of any future negative trends in new vehicle sales would be partially mitigated by ( i ) the expected relative stability of our parts and service operations over the long-term , ( ii ) the variable nature of significant components of our cost structure and ( iii ) our brand mix . historically , our brand mix has been less affected by market volatility than the u.s. automobile industry as a whole . we believe that our new vehicle revenue brand mix , which included approximately 49 % of revenue from mid-line import brands and 37 % of revenue from luxury brands for 2012 , is well positioned for growth over the long term . our operating results are generally subject to changes in the economic environment as well as seasonal variations . we tend to generate more revenue and operating income in the second and third quarters than in the first and fourth quarters of the calendar year . generally , the seasonal variations in our operations are caused by factors related to weather conditions , changes in manufacturer incentive programs , model changeovers and consumer buying patterns , among other things . our gross profit margin varies with our revenue mix . the sale of new vehicles generally results in lower gross profit margin than used vehicle sales and sales of parts and service . as a result , when used vehicle and parts and service revenue increase as a percentage of total revenue , we expect our overall gross profit margin to increase . selling , general and administrative ( “ sg & a ” ) expenses consist primarily of fixed and incentive-based compensation , advertising , rent , insurance , utilities and other customary operating expenses . a significant portion of our cost structure is variable ( such as sales commissions ) , or controllable ( such as advertising ) , generally allowing us to adapt to changes in the retail environment over the long-term . we evaluate commissions paid to salespeople as a percentage of retail vehicle gross 30 profit and all other sg & a expenses in the aggregate as a percentage of total gross profit , with the exception of advertising expense , which we evaluate on a per vehicle retailed ( `` pvr `` ) basis . the united states automotive retail market showed continued improvement in 2012 , with new vehicle saar increasing to 14.5 million as compared to 12.8 million in 2011. we benefited from improving economic conditions throughout 2012 , which we attribute to increasing consumer confidence and the availability of credit at terms favorable to consumers . we also believe that pent up demand for new vehicles favorably impacted us during 2012. we believe that the overall economic recovery will continue to be fragile , and may be subject to further changes based on consumer confidence , unemployment levels and other macro-economic factors as the long-term prospects for , and the timing of , a return to a stronger economy continue to be difficult to predict . we had total available liquidity of $ 232.7 million as of december 31 , 2012 , which consisted of cash and cash equivalents of $ 6.2 million , borrowing availability of $ 213.9 million under our revolving credit facilities and $ 12.6 million of availability under our floor plan offset account . for further discussion of our liquidity , please refer to “ liquidity and capital resources ” below . we have no long-term debt maturities until october 2015 , at which time two of our mortgage notes payable associated with certain of our properties in st. louis , missouri , will mature . as of december 31 , 2012 , the aggregate principal amount outstanding under these two mortgage notes payable was $ 19.7 million . 31 results of operations the year ended december 31 , 2012 compared to the year ended december 31 , 2011 replace_table_token_7_th 32 replace_table_token_8_th net income and income from continuing operations increased by $ 14.3 million and $ 36.8 million , respectively , during 2012 as compared to 2011 . the increase in income from continuing operations was primarily composed of ( i ) a $ 64.6 million ( 9 % ) increase in gross profit , ( ii ) a $ 14.7 million increase in other operating income ( net of other operating expense ) and ( iii ) a $ 4.0 million ( 10 % ) decrease in other interest expense , net , partially offset by a $ 24.5 million ( 5 % ) increase in sg & a expenses and a $ 2.3 million ( 25 % ) increase in floor plan interest expense . net income for 2011 was positively impacted by the sale of our heavy truck business , two additional franchises ( two dealership locations ) and one ancillary business in 2011 , which resulted in $ 22.3 million in net-of-tax gains , which are included in discontinued operations , net . net income and income from continuing operations for 2012 were reduced by $ 1.1 million , net of tax , in real estate related charges . net income and income from continuing operations for 2011 were reduced by ( i ) $ 5.5 million , net of tax , related to legal claims related to operations from 2000 to 2006 , ( ii ) $ 4.2 million , net of tax , due to expenses related to executive separation benefits and ( iii ) $ 1.1 million , net of tax , in real estate related charges . story_separator_special_tag net income and income from continuing operations for 2010 were reduced by $ 8.3 million , net of tax , from losses on the extinguishment of long-term debt . gross profit increased across all four of our business lines and was driven by a $ 25.8 million ( 23 % ) increase in f & i gross profit and a $ 21.6 million ( 7 % ) increase in parts and service gross profit . our total gross profit margin increased 20 basis points to 16.9 % , primarily as a result of a mix shift to our higher margin parts and service and f & i business . the $ 378.7 million ( 10 % ) increase in total revenue was primarily the result of a $ 161.6 million ( 8 % ) increase in new vehicle revenue and a $ 166.9 million ( 16 % ) increase in used vehicle revenue . the increase in new vehicle revenue includes a $ 97.9 million ( 5 % ) increase in same store new vehicle revenue and $ 63.7 million in new vehicle revenue from acquired dealerships . the increase in used vehicle revenue includes a $ 141.9 million ( 17 % ) increase in same store used vehicle retail revenue and $ 35.8 million of used vehicle retail revenue derived from acquired dealerships . 41 new vehicle— replace_table_token_18_th new vehicle metrics— replace_table_token_19_th ( 1 ) same store amounts consist of information from dealerships for the identical months of each period presented in the comparison , commencing with the first full month in which the dealership was owned by us . the $ 161.6 million ( 8 % ) increase in new vehicle revenue was primarily a result of a $ 97.9 million ( 5 % ) increase in same store new vehicle revenue due to a 2 % increase in same store new vehicle unit sales and a 3 % increase in revenue per new vehicle sold . our total new vehicle revenue also benefited from $ 63.7 million of revenue from acquisitions . same store unit volumes for our mid-line import brands decreased 1 % , while units volumes from our domestic brands increased 13 % on a same store basis , reflecting ( i ) reduced availability of new vehicle inventory from certain japanese brands due to the natural disaster 42 and related events in japan and ( ii ) increased consumer demand for domestic vehicles . new vehicle saar increased to 12.8 million for 2011 as compared to 11.6 million for 2010. total new vehicle gross profit increased by $ 13.7 million ( 10 % ) , which included $ 4.0 million of gross profit derived from acquisitions . our same store gross profit per new vehicle sold increased by $ 105 , driven by a decrease in supply of higher-volume , lower-margin vehicles due to the natural disaster and related events in japan , which drove a 60 basis point increase in our new vehicle gross margins from our mid-line imports brands when compared to 2010. from time to time , we participate in certain manufacturer incentive programs that include performance criteria . in the fourth quarter of 2010 , we recognized approximately $ 2.5 million of manufacturer incentives ( $ 2.1 million of which related to the period of january 2008 through september 2010 ) related to ( i ) the purchase and sale of vehicles during the period from january 2008 through december 2010 and ( ii ) our satisfaction of certain manufacturer facility image standards in the fourth quarter of 2010. the $ 2.5 million of manufacturer incentives is included as a reduction of new vehicle cost of sales and , as a result , increased our luxury new vehicle gross profit for 2010. used vehicle— replace_table_token_20_th 43 used vehicle metrics— replace_table_token_21_th ( 1 ) same store amounts consist of information from dealerships for the identical months of each period presented in the comparison , commencing with the first full month in which the dealership was owned by us . the $ 166.9 million ( 16 % ) increase in used vehicle revenue includes ( i ) a $ 141.9 million ( 17 % ) increase in same store used vehicle retail revenue and ( ii ) $ 40.5 million of used vehicle revenue derived from acquired dealerships , partially offset by a $ 15.5 million ( 8 % ) decrease in same store used vehicle wholesale revenue . the $ 10.9 million ( 12 % ) increase in used vehicle gross profit was primarily a result of a $ 7.5 million ( 8 % ) increase in same store used vehicle retail gross profit . the increase in used vehicle retail revenue and gross profit was driven primarily by increased unit sales volumes , partially offset by a lower gross profit margin of 9.9 % , down 80 basis points from the prior year . these results reflected the continued benefits of several store-level programs , including volume-driven initiatives such as our `` asbury 1-2-1 `` program . 44 parts and service— replace_table_token_22_th ( 1 ) same store amounts consist of information from dealerships for the identical months of each period presented in the comparison , commencing with the first full month in which the dealership was owned by us . the $ 24.4 million ( 5 % ) increase in parts and service revenue was primarily due to $ 19.5 million of parts and service revenue derived from acquired dealerships . the $ 21.6 million ( 7 % ) increase in parts and service gross profit was primarily due to a 150 basis point increase in our same store parts and service gross margin primarily as a result of increased gross profit from reconditioning and preparation of vehicles . the $ 11.4 million million increase in reconditioning gross profit was primarily a result of the 21 % increase in our used vehicle retail unit sales . finance and insurance ,

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net cash used in investing activities totaled $ 113.5 million and $ 68.9 million for the years ended december 31 , 2012 and 2010 , respectively . net cash provided by investing activities totaled $ 34.3 million for the year ended december 31 , 2011 . cash flows from investing activities relate primarily to capital expenditures , acquisition and divestiture activity and sales of property and equipment . capital expenditures , excluding the purchase of real estate , lease buyouts and capitalized interest , were $ 56.4 million and $ 22.0 million and $ 22.2 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . real estate related capital expenditures totaled $ 12.6 million , $ 18.0 million and $ 7.4 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . in addition , we purchased previously leased property for $ 17.5 million and $ 30.3 million during the years ended december 31 , 2012 and 2011 , respectively . our capital investments currently consist primarily of real estate purchases , upgrades to our existing facilities and equipment purchases . we expect that capital expenditures during 2013 will total approximately $ 45.0 million , excluding the purchase of real estate . as part of our capital allocation strategy , we continuously evaluate opportunities to purchase properties currently under lease . no assurances can be provided that we will have or be able to access capital at times or on terms in amounts deemed necessary to execute this strategy . proceeds from the sale of assets totaled $ 8.6 million , $ 104.4 million and $ 17.7 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively .

in the study , 66.7 % of patients lost at least 5 % of their total body weight and the study showed statistically significant improvements in cardiometabolic risk factors , including fasting glucose , systolic blood pressure , cholesterol and triglycerides . patients in the treatment group were followed for 48 weeks and showed , on average , that 89.5 % of the weight loss achieved during the initial 24-week balloon treatment period was maintained at 48 weeks , or 24 weeks after the balloons were removed . in addition , data published and presented from our commercial registry demonstrates greater weight loss in the commercial setting as compared to our pivotal clinical study used to support fda approval . in may 2019 , we updated data from our commercial registry to include 1,411 total patients from 143 treatment sites in the united states . in this data set , for those patients receiving three balloons and at least 20 weeks of therapy , the average weight loss was 21.7 pounds , resulting in a 10.2 % reduction in total body weight . of note , 50.7 % of patients lost 10 % or more total body weight and 77.9 % lost 5 % or more total body weight . 73 we commenced u.s. commercialization of our prior generation obalon balloon system in january 2017. in march 2020 , we announced that the overall economic uncertainty , the restriction on elective procedures and the specific directives issued by the governor of california as a result of the covid-19 pandemic had a significant impact on our business . as a result , we halted sales to new patients in our obalon-branded retail treatment centers , terminated expansion plans for additional retail centers , subsequently closed the two retail treatment centers we had opened and halted manufacturing . additionally , since august 2020 , we have only had two full-time employees : andy rasdal , our president and chief executive officer , and nooshin hussainy , our chief financial officer . although we scaled back operations , we continued to strive to execute on our corporate and strategic objectives . for example , we continue to pursue third-party reimbursement of the obalon balloon system , explore strategic alternatives , tend to our obligations to care for patients who had been treated at our obalon-branded retail treatment centers , follow-up on and support product-related issues involving customers that have used obalon products , and review and comply with our regulatory obligations , including fda and sec requirements . given those impacts and the significant concern about an economic recovery that would allow consumers to feel confident enough to spend on a cash-pay procedure like the obalon balloon system , we do not currently plan to re-open our retail treatment centers , re-initiate our retail treatment center expansion plans , or plan to ship orders to u.s. customers or our former international distributor . as a result , we would not expect to report any new revenue for the foreseeable future . we generated total revenue of $ 1.6 million and $ 3.3 million for the years ended december 31 , 2020 and 2019 , respectively . for the years ended december 31 , 2020 and 2019 , our net loss was $ 12.3 million and $ 23.7 million , respectively . we have not been profitable since inception , and as of december 31 , 2020 , our accumulated deficit was $ 184.8 million . from inception through december 31 , 2020 , we have financed our operations primarily through private placements of our preferred stock , the sale of common stock in our ipo and in subsequent public and private placements , and , to a lesser extent , debt financing arrangements . on april 22 , 2020 , we executed a promissory note in favor of silicon valley bank evidencing an unsecured loan in the aggregate principal amount of $ 0.4 million , which was made pursuant to the paycheck protection program and which we refer to as the ppp loan . the paycheck protection program was established under the coronavirus aid , relief and economic security act , which was enacted on march 27 , 2020 and is administered by the u.s. small business administration . all the funds under the ppp loan were disbursed to us on april 23 , 2020. as of december 31 , 2020 , we had cash and cash equivalents of $ 3.9 million . in the fourth quarter of 2020 , we determined that the timeline for obtaining third-party reimbursement was longer than the cash runway available and we ceased our efforts related to reimbursement , including terminating its agreement with blue ox . we then focused its full efforts on consummating a strategic alternative transaction that would be in the best interest of our stockholders . on november 10 , 2020 , we signed a non-binding term sheet for merger with reshape lifesciences inc. and , on january 20 , 2021 , announced that a definitive agreement had been signed on january 19 , 2021 for a merger with reshape lifesciences inc. landlord dispute on october 13 , 2020 , gildred served the company with an unlawful detainer action in the superior court of california , county of san diego ( gildred development company v. obalon therapeutics , inc. , case no . 37-2020-00035927-cu-ud-ctl ) . gildred alleges that the company owes more than $ 113,000 of unpaid rent and fees to gildred and seeks damages for unpaid rent and continued occupancy of the premises . the company believes gildred 's claims are without merit and will defend vigorously against them . on november 18 , 2020 , gildred filed an ex parte application for a writ of attachment or , in the alternative , a temporary protective order . story_separator_special_tag cost of revenue decreased $ 1.9 million to $ 1.0 million during the year ended december 31 , 2020 , compared to $ 3.0 million during the year ended december 31 , 2019. the decrease was primarily attributable to a decrease in production of products as we suspended operations and abandoned the retail treatment model in the second quarter of 2020. gross margin decreased to 36.8 % during the year ended december 31 , 2020 , compared to 10.1 % during the year ended december 31 , 2019. research and development expenses . r & d expenses decreased $ 4.4 million to $ 2.5 million during the year ended december 31 , 2020 , compared to $ 6.9 million during the year ended december 31 , 2019. this decrease was due primarily driven by a decrease of $ 3.9 million in payroll and r & d related project expenses and $ 0.5 million in stock-based compensation due to the significant reduction in operations and personnel related to the covid-19 pandemic . selling , general and administrative expenses . sg & a expenses decreased $ 7.9 million to $ 8.8 million during the year ended december 31 , 2020 , compared to $ 16.7 million during the year ended december 31 , 2019. the decrease from the prior period was primarily driven by the significant reduction in operations and personnel related to the covid-19 pandemic . the reduction in operations and personnel resulted in decreases of $ 3.2 million in spending on marketing due to the closures of the retail centers , $ 2.7 million in payroll and office related expenses , $ 1.5 million in stock-based compensation due to a reduction in headcount and $ 0.5 million in accounting and legal fees . asset impairment expenses and other charges . asset impairment expenses and other charges increased $ 1.3 million during the year ended december 31 , 2020 , compared to zero during the year ended december 31 , 2019. the increase is due to the inventory and long-lived asset impairment charges recognized during the second quarter of 2020 as a result of our shift in business strategy away from the obalon-branded retail center model to a reimbursement model strategy . 79 interest expense , net . interest expense , net decreased $ 0.4 million to $ 0.0 million during the year ended december 31 , 2020 , compared to $ 0.4 million during the year ended december 31 , 2019. this decrease was attributable to paying off the term loan during the third quarter of 2019. story_separator_special_tag 2020 , none of the purchase or underwriter warrants have been were exercised , however , since december 31 , 2020 , we received proceeds of approximately $ 9.5 million as a result of the exercise of 2.3 million purchase warrants as of december 31 , 2020. lincoln park purchase agreement on february 5 , 2020 , we entered into a new purchase agreement ( the “ purchase agreement ” ) and registration rights agreement ( the “ registration rights agreement ” ) with lincoln park capital fund , llc ( “ lincoln park ” ) , pursuant to which lincoln park has committed to purchase up to $ 15.0 million of our common stock , $ 0.001 par value per share ( the “ common stock ” ) . the new purchase agreement replaces an existing purchase agreement , dated december 27 , 2018 , by and between us and lincoln park , pursuant to which lincoln park committed to purchase up to $ 20.0 million of our common stock . in connection with entering into the new purchase agreement , we terminated the prior purchase agreement with lincoln park , effective february 5 , 2020. under the terms and subject to the conditions of the purchase agreement , we have the right , but not the obligation , to sell to lincoln park , and lincoln park is obligated to purchase up to $ 15.0 million of our common stock . such sales of common stock by us , if any , will be subject to certain limitations , and may occur from time to time , at our sole discretion , over the 36-month period commencing on february 28 , 2020 date that a registration statement covering the resale of shares of common stock that have been and may be issued under the purchase agreement , which we agreed to file with the securities and exchange commission ( the “ sec ” ) pursuant to the registration rights agreement , was declared effective by the sec and a final prospectus in connection therewith was filed and the other conditions set forth in the purchase agreement were satisfied ( such date on which all of such conditions are satisfied , the “ commencement date ” ) . 81 we incurred approximately $ 0.3 million of legal , accounting , and other fees related to the offering . as of december 31 , 2020 we have not sold any shares under the purchase agreement to lincoln park . as a result , we fully expensed the $ 0.3 million of fees in march 2020. cash flows the following table provides a summary of the net cash flow activity for each of the periods set forth below ( in thousands ) : ​ replace_table_token_7_th ​ net cash used in operating activities during the year ended december 31 , 2020 , net cash used in operating activities was $ 10.4 million , consisting primarily of a net loss of $ 12.3 million , an increase in net operating assets of $ 1.4 million primarily related to a decrease in accrued compensation as a result of the reduction in full-time employees to two as of december 31 , 2020. these items were further offset by non-cash charges of $ 3.3 million , consisting primarily of stock-based compensation expense , depreciation expense , impairment of long-lived assets and amortization expense of right-of-use assets . during

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liquidity and capital resources as of december 31 , 2020 , we had cash and cash equivalents of $ 3.9 million and an accumulated deficit of $ 184.8 million . our primary sources of capital have been private placements of our preferred securities , the sale of common stock in our initial public offering or ipo , in october 2016 , a subsequent private placement in august 2018 , and various equity financings in 2019 including a follow-on offering in august 2019 , and , to a lesser extent , debt financing arrangements . we are continuing to significantly reduce expenditures to extend our cash runway during the suspension of our business operations . from january 1 , 2021 through march 2 , 2021 , the company 's warrant holders covering 2.3 million shares exercised the warrants and common stock was issued in exchange for proceeds of $ 9.5 million . we believe our current cash and cash equivalents as of december 31 , 2020 and cash received from exercise of warrants in the first quarter of 2021 are sufficient to fund our operations through the end of march 2022. in late 2019 , a novel strain of coronavirus , covid-19 , was reported to have surfaced in wuhan , china . since then , covid-19 has spread globally . to date , covid-19 has had , and will continue to have , an adverse impact on our operations and expenses as a result of the preventive and precautionary measures that we , our customers , other businesses , and governments are taking , including the deferral of elective medical procedures and diversion of capital and other resources . in march 2020 , we suspended all new patient treatments at our obalon-branded retail centers due to the ongoing covid-19 pandemic . we have taken further steps to significantly reduce expenses in an effort to extend our cash runway while we evaluate potential business options , strategic alternatives and the potential for third-party payer reimbursement that may be available when and if the current covid-19 crisis stabilizes and the economy rebounds .

neighborhood diabetes is a distributor of blood glucose testing supplies , insulin pumps , pump supplies , pharmaceuticals and other products for the management and treatment of diabetes . neighborhood diabetes purchases products from manufacturers at contracted rates and supplies these products to its customers . based on market penetration , payor plans and other factors , certain manufacturers provide rebates based on product sold . neighborhood diabetes records these rebates as a reduction to cost of goods sold as they are earned . our sales and marketing effort with respect to the omnipod system is focused on generating demand and acceptance of the omnipod system among healthcare professionals , people with insulin-dependent diabetes , third-party payors , government agencies , and third-party distributors . our marketing strategy is to build awareness for the benefits of the omnipod system through a wide range of education programs , social networking , patient demonstration programs , support materials , media advertisements and events at the national , regional and local levels . we are using third-party distributors to improve our access to managed care and government reimbursement programs , expand our commercial presence and provide access to additional potential patients . neighborhood diabetes has built a strong infrastructure in the reimbursement , billing and collection areas that provide for adjudication of claims as either durable medical equipment or through pharmacy benefits . claims are adjudicated under private insurers , medicaid or medicare . neighborhood diabetes ' business model requires collaboration with physicians , medical device manufacturers , pharmaceutical distributors , private insurers and public insurers such as the center for medicare & medicaid services , ( “cms” ) , who we collectively refer to as partners . neighborhood diabetes ' net sales are primarily generated from distributing diabetes supplies and pharmaceuticals pursuant to agreements with its partners . as a medical device company , reimbursement from third-party payors is an important element of our success . if patients are not adequately reimbursed for the costs of using the omnipod system or our other diabetes supplies , it will be much more difficult for us to penetrate the market . we continue to negotiate contracts establishing reimbursement for the omnipod system with national and regional third-party payors . as part of the integration of neighborhood diabetes , we are aligning third-party payor contracts , both ours and those of neighborhood diabetes , to be able to better leverage our cross-selling initiatives . as we expand our sales and marketing focus , increase our manufacturing capacity , expand to international markets and leverage the neighborhood diabetes model , we will need to maintain and expand available reimbursement for our product offerings . 43 since our inception in 2000 , we have incurred losses every quarter . in the years ended december 31 , 2011 , 2010 and 2009 , we incurred net losses of $ 57.2 million , $ 61.2 million and $ 72.3 million , respectively . as of december 31 , 2011 , we had an accumulated deficit of $ 441.0 million . we have financed our operations through the private placement of debt and equity securities , public offerings of our common stock and issuances of convertible debt and borrowings under certain other debt agreements . as of december 31 , 2011 , we had $ 158.8 million of convertible debt outstanding . of the $ 158.8 million of convertible debt outstanding , approximately $ 15.0 million matures in june 2013 and approximately $ 143.8 million matures in june 2016. since our inception , we have received net proceeds of $ 593.5 million from the issuance of redeemable convertible preferred stock , common stock and debt . our long-term financial objective is to achieve and sustain profitable growth . our efforts in the beginning of 2012 will be focused primarily on the production and regulatory approval of our next generation omnipod system . our efforts in the second half of 2012 will be focused on the launch of our next generation omnipod system to our existing patient base as well as the expansion of sales by continuing to add new patients in the u.s. and internationally . we also plan to focus on increasing sales to existing patients by offering additional products and services as a result of our acquisition of neighborhood diabetes . achieving these objectives is expected to require additional investments in certain personnel and initiatives to allow for us to increase our penetration in the united states and international markets . we believe that we will continue to incur net losses in the near term in order to achieve these objectives . however , we believe that the accomplishment of our near term objectives will have a positive impact on our financial condition in the future . we believe that our cash and cash equivalents , together with the cash to be generated from expected product sales , will be sufficient to meet our projected operating and debt service requirements for the next twelve months . acquisition of neighborhood diabetes on june 1 , 2011 , we acquired all of the outstanding shares of neighborhood diabetes , a durable medical equipment distributor specializing in direct to consumer sales of diabetes supplies , including pharmaceuticals , and support services . neighborhood diabetes serves more than 60,000 customers with type 1 and type 2 diabetes primarily in the northeast and southeast regions of the united states with blood glucose testing supplies , insulin pumps , pump supplies , pharmaceuticals , as well as other products for the management and treatment of diabetes . neighborhood diabetes is based in woburn , massachusetts , with additional offices in brooklyn , new york and orlando , florida . at the time of the acquisition , neighborhood diabetes employed approximately 200 people across its three locations . story_separator_special_tag research and development research and development expense increased $ 3.3 million , or 25.2 % , to $ 16.6 million for the year ended december 31 , 2010 , as compared to $ 13.2 million for the year ended december 31 , 2009 , which was primarily related to an increase of $ 2.8 million of omnipods and other products used for research and development purposes and $ 1.4 million of outside services in connection with development of the next generation omnipod , offset by a $ 1.2 million decrease in employee-related expenses . general and administrative general and administrative expense decreased $ 0.2 million , or 1.0 % , to $ 26.7 million for the year ended december 31 , 2010 , as compared to $ 26.8 million for the year ended december 31 , 2009 , which was primarily due to a reduction in bad debt expense of $ 1.7 million . this decrease was offset by an increase in outside services of $ 1.2 million mainly related to legal fees and temporary help , and an increase of $ 0.5 million of employee related expenses primarily associated with increased bonus expenses and stock-based compensation . sales and marketing sales and marketing expense decreased $ 2.9 million , or 7.7 % , to $ 34.7 million for the year ended december 31 , 2010 , as compared to $ 37.6 million for the year ended december 31 , 2009 , which was primarily 49 due to a reduction of $ 1.7 million in sample costs related to patient demonstration kits , a reduction of $ 1.1 million in outside services , a reduction of $ 0.3 million in advertising costs and a reduction of $ 0.3 million in travel-related costs . these decreases were offset in part by an increase of $ 0.5 million in employee related expenses , primarily due to additional employees and stock-based compensation expenses . restructuring and impairment of assets for the year ended december 31 , 2010 , we recorded a total of $ 4.4 million of impairment charges on certain assets . during the year ended december 31 , 2010 , we determined that certain amounts related to manufacturing equipment for our next generation omnipod would not be used in our final product and recorded an impairment charge of approximately $ 1.0 million . in addition , we terminated certain other projects related to our existing omnipod system as we focused primarily on the introduction of our next generation product . as a result , we recorded an impairment charge of approximately $ 3.4 million related to this manufacturing equipment and construction in process . we had no new restructuring or impairment activity in the year ended december 31 , 2009. other expense , net interest expense increased $ 9.5 million to $ 22.7 million for the year ended december 31 , 2010 , as compared to $ 13.2 million for the year ended december 31 , 2009. the increase in interest expense is primarily due to amortization of the debt discount related to our 5.375 % notes ( as defined below ) and additional interest associated with the facility agreement entered into in march 2009 , amended in september 2009 and june 2010 and repaid in december 2010. we recorded interest expense on the 5.375 % notes of $ 10.0 million in the year ended december 31 , 2010. of the $ 10.0 million , $ 4.9 million related to the amortization of the debt discount , $ 0.5 million related to the amortization of deferred financing costs , and $ 4.6 million related to interest payments . we recorded approximately $ 12.9 million of interest expense related to the facility agreement in the year ended december 31 , 2010. of the $ 12.9 million , approximately $ 3.3 million related to interest payments including a prepayment penalty , $ 2.6 million related to non-cash charges associated with the amortization of debt discounts and deferred financing costs , and $ 7.0 million related to the non-cash charges associated with the write-off of the remaining debt discounts and deferred financing costs in connection with the early extinguishment of the debt in december 2010. we recorded interest expense on the 5.375 % notes of $ 9.4 million in the year ended december 31 , 2009. of the $ 9.4 million , $ 4.3 million related to amortization of the debt discount , $ 0.5 million related to the amortization of deferred financing costs , and $ 4.6 million related to cash interest . we also recognized interest expense of $ 4.0 million related to the facility agreement in the year ended december 31 , 2009. of the $ 4.0 million recorded in 2009 , approximately $ 2.5 million related to cash interest and $ 1.5 million related to non-cash charges associated with the amortization of the debt discount and deferred financing costs . story_separator_special_tag stock warrants in march 2009 , we entered into a facility agreement with certain institutional accredited investors ( the “facility agreement” ) , pursuant to which the investors agreed to loan us up to $ 60 million , subject to the terms and conditions set forth in the facility agreement . total financing costs , including the transaction fee , were $ 3.0 million and were amortized as interest expense over the 42 months of the facility agreement . in september 2009 , we entered into an amendment to the facility agreement whereby we repaid the $ 27.5 million originally drawn and promptly drew down the remaining $ 32.5 million available under the facility agreement . 52 the annual interest rate was 8.5 % , payable quarterly in arrears . in connection with the amendment to the facility agreement , we entered into a securities purchase agreement with the institutional accredited investors whereby we sold 2,855,659 shares of our common stock to the lenders at $ 9.63 per share , a $ 1.9 million discount based on the closing

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liquidity and capital resources we commenced operations in 2000 and to date we have financed our operations primarily through private placements of common and preferred stock , secured indebtedness , public offerings of our common stock and issuances of convertible debt . on june 1 , 2011 , we acquired all of the outstanding shares of neighborhood diabetes . the aggregate purchase price of approximately $ 62.4 million included approximately $ 37.9 million in cash paid at closing . as of december 31 , 2011 , we had $ 94.0 million in cash and cash equivalents . we believe that our current cash and cash equivalents , together with the cash expected to be generated from product sales , will be sufficient to meet our projected operating and debt service requirements for at least the next twelve months . 50 equity in october 2009 , in a public offering we issued and sold 6,900,000 shares of our common stock at a price to the public of $ 10.25 per share . in connection with the offering , we received total gross proceeds of $ 70.7 million , or approximately $ 66.1 million in net proceeds after deducting underwriting discounts and offering expenses . in december 2010 , we issued and sold 3,450,000 shares of our common stock at a price of $ 13.27 per share . in connection with the offering , we received total gross proceeds of $ 47.8 million , or approximately $ 45.4 million in net proceeds after deducting underwriting discounts and offering expenses . approximately $ 33.3 million of the proceeds was used to repay all amounts outstanding under our facility agreement with certain institutional accredited investors . in june 2011 , in connection with the acquisition of neighborhood diabetes , we issued 1,197,631 shares of our common stock with a value of $ 20.40 per share on the issuance date , as partial consideration for the acquisition .

we distribute a majority of our musculoskeletal products through an affiliated distribution entity . under u.s. gaap , excise taxes incurred to get inventory to its current location can be included in the cost of the inventory . accordingly , a majority of the excise tax will be capitalized in inventory and the expense will be deferred until that inventory is sold on a first-in-first-out basis . therefore , while we started paying the tax in january 2013 , it will not significantly increase our cost of products sold expense in our consolidated statement of earnings until later in the year . once our cost of products sold starts reflecting this excise tax , we estimate the cost to be $ 10 to $ 15 million on a quarterly basis . the range of 74.5 to 75.5 percent does not take into consideration inventory step-up or other inventory charges related to acquisitions or operational excellence initiatives in 2013. we do not expect to be able to offset the full impact of the excise tax on net earnings through higher pricing on our products or through higher sales volumes resulting from the expansion of health insurance coverage . however , we do expect to offset the tax with cost savings from our operational excellence initiatives . we expect to continue making investments in r & d of approximately 5 percent of sales in 2013. sg & a as a percent of sales is expected to be between 39.5 and 40.0 percent in 2013 as we realize efficiencies from our operational excellence initiatives and further leverage revenue growth . we expect to incur $ 120 to $ 130 million of expenses in 2013 related to our operational excellence initiatives . these programs are targeted at streamlining the organization and business processes . they are expected to be mostly completed in 2013. we also expect to incur $ 5 to $ 15 million for certain acquisition and integration costs connected with recent acquisitions . we expect to recognize the majority of these expenses in “special items” on our statement of earnings , but some will be related to inventory and be reflected in costs of products sold . the gross margin and sg & a percentages discussed above do not include these expenses . assuming variable interest rates remain at december 31 , 2012 levels , we expect interest income and expense , net , to be approximately $ 60 million in 2013 , which is similar to 2012 . 18 zimmer holdings , inc. 2012 form 10-k annual report results of operations net sales by reportable segment the following tables present net sales by reportable segment and the components of the percentage changes ( dollars in millions ) : replace_table_token_3_th replace_table_token_4_th “foreign exchange” as used in the tables in this report represents the effect of changes in foreign currency exchange rates on sales growth . net sales by product category the following tables present net sales by product category and the components of the percentage changes ( dollars in millions ) : replace_table_token_5_th replace_table_token_6_th 19 zimmer holdings , inc. 2012 form 10-k annual report the following table presents net sales by product category by region ( dollars in millions ) : replace_table_token_7_th 20 zimmer holdings , inc. 2012 form 10-k annual report demand ( volume and mix ) trends increased volume and changes in the mix of product sales contributed 4 percentage points of 2012 sales growth , which is the same rate of growth from 2011 compared to 2010. consistent with our expectations , procedure volumes in the broader musculoskeletal market remained stable in 2012 relative to 2011 at low to mid-single digit growth rates . we believe long-term indicators point toward sustained growth driven by an aging global population , growth in emerging markets , obesity , proven clinical benefits , new material technologies , advances in surgical techniques and more active lifestyles , among other factors . in addition , the ongoing shift in demand to premium products and the introduction of patient specific devices is expected to continue to positively affect sales growth . pricing trends global average selling prices declined by 2 percent in 2012 compared to 2011. in all reporting segments , we continued to see pricing pressure from governmental healthcare cost containment efforts and from local hospitals and health systems . for example , in japan a biennial price adjustment went into effect in april 2012 which lowered pricing . the japan downward price adjustment was greater than we had anticipated coming into the year . for 2013 , we estimate that selling prices will have a negative effect of approximately 2 percent . foreign currency exchange rates for 2012 , foreign currency exchange rates resulted in a 2 percent decline in sales . this was most notable in europe due to the strengthening of the u.s. dollar versus the euro year-over-year . if foreign currency exchange rates remain consistent with 2012 year end rates , we estimate that a stronger u.s. dollar versus foreign currency exchange rates will have a negative effect in 2013 of approximately 0.5 percent on sales . we address currency risk through regular operating and financing activities and through the use of forward contracts and options solely to manage foreign currency volatility and risk . changes to foreign currency exchange rates affect sales growth , but due to gains/losses on hedge contracts and options , which are recorded in cost of products sold , the effect on net earnings in the near term is expected to be minimal . knees knee sales experienced a 1 percent decline in 2012 compared to a 2 percent increase in 2011. however , most of that change was caused by the impact of fluctuations in foreign currency exchange rates . in europe , changes in foreign currency exchange rates affected knee sales in 2012 and 2011 by negative 6 percent and positive 4 percent , respectively . story_separator_special_tag we also have available uncommitted credit facilities totaling $ 79.1 million . we place our cash and cash equivalents in highly-rated financial institutions and limit the amount of credit exposure to any one entity . we invest only in high-quality financial instruments in accordance with our internal investment policy . 25 zimmer holdings , inc. 2012 form 10-k annual report as of december 31 , 2012 , we had short-term and long-term investments in debt securities with a fair value of $ 915.7 million . these investments are in debt securities of many different issuers and therefore we have no significant concentration of risk with a single issuer . all of these debt securities remain highly-rated and we believe the risk of default by the issuers is low . as of december 31 , 2012 , $ 1,063.1 million of our cash and cash equivalents and short-term and long-term investments are held in jurisdictions outside of the u.s. and are expected to be indefinitely reinvested for continued use in foreign operations . repatriation of these assets to the u.s. may have tax consequences . $ 829.8 million of this amount is denominated in u.s. dollars and therefore bears no foreign currency translation risk . the balance of these assets is denominated in currencies of the various countries where we operate . we may use excess cash to repurchase common stock under our share repurchase program . as of december 31 , 2012 , $ 1,014.6 million remained authorized under a $ 1.5 billion repurchase program , which will expire on december 31 , 2014. management believes that cash flows from operations and available borrowings under the senior credit facility are sufficient to meet our working capital , capital expenditure and debt service needs , as well as return cash to stockholders in the form of dividends and share repurchases . should investment opportunities arise , we believe that our earnings , balance sheet and cash flows will allow us to obtain additional capital , if necessary . contractual obligations we have entered into contracts with various third parties in the normal course of business that will require future payments . the following table illustrates our contractual obligations ( in millions ) : replace_table_token_12_th $ 48.1 million of the other long-term liabilities on our balance sheet as of december 31 , 2012 , are liabilities related to defined benefit pension plans . defined benefit plan liabilities are based upon the underfunded status of the respective plans ; they are not based upon future contributions . due to uncertainties regarding future plan asset performance , changes in interest rates and our intentions with respect to voluntary contributions , we are unable to reasonably estimate future contributions beyond 2013. therefore , this table does not include any amounts related to future contributions to our plans . see note 14 to our consolidated financial statements for further information on our defined benefit plans . also included in other long-term liabilities on our balance sheet are liabilities related to unrecognized tax benefits and corresponding interest and penalties thereon . due to the uncertainties inherent in these liabilities , such as the ultimate timing and resolution of tax audits , we are unable to reasonably estimate the amount or period in which potential tax payments related to these positions will be made . therefore , this table does not include any obligations related to unrecognized tax benefits . see note 15 to our consolidated financial statements for further information on these unrecognized tax benefits . we have entered into various agreements that may result in future payments dependent upon various events such as the achievement of certain product r & d milestones , sales milestones , or at our discretion to maintain exclusive rights to distribute a product . since there is uncertainty on the timing or whether such payments will have to be made , we have not included them in this table . these payments could range from $ 0 to $ 54 million . critical accounting estimates our financial results are affected by the selection and application of accounting policies and methods . significant accounting policies which require management 's judgment are discussed below . excess inventory and instruments – we must determine as of each balance sheet date how much , if any , of our inventory may ultimately prove to be unsaleable or unsaleable at our carrying cost . similarly , we must also determine if instruments on hand will be put to productive use or remain undeployed as a result of excess supply . accordingly , inventory and instruments are written down to their net realizable value . to determine the appropriate net realizable value , we evaluate current stock levels in relation to historical and expected patterns of demand for all of our products and instrument systems and components . the basis for the determination is generally the same for all inventory and instrument items and categories except for work-in-process inventory , which is recorded at cost . obsolete or discontinued items are generally destroyed and completely written off . management evaluates the need for changes to inventory and instruments net realizable values based on market conditions , competitive offerings and other factors on a regular basis . income taxes – our income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . we are subject to income taxes in the u.s. and numerous foreign jurisdictions . significant judgments and estimates are required in determining the consolidated income tax expense . we estimate income tax expense and income tax liabilities and assets by taxable jurisdiction . realization of deferred tax assets in each taxable jurisdiction is dependent on our ability to generate future taxable income sufficient to realize the 26 zimmer holdings , inc. 2012 form 10-k annual report benefits . we evaluate deferred tax assets on an ongoing basis and provide

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liquidity and capital resources cash flows provided by operating activities were $ 1,151.9 million in 2012 , compared to $ 1,176.9 million in 2011. the principal source of cash from operating activities in 2012 was net earnings . non-cash charges included in net earnings accounted for another $ 454.1 million of operating cash . all other items of operating cash flows in 2012 were outflows of $ 55.1 million of cash . the lower cash flows provided by operating activities in 2012 were primarily due to increased investments in inventory to support significant new product launches and increased product liability payments . we paid approximately $ 90 million , $ 60 million and $ 45 million in 2012 , 2011 and 2010 , respectively , related to durom cup product liability claims . we estimate the net remaining liability after insurance recovery for durom cup claims as of december 31 , 2012 , is $ 162.8 million . we expect to pay the majority of this amount over the next five years . 24 zimmer holdings , inc. 2012 form 10-k annual report at december 31 , 2012 , we had 64 days of sales outstanding in trade accounts receivable , which was the same as december 31 , 2011. at december 31 , 2012 , we had 301 days of inventory on hand , an increase of 24 days compared to december 31 , 2011. days of inventory on hand have increased due to significant new product launches . cash flows used in investing activities were $ 592.1 million in 2012 , compared to $ 624.4 million in 2011. additions to instruments and additions to other property , plant and equipment did not change significantly year-over-year . in 2013 , instrument additions are expected to be in a range of $ 125 to $ 145 million and property , plant and equipment additions are expected to be in a range of $ 115 to $ 135 million . we feel this level of capital spending is necessary to support new product-related investments and replacement of older machinery and equipment .

item 8. financial statements and supplementary data , of this annual report on form 10-k for information regarding our atm financing . recent developments on december 20 , 2019 we announced an award voucher from the u.s. department of energy 's gateway for accelerated innovation in nuclear ( gain ) program to support development of lightbridge fuel in collaboration with idaho national laboratory ( inl ) . the scope of the project includes experiment design for irradiation of lightbridge metallic fuel material samples in the advanced test reactor ( atr ) at inl . the project is anticipated to commence in the first half of 2020. the total project value is approximately $ 846,000 , with three-quarters of this amount funded by doe for the scope performed by inl . this was the very first direct award to lightbridge from the doe , which demonstrates the doe 's commitment to funding nuclear energy innovation from american companies . 35 filing of arbitration - framatome on february 7 , 2020 , we filed a request for arbitration ( the “ arbitration request ” ) in the international court of arbitration of the international chamber of commerce against framatome . we took this action in order to obtain , inter alia , a declaration that the r & d services agreement , dated november 14 , 2017 , by and among framatome , enfission , and the company ( as amended by amendment number one , dated january 25 , 2018 , and amendment number two , dated june 20 , 2018 , the “ rdsa ” ) was validly terminated and is no longer in force , and to obtain compensation for the damages incurred . we anticipate our general and administrative costs will increase in 2020 due to this action . see part i. item 3. legal proceedings , for more information . consolidated results of operations the following table presents our historical operating results as a percentage of revenues for the years indicated : replace_table_token_5_th revenue the market for nuclear industry consulting services is competitive , fragmented , and subject to rapid change . our main business is developing our nuclear fuel . we may pursue some consulting services opportunities in the future , but we have further increased the focus and resources of the company to the fuel division and away from consulting . there was no revenue for the years ended december 31 , 2019 and 2018 . 36 general and administrative expenses general and administrative expenses consist mostly of compensation and related costs for personnel and facilities , stock-based compensation , finance , human resources , information technology , and fees for consulting and other professional services . professional services are principally comprised of legal , audit , strategic advisory services , and outsourcing services . total general and administrative expenses decreased by approximately $ 1.0 million for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018. there was a decrease in stock-based compensation of approximately $ 1.0 million due to the decrease in stock option expense for prior stock option awards , and a decrease in professional fees of approximately $ 0.2 million due to decrease in legal fees , accounting fees and other professional fees , which was offset by an increase in employee compensation and employee benefits of approximately $ 0.2 million due to an increase in the number of employees . total stock-based compensation included in general and administrative expenses was approximately $ 0.4 million and $ 1.4 million for the year ended december 31 , 2019 and 2018 , respectively . see note 9. stockholders ' equity and stock-based compensation of the notes to our consolidated financial statements included in part ii . item 8. financial statements and supplementary data , of this annual report on form 10-k for more information regarding our stock-based compensation . research and development corporate research and development expenses consist primarily of compensation and related fringe benefits including stock-based compensation and related allocable overhead costs for the research and development of our fuel , including work performed and billed to our enfission joint venture . total research and development expenses decreased by approximately $ 0.8 million for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018. there was a decrease in professional fees of approximately $ 0.1 million , a decrease in stock-based compensation of approximately $ 0.6 million due to the decrease in stock option expense for prior stock option awards , and a decrease in employee compensation and employee benefits in supporting research and development activities for enfission of approximately $ 0.2 million , which was offset by an increase in consulting fees of approximately $ 0.1 million . total stock-based compensation included in research and development expenses was approximately $ 0.4 million and $ 1.0 million for the year ended december 31 , 2019 and 2018 , respectively . due to the nature of these research and development expenditures , cost and schedule estimates are inherently uncertain and can vary significantly as new information and the outcome of these research and development activities become available . for 2020 , we anticipate a significant decrease of research and development activities due to budgetary constraints . other operating income and ( loss ) – related party reported in other operating income is other income for activities performed by our employees and consultants billed to the enfission joint venture for research and development work and our share of the allocated loss in enfission . story_separator_special_tag we have no debt or debt credit lines and we have financed our operations to date through our prior years ' consulting revenue margins and the sale of our preferred stock and common stock . management believes that public or private equity investments will be available in the future , however adverse market conditions in our common stock price and trading volume , as well as other factors could substantially impair our ability to raise capital in the future . short-term and long-term liquidity sources as discussed above , we will seek new financing bringing us additional sources of capital , depending on the capital market conditions of our common stock , over the next 12 months . there can be no assurance that these additional sources of capital will be made available to us . the primary potential sources of cash that may be available to us are as follows : equity or debt investment from third party investors in lightbridge ; and strategic investment to support the remaining research and development activities required to further enhance and complete the development of our fuel products to a commercial stage . in support of our long-term business with respect to our fuel technology business , we endeavor to create strategic alliances with other parties during the next three years , to support the remaining research and development activities that is required to further enhance and complete the development of our fuel products to a commercial stage . we may be unable to form such strategic alliances on terms acceptable to us or at all . see note 9. stockholders ' equity and stock-based compensation of the notes to our consolidated financial statements included in part ii . item 8. financial statements and supplementary data , of this annual report on form 10-k for information regarding our prior financings . the following table provides detailed information about our net cash flows for the years ended december 31 , 2019 and 2018 . 39 story_separator_special_tag number of years that matches the expected life of our stock option grants or we use the historical volatility of our stock price since january 5 , 2006 , the date we announced that we were becoming a public company , to estimate the future volatility of our stock . at this time , we do not believe that there is a better objective method to predict the future volatility of our stock . the expected life of options is based on internal studies of historical experience and projected exercise behavior . we estimate expected forfeitures of stock-based awards at the grant date and recognize compensation cost only for those awards expected to vest . the forfeiture assumption is ultimately adjusted to the actual forfeiture rate . estimated forfeitures are reassessed in subsequent periods and may change based on new facts and circumstances . we utilize a risk-free interest rate , which is based on the yield of us treasury securities with a maturity equal to the expected life of the options . we have not and do not expect to pay dividends on our common shares for the foreseeable future . we use the monte carlo valuation model to determine the fair value of market-based and performance-based stock options at the date of grant , which requires us to make assumptions , including : expected term ; volatility ; dividend yield ; risk-free interest rate ; and forfeiture rates . these assumptions are based on historical information and judgment regarding market factors and trends . if actual results differ from our assumptions and judgments used in estimating these factors , future adjustments to these estimates may be required . investment in enfission – equity method as of january 24 , 2018 , we own a 50 % interest in enfission – accounted for using the equity method of accounting . enfission is deemed to be a variable interest entity ( “ vie ” ) under the vie model of consolidation because it currently does not have sufficient funds to finance its operations and will require significant additional equity or subordinated debt financing . we have determined that we are not the primary beneficiary of the vie since we do not have the power to direct the activities that most significantly impact the vie 's performance . in determining whether we are the primary beneficiary and whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the vie , we evaluate all our economic interests in the entity , regardless of form . this evaluation considers all relevant factors of the entity 's structure including the entity 's capital structure , contractual rights to earnings ( losses ) as well as other contractual arrangements that have potential to be economically significant . we are not the primary beneficiary since the major decision making for all significant economic activities require the approval of both us and framatome . changes in the operating agreement may affect the evaluation of who is a primary beneficiary of the vie . 42 intangibles as presented on the accompanying balance sheet , we had patents with a book value of approximately $ 1.8 million and $ 1.6 million as of december 31 , 2019 and 2018 , respectively . there are many assumptions and estimates that may directly impact the results of impairment testing , including an estimate of future expected revenues , earnings , and cash flows , and discount rates applied to such expected cash flows to estimate fair value . we have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose for testing . to mitigate undue influence , we set criteria that are reviewed and approved by various levels of management . the determination of whether or not intangible assets have become impaired involves a significant level of judgment in the assumptions . changes in our strategy or market conditions could

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cash flow replace_table_token_6_th operating activities the decrease in our cash used in operating activities in 2019 of approximately $ 0.7 million was primarily due to a decrease in our operating expenses and net loss and the change in working capital items as explained below . cash used in operating activities in the year ended december 31 , 2019 consisted of net loss adjusted for non-cash ( income ) expense items such as stock-based compensation , amortization of deferred financing costs and equity in loss from the enfission joint venture , as well as the effect of changes in working capital . cash used in operating activities in the year ended december 31 , 2019 consisted of a net loss of approximately $ 10.6 million and net adjustments to net loss for non-cash income items or a negative cash flow offset ( decrease to cash flow used in operating activities ) totaling approximately $ 4.1 million , consisting of non-cash adjustments for stock-based compensation of approximately $ 0.8 million and equity in loss from the enfission joint venture of approximately $ 3.3 million . total cash used in operating working capital totaled approximately $ 0.3 million , which was primarily due to an increase in other receivables from the enfission joint venture . investing activities net cash used in our investing activities for the year ended december 31 , 2019 , as compared to net cash used in our investing activities in 2018 , decreased by approximately $ 2.0 million . the decrease was due primarily to reduced spending for investment in the enfission joint venture of approximately $ 2.0 million . the spending for patent application costs were approximately the same for the year ended december 31 , 2019. these applications are filed for new developments resulting from our research and development activities .

in 2014 , we earned an additional two certifications that are critical to our focus on the aerospace business , the pratt and whitney lcs approval in march 2014 and the s-400 and s-1000 approvals from ge aviation in july 2014. we added 13 more new products in 2014 on top of the 11 added in 2013 , as new product introductions are also essential to move to a higher value product mix . thus far into 2015 , we have added 5 new products to our portfolio . we continue to work on gaining other customer approvals for our higher value added nickel alloy products to expand our revenue base as we move into future periods . during 2014 , our overall manufacturing activity levels increased significantly compared to 2013 , and thus we were better able to absorb costs due to more consistent levels of demand and production . in addition , we continued to focus our attention on reducing scrap rates and improving yields , while controlling spending at each of plants . as a result of these efforts and improved business conditions , our gross margins for 2014 more than doubled to 15.6 % as a percentage of net sales compared to 7.7 % posted for the full year in 2013 . as we move into 2015 , with declining nickel prices and lower surcharges that began later in 2014 and have continued into 2015 , we may see a negative impact to our gross margin , especially in the first quarter , as some of our older inventory at higher material prices is shipped to our customers . we intend to continue our effort to improve our gross margin throughout the year . our selling , general and administrative expenses increased $ 3.2 million in 2014 compared to 2013 primarily as a result of incurring additional expense of $ 2.2 million under our variable incentive compensation plan due to our improved profitability in 2014 compared to 2013 , as well as recording administrative related costs of $ 960,000 associated with switching our health care plans from a full premium based plan to a self-insurance based plan . however , our overall healthcare costs for 2014 were consistent with those incurred in 2013. we also deepened our management team in 2014 and as a result incurred higher than normal placement fees and relocation costs . overall though , our operating income in 2014 increased to $ 10.9 million compared to an operating loss of $ 4.0 million in 2013 , or almost a $ 15 million improvement in just one year . we continue to generate cash from operations and our capital spending program , which totaled $ 11.2 million in 2014 , is discretionary in nature as we invest in projects with the highest return on investment . we believe that demand in the majority of our end markets , especially aerospace where both boeing and airbus have production backlogs out for the next several years along with growth in the aftermarket parts markets will continue to improve as we move through 2015. however , as we begin 2015 , we see signs of a downturn in the oil and gas market with the decline of oil prices and a 10 slow-down in new oil related exploration activities , as well as potential pricing pressure in other end markets as competitors with larger oil and gas exposure seek to capture other market opportunities , o ur operating facilities are integrated , and therefore our chief operating decision maker ( “ codm ” ) view s the company as one business unit . our codm sets performance goals , assesses performance and makes decisions about resource allocations on a consolidated basis . as a result of these factors , as well as the nature of the financial information available which is reviewed by our codm , we maintain one reportable segment . results of operations 2014 results as compared to 2013 replace_table_token_6_th 11 market segment information : replace_table_token_7_th melt type information : replace_table_token_8_th the majority of our products are sold to service centers/processors rather than the ultimate end market customers . the end market information in this annual report is our estimate based upon our knowledge of our customers and the grade of material sold to them , that they will in-turn sell to the ultimate end market customer . end market information : replace_table_token_9_th net sales : net sales for the year ended december 31 , 2014 increased $ 24.8 million , or 13.7 % , as compared to the similar period in 2013 . the increase in our sales primarily reflects a 6.6 % increase in consolidated tons shipped in 2014 compared to 2013 as demand for our products increased as a result of improved market conditions in 2014. the increase in both sales and sales dollars per shipped ton is primarily a result of increased base prices as well as more favorable product mix of our higher value added products . our product sales to all of our end markets , except heavy equipment , increased as noted in the above table . our product sales to our targeted end markets of aerospace , power generation , and oil and gas end markets increased 18.2 % , 8.4 % and 3.1 % , respectively in 2014 compared 12 to 2013. sales to our heavy equipment market decreased by $ 1.6 million , or 8.3 % , in 2014 compared to 2013 , primarily due to uneven buying patterns from year to year because of the many smaller customers we have in this end market . during the year ended december 31 , 2014 , we recognized a $ 3.2 million , or a 30.0 % , increase in premium alloy sales when compared to 2013 . it is a primary focus of ours to ship higher value added products . story_separator_special_tag the notes and any accrued and unpaid interest are convertible into shares of our common stock at the option of the holder at an initial conversion price of $ 47.1675 per share of common stock . the conversion price associated with the notes may be adjusted in certain circumstances . we may prepay any outstanding notes , in whole or in part , during a fiscal quarter if our share price is greater than 140 % of the current conversion price for at least 20 of the trading days in the 30 consecutive trading day period ending on the last trading day of the immediately preceding quarter . share-based activity . we i ssued 60,880 , 66,145 and 116,628 shares of our common stock during the years ended december 31 , 2014 , 2013 and 2012 , respectively , through our two share-based compensation plans . in 2014 , 49,500 stock options issued under the omnibus incentive plan ( “ oip ” ) were exercised for an aggregate of $ 764,000 . in 2013 , 55,625 stock options issued under the oip were exercised for an aggregate of $ 848,000 . in 2012 , 72,050 stock options issued under the oip were exercised for an aggregate of $ 1.3 million . additionally , in 2012 , we issued 35,000 shares of restricted common stock . during 2013 , 3,000 shares of restricted common stock were forfeited . the remaining shares were issued to participants in the employee stock purchase plan . at december 31 , 2014 , our unrecognized share-based compensation expense related to non-vested stock option and time-based restricted common stock awards totaled $ 3.9 million and $ 412,000 , respectively , which is expected to be recognized over a weighted average period of 3.0 years and 1.0 year , respectively . in october 1998 , we initiated a stock repurchase program to repurchase up to 315,000 shares of our outstanding common s tock in open market transactions at market prices . we h ave not repurchased any shares under the program sinc e 2001. we are authorized to repurch ase 45,100 remaining shares of c ommon s tock under this program as of december 31 , 2014 . contractual obligations . at december 31 , 2014 , we had the following contractual principal , interest and purchase obligations : replace_table_token_14_th ( a ) amounts include interest expense , which was estimated based upon the december 31 , 2014 interest rate for our debt and assumes that debt will not be repaid until its maturity . ( b ) purchase obligations include the value of all open purchase orders with established quantities and purchase prices as well as minimum purchase commitments . contingent items product claims . we are subject to various claims and legal actions that arise in the normal course of conducting business . there were no material product claims outstanding at december 31 , 2014 . environmental matters . we , as well as other steel companies , are subject to demanding environmental standards imposed by federal , state and local environmental laws and regulations . we are not aware of any environmental condition that currently exists at any of our facilities that are probable or reasonably possible of having a material impact on our results of operations or liquidity . 18 we are aware of energy usage concerns relating to climate change ; however , we are not aware of any pending regulations that are expected to have a material impact on our results of operations or liquidity . legal matters . from time to time , various lawsuits and claims have been or may be asserted against us relating to the conduct of our business , including routine litigation relating to commercial and employment matters . the ultimate cost and outcome of any litigation or claim can not be predicted with certainty . management believes , based on information presently available , that the likelihood that the ultimate outcome of any such pending matter will have a material adverse effect on its financial condition , or liquidity or a material impact to its results of operations is remote , although the resolution of one or more of these matters may have a material adverse effect on its results of operations for the period in which the resolution occurs . critical accounting policies and new accounting pronouncements critical accounting policies revenue from the sale of products is recognized when both risk of loss and title have transferred to the customer , which in most cases coincides with shipment of the related products , and collection is reasonably assured . we manufacture specialty steel products to customer purchase order specifications and in recognition of requirements for product acceptance . material certification forms are executed , indicating compliance with the customer purchase orders , before the specialty steel products are packed and shipped to the customer . revenue from conversion services is recognized when the performance of the service is complete . invoiced shipping and handling costs are also accounted for as revenue . customer claims , which are not material , are accounted for primarily as a reduction to gross sales after the matter has been researched and an acceptable resolution has been reached . in addition , management constantly monitors the ability to collect its unpaid sales invoices and the valuation of its receivables . the allowance for doubtful accounts includes specific reserves for the value of outstanding invoices issued to customers that are deemed potentially not collectible . inventories are stated at the lower of cost or market . the cost of inventory is principally determined by the weighted average cost method for material and operation costs . an inventory reserve is provided for material on hand for which management believes cost exceeds net realizable value . we reserve for slow-moving inventory and inventory that is being evaluated under our quality control process . the reserves are based upon management 's expected method of

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net cash provided by operating activities : during 2014 , we generated net cash from operating activities of $ 12.9 million . our net income adjusted for non-cash expenses generated approximately $ 26.5 million of cash in 2014 , which were partially offset by increases in our managed working capital . our ma naged working capital , defined as net account s receivable plus net inventory minus accounts payable increased by $ 15.4 million to $ 105.1 million at de cember 31 , 2014 compared to $ 89.8 million at december 31 , 2013 primarily due to improved market conditions in most of our end markets . our net accounts receivable balances increased $ 7.6 million primarily as a result of a 31.0 % increase in net sales for the three-month period ended december 31 , 2014 compared to the same period in 2013. inventory levels increased by $ 18.5 million to $ 101.1 million as of december 31 , 2014 from $ 82.6 million as of december 31 , 2013 due to planned increases on certain product grades as a result of increased customer activity in 2014 and anticipated improved sales levels heading into 2015 . our accounts payable balance increased by $ 10.7 million from december 31 , 2013 to december 31 , 2014 , due to increased operatingactivity , the timing of vendor payments and higher fourth quarter 2014 capital spending .

in 2010 , we generated revenue of $ 245.5 million from the sale of our services compared to $ 188.5 million in 2009 and $ 136.3 million in 2008. given the scope of our market opportunity , we have increased our spending each year on growth , innovation , and infrastructure . despite increased spending in these areas , higher revenue and lower direct operating expense as a percentage of revenue have led to greater operating income . our revenues are predominately derived from business services that we provide on an ongoing basis . this revenue is generally determined as a percentage of our clients ' collections , so the key drivers of our revenue include growth in the number of physicians working within our client accounts and the collections of these physicians . to provide these services , we incur expense in several categories , including direct operating , selling and marketing , research and development , general and administrative , and depreciation and amortization expense . in general , our direct operating expense increases as our volume of work increases , whereas our selling and marketing expense increases in proportion to our rate of adding new accounts to our network of physician clients . our other expense categories are less directly related to growth of revenues and relate more to our planning for the future , our overall business management activities , and our infrastructure . as our revenues have grown , the difference between our revenue and our direct operating expense also has grown , which has afforded us the ability to spend more in other categories of expense and to experience an increase 48 in operating margin . we manage our cash and our use of credit facilities to ensure adequate liquidity , in adherence to related financial covenants . sources of revenue we derive our revenue from two sources : from business services which are primarily associated with our revenue , clinical and patient cycle management services and from implementation and other services . implementation and other services consist primarily of professional services fees related to assisting clients with the initial implementation of our services and for ongoing training and related support services . business services accounted for approximately 97 % of our total revenues for each of the years ended december 31 , 2010 , 2009 , and 2008 , respectively . business services fees are typically 2 % to 8 % of a practice 's total collections depending upon the services used and the size , complexity , and other characteristics of the practice , plus a per-statement charge for billing statements that are generated for patients of certain clients . accordingly , business services fees are largely driven by : the number of physician practices we serve , the number of physicians and other medical providers working in those physician practices , the volume of activity and related collections of those physicians and other medical providers , the services used by the practice and our contracted rates . there is moderate seasonality in the activity level of physician practices . typically , discretionary use of physician services declines in the late summer and during the holiday season , which leads to a decline in collections by our physician clients about 30 to 50 days later . none of our clients accounted for more than 10 % of our total revenues for the years ended december 31 , 2010 , 2009 , or 2008. operating expense direct operating expense . direct operating expense consists primarily of salaries , benefits , claim processing costs , other direct costs , and stock-based compensation related to personnel who provide services to clients , including staff who implement new clients . we expense implementation costs as incurred . although we expect that direct operating expense will increase in absolute terms for the foreseeable future , the direct operating expense is expected to decline as a percentage of revenues as we further increase the percentage of transactions that are resolved on the first attempt and as we decrease the cost of implementation for new clients . in addition , over the longer term , we expect to increase our overall level of automation and to reduce our direct operating expense as a percentage of revenues as we become a larger operation , with higher volumes of work in particular functions , geographies , and medical specialties . included in direct operating expense are the service costs associated with our athenaclinicals offering , which includes transaction handling related to lab requisitions , lab results entry , fax classification , and other services . we have also included in direct operating expense the service costs associated with our athenacommunicator offering , which includes costs based on telephone call volume , live operator answering services , software licenses , and other services . we also expect these costs to increase in absolute terms for the foreseeable future but to decline as a percentage of revenue . this decrease will be driven by increased levels of automation and by economies of scale . direct operating expense does not include allocated amounts for rent , depreciation , and amortization , except for amortization related to purchased intangible assets . selling and marketing expense . selling and marketing expense consists primarily of marketing programs ( including trade shows , brand messaging , and on-line initiatives ) and personnel-related expense for sales and marketing employees ( including salaries , benefits , commissions , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) . although we recognize substantially all of our revenue when services have been delivered , we recognize a large portion of our sales commission expense at the time of contract signature and at the time our services commence . accordingly , we incur a portion of our sales and marketing expense prior to the recognition of the corresponding revenue . story_separator_special_tag under this guidance , costs related to the preliminary project stage of subsequent versions of athenanet and or other technology are expensed as incurred . costs incurred in the application development stage are capitalized . such costs are amortized over the software 's estimated economic life of two years . in 2010 , approximately 83 % of our software development expenditures were expensed rather than capitalized , based upon the stage of development of the software . in the year ended december 31 , 2009 , approximately 85 % of our software development expenditures were expensed rather than capitalized . in the year ended december 31 , 2008 , approximately 87 % of our software development expenditures were expensed rather than capitalized . although we believe that our approach to estimates and judgments as described herein is reasonable , actual results could differ and we may be exposed to increases or decreases in software development costs that could be material . 54 effect if actual results description judgments and uncertainties differ from assumptions contingent consideration contingent consideration in a business combination after january 1 , 2009 , is measured at fair value at the acquisition date , with changes in the fair value after the acquisition date affecting earnings . significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period . accordingly , future business and economic conditions , as well as changes in any of the assumptions described above , can materially impact the amount of contingent consideration expense we record in any given period . each period we revalue the contingent consideration obligations associated with certain acquisitions to their then fair value and record increases in the fair value as contingent consideration expense and record decreases in the fair value as a reduction of contingent consideration expense . increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates , changes in the assumed timing and amount of revenue and expense estimates . we recorded potential contingent consideration of $ 7.7 million in the initial purchase price allocation at its estimated fair value of $ 5.1 million related to the anodyne health partners , inc acquisition in october 2009. the change in the assumptions , and other factors , resulted in a decrease of $ 0.3 million in the fair value of the total contingent consideration during the year ended december 31 , 2010. the company paid $ 0.2 million during the year ended december 31 , 2010 , under the terms of the second potential contingent consideration . the balance as of december 31 , 2010 , was $ 4.7 million . consolidated results of operations the following table sets forth our consolidated results of operations as a percentage of total revenue for the periods shown : replace_table_token_5_th 55 comparison of the years ended december 31 , 2010 and 2009 replace_table_token_6_th revenue . total revenue for the year ended december 31 , 2010 , was $ 245.5 million , an increase of $ 57.0 million , or 30 % , over revenue of $ 188.5 million for the year ended december 31 , 2009. this increase was due almost entirely to an increase in business services revenue . business services revenue . revenue from business services for the year ended december 31 , 2010 , was $ 237.1 million , an increase of $ 53.9 million , or 29 % , over revenue of $ 183.2 million for the year ended december 31 , 2009. this increase was primarily due to the growth in the number of physicians and other medical providers using our services . the summary of changes in the physicians and active medical providers using our revenue cycle management service , athenacollector , clinical cycle management service , athenaclinicals , and patient cycle management service , athenacommunicator are as follows : replace_table_token_7_th * introduced in march 2010 therefore no comparative prior year data also contributing to this increase was the growth in related collections on behalf of these physicians and medical providers . total collections generated by these physicians and other medical providers that were posted for the year ended december 31 , 2010 , was $ 5.9 billion , an increase of $ 1.0 billion over posted collections of $ 4.9 billion for the year ended december 31 , 2009. implementation and other revenue . revenue from implementations and other sources was $ 8.4 million for the year ended december 31 , 2010 , an increase of $ 3.1 million , or 58 % , over revenue of $ 5.3 million for the year ended december 31 , 2009. this increase was driven by new client implementations and increased professional services for our larger client base . as of december 31 , 2010 , the number of accounts live on our revenue cycle management service , athenacollector , was 2,002 , an increase of 410 accounts , from 1,592 accounts at december 31 , 2009. as of december 31 , 2010 , the numbers of accounts live on our clinical cycle management service , athenaclinicals , was 552 , an increase of 302 accounts , from 250 accounts at december 31 , 2009. the increase in implementation and other revenue is the result of the increase in the volume of our business . year ended december 31 , 2010 2009 change amount amount amount percent direct operating costs $ 96,582 $ 79,017 $ 17,565 22 % direct operating costs . direct operating costs for the year ended december 31 , 2010 , was $ 96.6 million , an increase of $ 17.6 million , or 22 % , over direct operating costs of $ 79.0 million for the year ended december 31 , 2009. this increase was primarily due to an increase in the number of claims that we processed 56 on behalf of our clients and the related expense of

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liquidity and capital resources sources of liquidity since our inception , we have funded our growth primarily through the private sale of equity securities , totaling approximately $ 50.6 million , as well as through long-term debt , working capital , equipment-financing loans , and , in september 2007 , we completed our initial public offering which provided net proceeds of approximately $ 81.3 million . as of december 31 , 2010 , our principal sources of liquidity consisted of cash , cash equivalents and short-term investments of $ 116.2 million . our cash investments consist of corporate debt securities , u.s. treasury and government agency securities , and commercial paper . as specified in our investment policy , we place our investments in instruments that meet high credit quality standards , the policy limits the amount of our credit exposure to any one issue or issuer and seeks to manage these assets to achieve our goals of preserving principal , maintaining adequate liquidity at all times , and maximizing returns . our total indebtedness was $ 9.2 million at december 31 , 2010. we have an unused revolving credit facility in the amount of $ 15 million . the credit facility may be extended by up to an additional $ 15 million on the satisfaction of certain conditions . there was no balance outstanding on the revolving credit facility during 2010. the credit facility expires on september 30 , 2011. we are currently evaluating our options relating to our credit facilities . in addition , we have a term loan facility used for general working capital needs . at december 31 , 2010 , we have $ 5.3 million outstanding on the term facility . the term facility matures on september 30 , 2013. at december 31 , 2010 , there was a net present value of $ 3.9 million in aggregate principal amount outstanding under a series of capital leases with one finance company .

) bank classified assets to tier 1 capital plus the allowance for loan losses of less than or equal to 35.0 % , ( vii ) certain defined bank liquidity ratios and ( viii ) specific concentration levels for commercial real estate and construction and land development loans . downtown branch relocation and consolidations in december 2019 , the company ( 1 ) entered into an agreement to terminate the `` little tokyo `` office lease agreement and ( 2 ) relocated the downtown los angeles branch to a smaller space within the same building and signed a sublease of the current space which began on january 1 , 2020. as a result of these relocation and consolidation efforts , the company recognized an after-tax impairment charge of $ 568 thousand , or $ 0.05 per diluted share , in the fourth quarter of 2019. the year-to-date total impairment charge recognized for these two locations was $ 1.2 million pre-tax ( $ 850 thousand after tax ) , which is estimated to result in net cost savings , after impairment charges , of approximately $ 621 thousand pre-tax ( $ 437 thousand after tax ) . as a result of the impairment charges in 2019 and expected cost savings , occupancy expense for these locations is expected to be reduced on average by approximately $ 550 thousand before tax ( $ 390 thousand after tax ) annually over the next three years . stock repurchase plan during the fourth quarter of 2019 , the company repurchased 13,547 shares of its common stock at an average price of $ 22.80 and a total cost of $ 309 thousand under the stock repurchase program announced in december 2018. for the year ended december 31 , 2019 , the company repurchased 429,817 shares at an average price of $ 21.64 and a total cost of $ 9.3 million . the remaining number of shares authorized to be repurchased under this program was 733,900 shares at december 31 , 2019 . federal reserve bank secured borrowing arrangement in the third quarter of 2019 , the bank expanded its existing secured borrowing capacity with the federal reserve by participating in the borrower-in-custody ( `` bic `` ) program . as a result , our borrowing capacity with the federal reserve increased to $ 177.1 million at december 31 , 2019 . prior to participating in the bic program , the bank only pledged securities held-to-maturity as collateral for access to the discount window . at december 31 , 2019 , the bank has pledged certain qualifying loans with an unpaid principal balance of $ 252.4 million and securities held-to-maturity with a carrying 39 value of $ 5.1 million as collateral for this line of credit . borrowings under this bic program are overnight advances with interest chargeable at the discount window ( `` primary credit `` ) borrowing rate . there were no borrowings under this arrangement at or during the years ended december 31 , 2019 and 2018 . financial highlights financial performance net income increased $ 12.7 million to $ 27.8 million or $ 2.36 per diluted share for 2019 compared to $ 15.1 million or $ 1.64 per diluted share for 2018 . the increase in net income was driven by organic loan growth , increased yields on loans and the pcb acquisition which was completed on july 31 , 2018. our 2019 financial results include 12 months of pcb operations as compared to 5 months for 2018. in addition , our 2018 financial results included after-tax merger , integration and public company registration expenses of $ 4.0 million which reduced diluted earnings per share by $ 0.44 for 2018 . there were no such expenses in 2019 . financial results for the full year of 2019 included after-tax impairment charges of $ 850 thousand , or $ 0.07 per diluted share , related to branch relocation and consolidation efforts that are expected to result in future cost savings . return on average assets and return on average equity was 1.74 % and 10.93 % for 2019 compared to 1.28 % and 9.09 % for 2018 . the after-tax merger , integration and public company registration expenses lowered the return on average assets and return on average equity by 34 basis points and 242 basis points for 2018 . return on average tangible equity was 15.90 % for 2019 compared to 11.38 % for 2018 . the after-tax merger , integration and public company registration expenses lowered the return on average tangible equity by 304 basis points for 2018 . refer to - non-gaap financial measures section in this md & a . net interest margin increased 31 basis points to 5.24 % for 2019 from 4.93 % for 2018 . the average cost of funds was 91 basis points for 2019 compared to 86 basis points for 2018 . average noninterest-bearing deposits represented 46.1 % of average total deposits for 2019 compared to 35.9 % for 2018 . noninterest income increased $ 4.1 million due to a full year of pcb 's operations included for 2019 versus only five months for 2018 and higher gain on sale of loans . the provision for loan losses increased $ 1.3 million due to organic loan growth and higher specific reserves . noninterest expense increased $ 7.0 million due to higher expense in most of the overhead expense categories due to including pcb 's operations since august 1 , 2018 and impairment charges related to branch relocation and consolidations in 2019 , offset by lower merger , integration and public company registration costs in 2019 . our operating efficiency ratio was 50.3 % in 2019 compared with 61.1 % in 2018 . excluding the impact of the merger , integration and public company registration costs incurred in 2018 , our operating efficiency ratio was 52.0 % in 2018 . refer to - non-gaap financial measures section in this md & a . story_separator_special_tag average noninterest-bearing demand deposits increased $ 233.4 million to $ 586.5 million and represented 46.1 % of total average deposits for 2019 , compared to $ 353.2 million , or 35.9 % of total average deposits , for 2018 . the total cost of deposits decreased 1 basis points to 0.81 % for 2019 , compared to 0.82 % for 2018 . 46 provision for loan losses we maintain an allowance for loan losses at a level we believe is adequate to absorb probable incurred credit losses . the allowance for loan losses is estimated using past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other factors . at december 31 , 2019 , the allowance for loan losses was $ 13.5 million , or 0.98 % of loans held for investment compared to $ 11.1 million , or 0.88 % of loans held for investment at december 31 , 2018 . the increase in the allowance for loan losses for 2019 results primarily from loan growth and higher specific reserves for nonaccrual loans primarily from three lending relationships . the net carrying value of loans acquired through the acquisition of pcb , excluding pci loans , totaled $ 248.0 million and included a remaining net discount of $ 6.0 million at december 31 , 2019 , which represented 2.41 % of the net carrying value of acquired loans and 0.43 % of total gross loans held for investment . the provision for loan losses totaled $ 2.8 million during 2019 compared to $ 1.5 million during 2018 . the increase in provision for loan losses was primarily the result of organic loan growth , coupled with an increase in specific reserves of $ 1.2 million , the majority of which related to three lending relationships . noninterest income the following table shows the components of noninterest income between periods : replace_table_token_11_th noninterest income increased $ 4.1 million to $ 7.7 million during 2019 compared to $ 3.6 million during 2018 primarily due to higher net earnings for all of the categories as a result of including pcb 's operation since the acquisition date and higher gain on the sale of loans of $ 2.2 million . the 2019 loan sales related to 51 sba loans with a net carrying value of $ 61.6 million at an average premium of 6.0 % , resulting in a gain of $ 3.7 million and three commercial and industrial loans with the net carrying value of $ 2.3 million , resulting in a gain of $ 1 thousand during 2019 . this compares to 31 sba loans sold with a net carrying value of $ 25.0 million at an average premium percentage of 6.0 % , resulting in a gain of $ 1.5 million for the 2018 period . services charges and fees on deposit accounts increased $ 701 thousand to $ 1.9 million during 2019 from $ 1.2 million for the comparable 2018 period . the increase was attributed to a higher volume of transaction-based accounts and account balances as a result of organic growth and the pcb acquisition . average demand deposit account balances increased to $ 586.5 million during 2019 from $ 353.2 million for the comparable 2018 period . net servicing fees increased $ 341 thousand to $ 850 thousand during 2019 from $ 509 thousand for the comparable 2018 period . the increase was due primarily to higher servicing fee income , offset with higher amortization expense of the related servicing asset during 2019 . during 2019 and 2018 , contra ctually-specified servicing fees were $ 2.0 million and $ 1.5 million . offsetting these servicing fees was amortization of $ 1.1 million during 2019 and $ 1.0 million during 2018 . the amortization expense for 2019 included a $ 146 thousand acceleration of amortization expense that resulted from increased prepayment speeds on the related sba loans . our average sba loan servicing portfolio was $ 208.6 million for 2019 compared to $ 164.2 million for 2018 . the increase in our average sba loan servicing portfolio primarily related to the acquisition of pcb in 2018 which contributed $ 73.8 million to the portfolio of serviced sba loans , coupled with the higher volume of loan sales servicing retained during 2019 . other income increased $ 879 thousand to $ 1.2 million during 2019 from $ 355 thousand for the comparable 2018 period . the increase was attributed primarily to : ( i ) higher net realized gains on equity securities with a readily determinable fair value of $ 202 thousand ; and ( ii ) two cdfi bank enterprise awards totaling $ 466 thousand for which there was no similar income in the same 2018 period . we recognized two bank enterprise awards in 2019 as these awards were granted in 2018 for use and recognition during 2019 ; one award was granted to pcb prior to its acquisition date in 2018 and the other award was granted to first choice bank . 47 noninterest expense the following table shows the components of noninterest expense between periods : replace_table_token_12_th noninterest expense increased $ 7.0 million to $ 43.2 million during 2019 from $ 36.2 million for 2018 . the increase in most of the overhead expense categories was due to including pcb 's operations for a full fiscal year in 2019 , compared to just five months during 2018 , impairment charges related to branch relocation and consolidations of $ 1.2 million in 2019 and the increase in customer service related expenses from higher average demand deposits , offset by the decrease of $ 5.4 million in merger , integration and public company registration costs . the $ 7.6 million increase in salaries and employee benefits was primarily due to : ( i ) the growth in headcount from former pcb employees retained subsequent to the acquisition . the

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cash and cash equivalents cash and cash equivalents are comprised of cash and due from banks , interest-bearing deposits at other banks with original maturities of less than 90 days , and federal funds sold . cash and cash equivalents totaled $ 161.8 million at december 31 , 2019 , a decrease of $ 35.6 million from december 31 , 2018 . the decrease in cash and cash equivalents during 2019 was primarily attributable to portfolio growth and reductions in borrowings . investment securities the following table presents the carrying values of investment securities available-for-sale and held-to-maturity as of the periods indicated : replace_table_token_13_th 49 the following table presents the contractual maturities and the weighted average yield of investment securities available-for-sale and held-to-maturity by investment category as of december 31 , 2019 : replace_table_token_14_th ( 1 ) mortgage-backed securities , collateralized mortgage obligations and sba pools do not have a single stated maturity date and therefore have been included in the `` due after ten years '' category . replace_table_token_15_th ( 1 ) mortgage-backed securities do not have a single stated maturity date and therefore have been included in the `` due after ten years '' category . at december 31 , 2019 , no issuer represented 10 % or more of the company 's shareholders ' equity . at december 31 , 2019 , securities held-to-maturity with a carrying amount of $ 5.1 million were pledged to the federal reserve as collateral for a secured line of credit . there were no borrowings under this line of credit for the year ended december 31 , 2019 . 50 loans loans are the single largest contributor to our net income . at december 31 , 2019 , loans held for investment , net totaled $ 1.36 billion .

actual results could differ from these estimates using different estimates and assumptions , or if conditions are significantly different in the future . revenue recognition . revenue from the sale of a home is recognized when the closing has occurred , title has passed , the risks and rewards of ownership are transferred to the buyer , and an adequate initial and continuing investment by the homebuyer is received , or when the loan has been sold to a third-party investor . revenue for homes that close to the buyer having a deposit of 5 % or greater , home closings financed by third parties , and all home closings insured under federal housing administration ( “ fha ” ) , u.s. veterans administration ( “ va ” ) and other government-insured programs are recorded in the financial statements on the date of closing . revenue related to all other home closings initially funded by our 100 % -owned subsidiary , m/i financial corp. ( “ m/i financial ” ) , is recorded on the date that m/i financial sells the loan to a third-party investor , because the receivable from the third-party investor is not 25 subject to future subordination , and the company has transferred to this investor the usual risks and rewards of ownership that is in substance a sale and does not have a substantial continuing involvement with the home . all associated homebuilding costs are charged to cost of sales in the period when the revenues from home closings are recognized . homebuilding costs include : land and land development costs ; home construction costs ( including an estimate of the costs to complete construction ) ; previously capitalized interest ; real estate taxes ; indirect costs ; and estimated warranty costs . all other costs are expensed as incurred . sales incentives , including pricing discounts and financing costs paid by the company , are recorded as a reduction of revenue in the company 's consolidated statements of operations . sales incentives in the form of options or upgrades are recorded in homebuilding costs . we recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans and or related servicing rights are sold to third party investors . the revenue recognized is reduced by the fair value of the related guarantee provided to the investor . the fair value of the guarantee is recognized in revenue when the company is released from its obligation under the guarantee . we recognize financial services revenue associated with our title operations as homes are closed , closing services are rendered , and title policies are issued , all of which generally occur simultaneously as each home is closed . all of the underwriting risk associated with title insurance policies is transferred to third-party insurers . inventory . inventory is recorded at cost , unless events and circumstances indicate that the carrying value of the land is impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction , and common costs that benefit the entire community , less impairments , if any . land acquisition , land development and common costs ( both incurred and estimated to be incurred ) are typically allocated to individual lots based on the total number of lots expected to be closed in each community or phase or the relative sales value of each lot . any changes to the estimated total development costs of a community or phase are allocated proportionately to the homes remaining in the community or phase and homes previously closed . the cost of individual lots is transferred to homes under construction when home construction begins . home construction costs are accumulated on a specific identification basis . costs of home closings include the specific construction cost of the home and the allocated lot costs . such costs are charged to cost of sales simultaneously with revenue recognition , as discussed above . when a home is closed , we typically have not yet paid all incurred costs necessary to complete the home . as homes close , we compare the home construction budget to actual recorded costs to date to estimate the additional costs to be incurred from our subcontractors related to the home . we record a liability and a corresponding charge to cost of sales for the amount we estimate will ultimately be paid related to that home . we monitor the accuracy of such estimates by comparing actual costs incurred in subsequent months to the estimate . although actual costs to complete a home in the future could differ from our estimates , our method has historically produced consistently accurate estimates of actual costs to complete closed homes . the company assesses inventory for recoverability on a quarterly basis if events or changes in local or national economic conditions indicate that the carrying amount of an asset may not be recoverable . in conducting our quarterly review for indicators of impairment on a community level , we evaluate , among other things , margins on sales contracts in backlog , the margins on homes that have been delivered , expected changes in margins with regard to future home sales over the life of the community , expected changes in margins with regard to future land sales , the value of the land itself as well as any results from third-party appraisals . from the review of all of these factors , we identify communities whose carrying values may exceed their estimated undiscounted future cash flows and run a test for recoverability . story_separator_special_tag reserves are recorded for warranties under the following warranty programs : home builder 's limited warranty ( “ hblw ” ) ; and 30-year transferable structural warranty the warranty reserves for hblw are established as a percentage of average sales price and adjusted based on historical payment patterns determined , generally , by geographic area and recent trends . factors that are given consideration in determining the hblw reserves include : ( 1 ) the historical range of amounts paid per average sales price on a home ; ( 2 ) type and mix of amenity packages added to the home ; ( 3 ) any warranty expenditures not considered to be normal and recurring ; ( 4 ) timing of payments ; ( 5 ) improvements in quality of construction expected to impact future warranty expenditures ; and ( 6 ) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects . changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter . actual future warranty costs could differ from our current estimated amount . our warranty reserves for our transferable structural warranty programs are established on a per-unit basis . while the structural warranty reserve is recorded as each house closes , the sufficiency of the structural warranty per unit charge and total reserve is re-evaluated on an annual basis , with the assistance of an actuary , using our own historical data and trends , as well as industry-wide historical data and trends , and other project specific factors . the reserves are also evaluated quarterly and adjusted if we encounter activity that is not consistent with the historical experience used in the annual analysis . these reserves are subject to variability due to uncertainties regarding structural defect claims for products we build , the markets in which we build , claim settlement history , insurance and legal interpretations , among other factors . while we believe that our warranty reserves are sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . self-insurance reserves . self-insurance reserves are made for estimated liabilities associated with employee health care , workers ' compensation , and general liability insurance . for 2012 , our self-insurance limit for employee health care was $ 250,000 per claim per year , with stop loss insurance covering amounts in excess of $ 250,000 . our workers ' compensation claims are insured by a third party and carry a deductible of $ 250,000 per claim , except for claims made in the state of ohio where the company is self-insured . our self-insurance limit for ohio workers ' compensation is $ 500,000 per claim , with stop loss insurance covering all amounts in excess of this limit . the reserves related to employee health care and workers ' compensation are based on historical experience and open case reserves . our general liability claims are insured by a third party ; the company generally has a $ 7.5 million completed operations/construction defect deductible per occurrence by division and a $ 15.0 million deductible in the aggregate , with a $ 250,000 deductible for all other types of claims . the company records a general liability reserve for claims falling below the company 's deductible . the general liability reserve estimate is based on an actuarial evaluation of our past history of claims , other industry specific factors and specific event analysis . the company recorded expenses totaling $ 4.0 million , $ 3.1 million and $ 2.0 million , respectively , for all self-insured and general liability claims during 2012 , 2011 and 2010 . for the year ended december 31 , 2010 , this included $ 0.6 million of charges related to defective drywall , as well as the $ 2.4 million settlement received in the third quarter of 2010 related to defective drywall . because of the high degree of judgment required in determining these estimated accrual amounts , actual future costs could differ from our current estimated amounts . stock-based compensation . we record stock-based compensation by recognizing compensation expense at an amount equal to the fair value of share-based awards granted under compensation arrangements . we calculate the fair value of stock options using the black-scholes option pricing model . determining the fair value of share-based awards at the grant date requires judgment in developing assumptions , which involve a number of variables . these variables include , but are not limited to , the expected stock price volatility 29 over the term of the awards and the expected term of the awards . in addition , we also use judgment in estimating the number of share-based awards that are expected to be forfeited . derivative financial instruments . to meet financing needs of our home-buying customers , m/i financial is party to interest rate lock commitments ( “ irlcs ” ) , which are extended to customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria . these irlcs are considered derivative financial instruments . m/i financial manages interest rate risk related to its irlcs and mortgage loans held for sale through the use of forward sales of mortgage-backed securities ( “ fmbss ” ) , the use of best-efforts whole loan delivery commitments , and the occasional purchase of options on fmbss in accordance with company policy . these fmbss , options on fmbss , and irlcs covered by fmbss are considered non-designated derivatives . in determining the fair value of irlcs , m/i financial considers the value of the resulting loan if sold in the secondary market . the fair value includes the price

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of restricted cash . notes payable - financial services . mif mortgage warehousing agreement . the mif mortgage warehousing agreement is used to finance eligible residential mortgage loans originated by m/i financial , with a maximum borrowing availability of $ 70.0 million and an expiration date of march 30 , 2013 . m/i financial pays interest on each advance under the mif mortgage warehousing agreement at a per annum rate of the greater of ( 1 ) the floating libor rate plus 225 basis points and ( 2 ) 3.50 % . m/i financial entered into the second amendment ( the “ second amendment ” ) to the mif mortgage warehousing agreement on march 23 , 2012 . the second amendment , among other things , increased the maximum borrowing availability from $ 60.0 million to $ 70.0 million and extended the expiration date to march 30 , 2013 . in september 2012 , we entered into the third amendment to the mif mortgage warehousing agreement which increased our maximum principal amount permitted to be outstanding at any one time in aggregate under all warehouse credit lines from $ 75.0 million to $ 100.0 million . the mif mortgage warehousing agreement is secured by certain mortgage loans that have been originated by m/i financial and are being “ warehoused ” prior to their sale to investors .

the fire & safety/diversified products segment produces firefighting pumps and controls , valves , monitors , nozzles , rescue tools , lifting bags and other components and systems for the fire and rescue industry , engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , and precision equipment for dispensing , metering , and mixing colorants and paints used in a variety of retail and commercial businesses around the world . the fire & safety/diversified products segment is comprised of the fire & safety platform ( comprised of class 1 , hale , akron brass , awg fittings , godiva , dinglee , hurst jaws of life , lukas , and vetter ) , the band-it platform , and the dispensing platform . our 2017 financial results were as follows : sales of $ 2.3 billion increased 8 % , reflecting a 6 % increase in organic sales ( excluding acquisitions and divestitures ) and a 2 % increase due to acquisitions/divestitures . operating income of $ 502.6 million was up 22 % and operating margin of 22.0 % was up 250 basis points , respectively , from the prior year . net income increased 24 % to $ 337.3 million . diluted eps of $ 4.36 increased $ 0.83 , or 24 % , compared to 2016 . our 2017 financial results , adjusted for $ 8.5 million of restructuring expense and a $ 9.3 million gain on sale of a business , compared to our 2016 financial results , adjusted for $ 3.7 million of restructuring expense , a $ 3.6 million pension settlement charge and a $ 22.3 million loss on the sale of businesses - net , were as follows ( these non-gaap measures have been reconciled to u.s. gaap measures in item 6 , “ selected financial data ” ) : adjusted operating income of $ 501.7 million was up 14 % and adjusted operating margin of 21.9 % was up 120 basis points , respectively , from the prior year . 17 adjusted net income increased 16 % to $ 333.7 million . adjusted eps of $ 4.31 was 15 % higher than prior year adjusted eps of $ 3.75 . based on continued order strength in the fourth quarter , as well as benefits from our growth initiatives and segmentation efforts , we project approximately 5 % organic revenue growth in 2018. full year 2018 eps is expected to be in the range of $ 4.90 to $ 5.10. results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2017 . for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , “ financial statements and supplementary data . ” segment operating income excludes unallocated corporate operating expenses . management 's primary measurements of segment performance are sales , operating income , and operating margin . in the following discussion , and throughout this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) the impact of foreign currency translation and ( 2 ) sales from acquired or divested businesses during the first twelve months of ownership or divestiture . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions and divestitures because the nature , size , and number of acquisitions and divestitures can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult . performance in 2017 compared with 2016 replace_table_token_14_th sales in 2017 were $ 2.3 billion , an 8 % increase from last year . this increase reflects a 6 % increase in organic sales and a 2 % increase from acquisitions/divestitures ( acquisitions : thinxxs - december 2017 ; sfc koenig - september 2016 ; awg fittings - july 2016 and akron brass - march 2016 / divestitures : faure herman - october 2017 ; cvi korea - december 2016 ; ietg - october 2016 ; cvi japan - september 2016 and hydra-stop - july 2016 ) . sales to customers outside the u.s. represented approximately 49 % of total sales in 2017 compared with 50 % in 2016 . in 2017 , fluid & metering technologies contributed 38 % of sales and 42 % of operating income ; health & science technologies contributed 36 % of sales and 32 % of operating income ; and fire & safety/diversified products contributed 26 % of sales and 26 % of operating income . gross profit of $ 1.0 billion in 2017 increased $ 95.9 million , or 10 % , from 2016 , while gross margin increased 90 basis points to 44.9 % in 2017 from 44.0 % in 2016 . the increase in gross profit and margin is primarily a result of increased sales volume and the dilutive impact in the prior year attributable to $ 14.7 million of fair value inventory step-up charges from 2016 acquisitions . sg & a expenses increased to $ 524.9 story_separator_special_tag operating income of $ 412.4 million in 2016 decreased from $ 437.0 million in 2015 , primarily as a result of the impact of the four divestitures in 2016 and the associated loss compared to the one divestiture in 2015 and the associated gain as well as the incremental fair value inventory step-up charges related to the 2016 acquisitions , partially offset by the reversal of $ 4.7 million of contingent consideration related to a 2015 acquisition and lower restructuring costs recorded in 2016 compared to 2015. operating margin of 19.5 % in 2016 was down 210 basis points from 21.6 % in 2015 primarily due to the loss on the sale of businesses in 2016 compared to a gain on the sale of a business in 2015 , partially offset by productivity improvements and lower restructuring costs year over year . other ( income ) expense - net changed by $ 4.7 million from expense of $ 3.0 million in 2015 to income of $ 1.7 million in 2016 mainly due to $ 4.7 million of foreign currency transaction gains on intercompany loans that were established in conjunction with the sfc koenig acquisition . interest expense increased to $ 45.6 million in 2016 from $ 41.6 million in 2015. the increase was primarily due to the $ 200 million series of senior notes issued in 2016 and higher borrowings outstanding on the revolving facility . the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes decreased to $ 97.4 million in 2016 compared to $ 109.5 million in 2015. the effective tax rate decreased to 26.4 % in 2016 compared to 27.9 % in 2015 , due to tax benefits on the divestitures of cvi korea and cvi japan , certain return-to-provision adjustments and the early adoption of asu 2016-09 and the related tax effects of share based payments now recognized as a reduction to income tax expense . these adjustments were offset by the incurrence of additional foreign withholding taxes , the prior year revaluation of the italian deferred tax liability related to the reduction in the italian statutory tax rate and tax expense on the divestiture of the hydra-stop product line and the prior year divestiture of the ismatec product line as well as the mix of global pre-tax income among jurisdictions . net income for the year of $ 271.1 million decreased from the $ 282.8 million in 2015. diluted earnings per share in 2016 of $ 3.53 decreased $ 0.09 from $ 3.62 in 2015. fluid & metering technologies segment replace_table_token_19_th sales of $ 849.1 million decreased $ 11.7 million , or 1 % , in 2016 compared with 2015. this decrease reflected a 1 % decline in organic sales , a 1 % increase from acquisitions ( alfa valvole - june 2015 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales were flat domestically and decreased approximately 3 % internationally . sales to customers outside the u.s. were approximately 44 % of total segment sales in both 2016 and 2015. sales within our energy platform increased compared to 2015 primarily due to strength within the aviation market , partially offset by continued weakness in the propane and oil and gas markets as well as challenges in the mobile end market . sales within our pumps platform ( formerly industrial ) decreased compared to 2015 due to weakness in the north american industrial distribution market . sales within the water platform decreased due to the divestitures of hydra-stop and ietg and slowing demand in the chemical end market , partially offset by increased municipal spending . sales within our agriculture platform increased year over year due to increased demand in the second half of 2016 from both oems and distributors in anticipation of the 2017 planting season . sales within the valves platform , which was created in the third quarter of 2015 , increased as a result of the full year impact of the alfa valvole acquisition , offset by a challenging oil & gas market and overall weakness in the european market . 22 operating income and operating margin of $ 217.5 million and 25.6 % , respectively , were higher than the $ 206.4 million and 24.0 % , respectively , recorded in 2015 , primarily due to the full year impact of the alfa valvole acquisition as well as productivity initiatives , partially offset by lower volume . health & science technologies segment replace_table_token_20_th sales of $ 744.8 million increased $ 5.8 million , or 1 % , in 2016 compared with 2015. this increase reflected a 1 % decrease in organic sales , a 3 % increase from acquisitions / divestitures ( acquisitions : sfc koenig - september 2016 ; cidra precision services - july 2015 and novotema - may 2015. divestitures : cvi korea - december 2016 and cvi japan - september 2016 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales decreased 1 % domestically and increased 3 % internationally . sales to customers outside the u.s. were approximately 55 % of total segment sales in both 2016 and 2015. sales within our scientific fluidics & optics platform were down year over year due to slowed demand in the industrial and laser optics end markets as well as the impact of the cvi japan and cvi korea divestitures in 2016 and the ismatec divestiture in 2015 partially offset by strong demand in the core biotech and in-vitro diagnostic markets coupled with the full year impact of the cidra precision services acquisition and a strong semiconductor market . sales within our material processing technologies platform decreased compared to 2015 due to challenges in the north american markets which offset strength in the european and indian pharma markets . sales within our sealing solutions platform increased compared to 2015 due to

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cash flows from operating activities increased $ 32.8 million , or 8.2 % , to $ 432.8 million in 2017 , primarily due to higher earnings in 2017. at december 31 , 2017 , working capital was $ 643.1 million and the company 's current ratio was 2.78 to 1 . at december 31 , 2017 , the company 's cash and cash equivalents totaled $ 376.0 million , of which $ 219.6 million was held outside of the united states . investing activities cash flows used in investing activities decreased $ 454.5 million to $ 54.7 million in 2017 , primarily as a result of $ 471.8 million less cash paid for acquisitions , $ 17.3 million of lower proceeds from the sale of businesses , and $ 6.0 million of higher proceeds from fixed asset disposals , partially offset by $ 5.6 million of higher capital expenditures . cash flows from operations were more than adequate to fund capital expenditures of $ 43.9 million and $ 38.2 million in 2017 and 2016 , respectively . capital expenditures were generally for machinery and equipment that improved productivity , although a portion was for business system technology , replacement of equipment , and construction of new facilities . management believes that the company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term . the company acquired thinxxs in december 2017 for cash consideration of $ 38.2 million and the assumption of $ 1.2 million in debt .

this transaction supports commvault 's strategy of unified storage and data management . hedvig 's technology enables a scalable , distributed software defined storage solution that is already multi-cloud enabled . 34 the industry in which we currently operate continues to go through accelerating changes as the result of compounding data growth and the introduction of new technologies . we are continuing to pursue an aggressive product development program in both data and information management solutions . our data management solutions include not only traditional backup , but also new innovations in de-duplication , data movement , virtualization , snap-based backups and enterprise reporting . our information management innovations are primarily in the areas of archiving , ediscovery , records management , governance , operational reporting and compliance . we remain focused on both the data and information management trends in the marketplace and , in fact , a material portion of our existing research and development expenses are utilized toward the development of such new technologies discussed above . while we are confident in our ability to meet these changing industry demands with our commvault suite and potential future releases , the development , release and timing of any features or functionality remain at our sole discretion and our solutions or other technologies may not be widely adopted . given the nature of the industry in which we operate , our software applications are subject to obsolescence . we continually develop and introduce updates to our existing software applications in order to keep pace with evolving industry technologies . in addition , we must address evolving industry standards , changing customer requirements and competitive software applications that may render our existing software applications obsolete . we also sell a backup appliance which integrates our software with hardware . if our forecast exceeds our actual requirements , a supply chain partner may assess additional charges or we may incur costs related to excess inventory , each of which could negatively affect our gross margins . for each of our software applications , we provide full support for the current generally available release and one prior release . when we declare a product release obsolete , a customer notice is delivered twelve months prior to the effective date of obsolescence announcing continuation of full product support for the first six months . we provide an additional six months of extended assistance support in which we only provide existing workarounds or fixes that do not require additional development activity . we do not have existing plans to make any of our software products permanently obsolete . sources of revenues we derive a significant portion of our total revenues from sales of licenses of our software applications and related appliance products . we do not customize our software or products for a specific end-user customer . we sell our software applications and products to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners , systems integrators , corporate resellers and original equipment manufacturers . our software and products revenue was 41 % of our total revenues for fiscal 2020 , 44 % in fiscal 2019 and 45 % in fiscal 2018 . during fiscal 2020 , we continued to focus on subscription and other repeatable revenue arrangements . any of our licensing models ( capacity , instance based , etc . ) can be sold via a subscription arrangement . in these arrangements the customer has the right to use the software over a designated period of time . the capacity of the license is fixed and the customer has made an unconditional commitment to pay . software revenue in these arrangements is generally recognized when the software is delivered . during the fiscal year ended march 31 , 2020 , approximately 41 % of software license revenue was sold under a subscription model . we expect revenue from these types of arrangements as a percentage of our total revenue to continue to increase in the next few years . beginning in fiscal 2021 , we also expect to generate material revenue from renewals of subscription licenses sold in prior years . we also sell to some customers , primarily managed service providers , via utility , or pay-as-you-go models . in these arrangements actual usage is regularly measured and billed . revenue in these utility arrangements is recognized as the software is used . in recent fiscal years , we generated approximately three-quarters of our software and products revenue from our existing customer base and approximately one-quarter of our software and products revenue from new customers . in addition , our total software and products revenue in any particular period is , to a certain extent , dependent upon our ability to generate revenues from large customer software and products deals , which we refer to as enterprise transactions . enterprise transactions ( transactions greater than $ 0.1 million ) represented approximately 65 % of our software and products revenue in both fiscal 2020 and fiscal 2019 and 59 % for fiscal 2018 . 35 software and products revenue generated through indirect distribution channels was 92 % of total software and products revenue in fiscal 2020 , 93 % in fiscal 2019 and 86 % in fiscal 2018 . software and products revenue generated through direct distribution channels was 8 % of total software and products revenue in fiscal 2020 , 7 % in fiscal 2019 and 14 % in fiscal 2018 . the dollar value of software and products revenue generated through indirect distribution channels decreased $ 33.6 million , or 12 % , in fiscal 2020 compared to fiscal 2019 . the dollar value of software and products revenue generated through direct distribution decreased $ 1.0 million , or 4 % , in fiscal 2020 compared to fiscal 2019 . story_separator_special_tag while our work to integrate this technology with our own is proceeding , the economic impact of covid-19 , or other factors , may delay our ability to meet the forecasts we used to estimate the fair value of this asset . if we were to identify an impairment indicator in the future , we may conclude that the carrying value of the asset is not recoverable within the remaining useful life of the asset and recognize a non-cash impairment charge . an impairment of this asset could have a material impact on our results of operations . results of operations fiscal year ended march 31 , 2020 compared to fiscal year ended march 31 , 2019 revenues ( in millions ) - total revenues decreased $ 40.1 million , or 6 % - software and products revenue decreased $ 34.6 million , or 11 % , primarily due to the following : software and products revenue represented 41 % of our total revenues in fiscal 2020 and 44 % of our total revenues in fiscal 2019 . enterprise transactions ( deals greater than $ 0.1 million ) represented approximately 65 % of our software and products revenue in both fiscal 2020 and fiscal 2019 . decrease of $ 22.4 million in enterprise transactions decrease of 19 % in the number of enterprise transactions , partially offset by an increase of 10 % in the average dollar amount of such transactions the average dollar amount of enterprise transactions was approximately $ 298,000 in fiscal 2020 and approximately $ 272,000 in fiscal 2019 . decrease of $ 12.2 million in transactions less than $ 0.1 million 40 - services revenue decreased $ 5.5 million , or 1 % , primarily due to the following : decrease of $ 6.9 million in training and consulting service revenue partially offset by an increase of $ 1.4 million in revenue from customer support agreements as a result of software sales to new customers and renewal agreements with our installed software base services revenue represented 59 % of our total revenues in fiscal 2020 and 56 % of our total revenues in fiscal 2019 . we track software and products revenue on a geographic basis . the geographic regions that are tracked are the americas ( united states , canada , latin america ) , emea ( europe , middle east , africa ) and apj ( australia , new zealand , southeast asia , china ) . americas , emea and apj represented 51 % , 35 % and 14 % of total software and products revenue , respectively , for the fiscal year ended march 31 , 2020 . the year over year decrease of software and products revenue was 17 % in the americas , 1 % in emea and 13 % in apj . ▪ the decrease in americas software and products revenue was the result of a 28 % decrease in the number of enterprise transactions partially offset by a 15 % increase in the average deal size of enterprise revenue transactions . ▪ emea software and products revenue decreased as a result of a 2 % decline in non-enterprise transaction revenue partially offset by an increase of 1 % in enterprise transaction revenue . on a constant currency basis , emea software and products revenue would have increased 2 % versus the prior year . ▪ the decrease in apj was the result of a 23 % decrease in revenue from non-enterprise revenue transactions that was partially offset by a 2 % increase in enterprise revenue transactions . on a constant currency basis , apj software and products revenue would have declined 9 % compared to prior year . our software and products revenue in emea and apj is subject to changes in foreign exchange rates as more fully discussed above in the “ foreign currency exchange rates ' impact on results of operations ” section . 41 cost of revenues and gross margin ( $ in millions ) - total cost of revenues increased $ 0.1 million , representing 17 % of our total revenues in fiscal 2020 compared to 16 % in fiscal 2019 . the increase as a percentage of revenue is related to the cost of sales associated with our hyperscale software and products . - cost of software and products revenue increased $ 2.4 million , representing 10 % of software and products revenue in fiscal 2020 compared to 8 % in fiscal 2019 . the increase is related to additional hardware and software royalty costs associated with our appliance and hyperscale product offerings . as sales of our appliances and hyperscale products continue to ramp , we expect the cost of software and products as a percentage of software and products revenue will continue to increase . - cost of services revenue decreased $ 2.3 million , representing 22 % of our services revenue in fiscal 2020 and 23 % in fiscal 2019 . 42 operating expenses ( $ in millions ) - sales and marketing expenses : decreased $ 34.3 million , or 9 % , primarily due to the following : decrease of $ 33.6 million in employee compensation and related expenses mainly attributable to our restructuring initiatives decrease of $ 6.2 million in travel and entertainment expenses increase of $ 3.9 million in marketing expenses . - research and development expenses : increased $ 17.4 million , or 19 % , as a result of an increase in employee compensation and related expenses attributable to the expansion of our engineering group . the increase is primarily due to an increase in employee-related costs resulting from additional headcount due to the acquisition of hedvig . additionally , certain hedvig shareholders will receive cash payments totaling $ 14.1 million over the course of the 30 months following the date of acquisition , contingent on their continued employment with the company . while these payments are proportionate to these shareholders ' ownership of

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liquidity and capital resources as of march 31 , 2020 , our cash balance was $ 296.1 million , which included $ 8.0 million of restricted cash . in addition , we have approximately $ 43.6 million of short-term investments invested in u.s. treasury bills . in recent fiscal years , our principal source of liquidity has been cash provided by operations . as of march 31 , 2020 , the amount of cash and cash equivalents held outside of the united states by our foreign legal entities was approximately $ 158.6 million . these balances are dispersed across many international locations around the world . we believe that such dispersion meets the current and anticipated future liquidity needs of our foreign legal entities . in the event we needed to repatriate funds from outside of the united states , such repatriation would likely be subject to restrictions by local laws and or tax consequences including foreign withholding taxes . 44 during the year ended march 31 , 2020 , we repurchased $ 77.2 million of common stock ( 1.7 million shares ) under our share repurchase program . our future stock repurchase activity is subject to the business judgment of our management and board of directors , taking into consideration our historical and projected results of operations , financial condition , cash flows and other anticipated capital requirements or investment alternatives . as of may 11 , 2020 , there is $ 162.8 million remaining in the share repurchase program which expires on march 31 , 2021. our stock repurchase program has been funded by our existing cash and cash equivalent balances as well as cash flows provided by our operations .

we believe continued budget pressures will have serious negative consequences for the security of our country , the defense industrial base , including northrop grumman , and the customers , employees , suppliers , investors , and communities that rely on companies in the defense industrial base . although it is difficult to determine specific impacts , we expect that over the longer term , the budget environment may result in lower awards , revenues , profits and cash flows from our u.s. government contracts . members of congress continue to discuss various options to address sequestration in future budget planning , but we can not predict the outcome of these efforts . it is likely budget and program decisions made in this environment will have long-term impacts on our company and the entire defense industry . faced with continued budget uncertainty and continued threats to national security , the dod is reviewing the roles and structure of the u.s. military . in january 2012 , the dod announced a new defense strategy intended to guide its priorities and budgeting decisions . the strategy calls for the u.s. military to project power globally and operate effectively in all domains , including cyberspace , and places particular emphasis on asia pacific as an area of strategic focus . in march 2013 , the secretary of defense directed senior pentagon officials to conduct a - 25 - northrop grumman corporation comprehensive strategic review of the dod strategy , including examination of the choices underlying the strategy , force posture , investments and institutional management in light of the budgetary and strategic environment . the dod briefed the results of this review in late july 2013 and provided some broad indications of the choices being weighed . in examining budget constraints within a sequestration environment over the next decade , the dod determined reductions in personnel , compensation and benefits , force structure , and modernization likely would be necessary . on force planning , the review broadly outlined several options , some that favor current capacity and others that emphasize future investments . the dod has stated that while the review demonstrated various alternatives , decisions are still being finalized . program and budget deliberations for the fy 2015 defense plan , currently scheduled for delivery to congress in february 2014 , are ongoing within the dod . the next quadrennial defense review is scheduled to be completed and delivered to congress in 2014. these various strategic reviews , as well as budget plans , proposed by the administration and considered by congress , may impact future funding for the company 's programs . we believe spending on recapitalization , modernization and maintenance of defense , intelligence , and homeland security assets will continue to be a national priority . future defense spending is expected to include the development and procurement of new manned and unmanned military platforms and systems , along with advanced electronics and software to enhance the capabilities of existing individual systems and provide real-time integration of surveillance , information management , strike and battle management platforms . we expect significant new competitive opportunities to include long range strike , missile defense , command and control , network communications , enhanced situational awareness , satellite systems , restricted programs , cybersecurity , technical services and information technology , as well as numerous homeland security programs . the company believes it has additional international opportunities ( direct and foreign military sales ) , beyond those realized today , to sell its products and services outside the u.s. market , particularly in the domains of unmanned systems , cyber , c4isr , logistics and manned military aircraft . the administration is addressing and supporting export control reforms that could enhance our ability to take advantage of these opportunities . the company is dedicating additional resources to expanding its international sales with emphases on australia , the middle east , asia and europe , through both organic growth and acquisitions . to the extent these efforts are successful , increases in international awards , revenues , profits and cash flows may offset , or partially offset , potential declines resulting from the u.s. political and economic environment described above . see risk factors located in part i , item 1a for a more complete description of risks we face . operating performance assessment and reporting we manage and assess our business based on our performance on contracts and programs ( two or more closely-related contracts ) , with consideration given to the critical accounting policies , estimates and judgments described later in this section . sales on our portfolio of long-term contracts is primarily recognized using the cost-to-cost method of percentage of completion accounting , but in some cases the units-of-delivery method of percentage of completion accounting . as a result , sales tend to fluctuate in concert with costs across our large portfolio of contracts . due to federal acquisition regulation ( far ) rules that govern our business , most types of costs are allowable , and we do not focus on individual cost groupings ( such as manufacturing , engineering and design labor costs , subcontractor costs , material costs , overhead costs , and general and administrative costs ) , as much as we do on total contract cost , which is the key driver of our sales and operating income . our contract management process involves the use of contract estimates-at-completion ( eacs ) that are generally prepared and evaluated on a bottoms-up basis at least annually and reviewed on a quarterly basis over the contract 's period of performance . these eacs include an estimated contract operating margin based initially on the contract award amount , adjusted to reflect estimated risks related to contract performance . these risks typically include technical risk , schedule risk and performance risk based on our evaluation of the contract effort . story_separator_special_tag the decline in sales reflects the termination or wind-down on a number of programs , including the joint tactical radio systems airborne , maritime and fixed ( jtrs amf ) , installation kits ( i-kits ) , enterprise network management ( enm ) and f-22 programs , partially offset by higher volume of approximately $ 110 million on the encore ii information technology support program , as well as higher volume on the air and space operations center , enterprise system development , and ground combat vehicle programs . further reducing sales was lower volume on restricted programs , as well as the sale of the county of san diego it outsourcing contract and the sale of park air norway , which together reduced sales by approximately $ 100 million , as compared to 2011. operating income for 2012 decreased $ 5 million , or 1 percent , as compared with 2011 . operating margin rate increased to 10.3 percent in 2012 from 9.7 percent in 2011 . the higher operating margin rate is primarily driven by performance improvements across a number of contracts , which largely offset the impact of lower volume on operating income . - 31 - northrop grumman corporation technical services replace_table_token_17_th 2013 - technical services sales for 2013 decreased $ 176 million , or 6 percent , as compared with 2012 . the decrease was primarily due to lower sales of $ 127 million on the intercontinental ballistic missile ( icbm ) and integrated logistics and modernization programs , as well as portfolio shaping efforts . operating income for 2013 decreased $ 6 million , or 2 percent , as compared with 2012 . operating margin rate increased to 9.2 percent in 2013 from 8.9 percent in 2012 . lower operating income was driven by the lower sales volume described above , partially offset by higher operating margin rate primarily due to improved performance across a number of programs . 2012 - technical services sales for 2012 decreased $ 174 million , or 5 percent , as compared with 2011 . the decrease was primarily due to reduced volume from portfolio shaping of approximately $ 70 million as we focused our operations into core areas , lower kc-10 logistics activity of approximately $ 60 million and lower icbm logistics and modernization activity of approximately $ 50 million . operating income for 2012 increased $ 8 million , or 3 percent , as compared with 2011 . operating margin rate increased to 8.9 percent in 2012 from 8.1 percent in 2011 . the higher operating income and operating margin rate were primarily due to improved performance on the kc-10 program , partially offset by lower sales volume as described above . product and service analysis replace_table_token_18_th ( 1 ) product and service costs do not include an allocation of general and administrative expenses . 2013 - product costs as a percentage of product sales for 2013 increased 40 basis points , as compared with 2012 . the increase is primarily due to lower product operating margins in newly awarded programs at information systems . service costs as a percentage of service sales for 2013 increased 50 basis points , as compared with 2012 . the increase is primarily due to lower service operating margins at aerospace systems and information systems . 2012 - product costs as a percentage of product sales for 2012 decreased 90 basis points , as compared with 2011 . this improvement reflects higher margins on combat avionics at electronic systems . service costs as a percentage of service sales for 2012 decreased 100 basis points , as compared with 2011 . this improvement reflects higher service margins in all four business segments . the improvement is principally driven by higher margins on certain military aircraft programs at aerospace systems and an increase in favorable performance adjustments across a number of programs at electronic systems . - 32 - northrop grumman corporation the following table presents product and service sales and operating costs and expenses by segment : replace_table_token_19_th ( 1 ) the reconciliation of segment operating income to total operating income , as well as a discussion of the reconciling items , is included in the segment operating results section above . product sales and product costs 2013 - product sales for 2013 were comparable with 2012 , primarily due to lower product sales at aerospace systems , offset by higher product sales at information systems and electronic systems . the decrease at aerospace systems reflects the revision in the classification of certain operations , maintenance , and sustainment contracts from product to service in 2013 . the increase at information systems was primarily due to newly awarded product contracts and the increase at electronic systems was primarily driven by higher volume as described in the segment operating results section above . product costs for 2013 were comparable with 2012 , primarily due to lower product costs at aerospace systems , offset by higher product costs at information systems and electronic systems . the decrease at aerospace systems was consistent with the classification change noted above . the decrease was offset by newly awarded product contracts at information system and higher sales volume at electronic systems , as described above . 2012 - product sales for 2012 decreased $ 733 million , or 5 percent , as compared with 2011 , primarily due to lower product sales at electronic systems and technical services , partially offset by higher product sales at information systems . the decrease at electronic systems primarily relates to lower volume of approximately $ 90 million in combat avionics and approximately $ 250 million in domestic and international postal automation programs . the decline at technical services was due to the change in classification of the icbm program from product to service at the beginning of 2012 , as the program transitioned from modernization to predominantly sustainment services . the increase at information systems was primarily driven by higher

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cash provided by continuing operations for 2013 decreased $ 157 million , or 6 percent , as compared with 2012 . the decrease was principally driven by higher voluntary pension contributions in 2013 , partially offset by changes in trade working capital . in 2013 , we contributed $ 579 million to our pension plans , of which $ 500 million was voluntarily pre-funded , as compared with $ 367 million in 2012 , of which $ 300 million was voluntarily pre-funded . 2012 – cash provided by continuing operations for 2012 increased $ 293 million , or 12 percent , as compared with 2011 , primarily due to lower pension contributions , partially offset by higher income taxes paid . in 2012 , we contributed $ 367 million to our pension plans , of which $ 300 million was voluntarily pre-funded , as compared with $ 1.1 billion in 2011 , of which $ 1.0 billion was voluntarily pre-funded . investing activities 2013 – cash used in investing activities from continuing operations for 2013 increased $ 262 million , or 312 percent , as compared with 2012 , primarily due to $ 250 million in proceeds from the maturity of short-term investments in 2012 . 2012 – cash used in investing activities from continuing operations for 2012 was $ 84 million , as compared to the cash provided by investing activities in 2011 , reflecting a $ 1.4 billion contribution received from the spin-off of our former shipbuilding business in 2011 , partially offset by $ 250 million in proceeds from the maturity of short-term investments in 2012 that were purchased in 2011. financing activities 2013 – net cash used in financing activities for 2013 decreased $ 847 million , or 50 percent , as compared with 2012 . the decrease was primarily due to the $ 2.0 billion of net proceeds received from the debt transactions described above , partially offset by higher repurchases of common stock in 2013 .

we expect to file a marketing authorization application , or maa , with the european medicines agency in the first quarter of 2018. we are in discussions with potential partners regarding inbrija outside of the u.s. in november 2017 , we discontinued our clinical development program for tozadenant , an investigational treatment for reduction of off time in people with parkinson 's that we acquired with our 2016 acquisition of biotie therapies . we made this decision based on new information obtained from our phase 3 clinical trials related to agranulocytosis and associated serious adverse events . in november 2017 , we completed a $ 40 million fampyra royalty monetization with healthcare royalty partners , or hcrp . in return for the payment to us , hcrp obtained the right to receive fampyra royalties payable to us by biogen , up to an agreed upon threshold of royalties . after this threshold is met , if ever , we will continue to receive fampyra royalty revenue from biogen until this revenue stream ends . the transaction does not include potential future milestones to be paid by biogen . in november 2017 , we also completed a $ 13 million selincro royalty monetization with lundbeck . in exchange for the payment from lundbeck , we agreed to amend the selincro license with lundbeck to eliminate future royalty and milestone obligations on sales of selincro outside of the u.s. also , we sold our zanaflex franchise for $ 4 million . as of december 31 , 2017 , we had cash and cash equivalents of approximately $ 307.1 million and we are projecting a 2018 year-end cash balance in excess of $ 300 million . we have $ 345 million of convertible senior notes due in 2021 with a conversion price of $ 42.56. we believe that operating expense reductions from the restructuring , as well as additional expense reductions due to termination of the tozadenant development program , will enable us to fund operations through launch of inbrija in the u.s. , pending approval from the fda . importantly , we have kept our commercial team intact despite the restructuring . we believe we have built a leading neuro-specialty sales and marketing team through our commercialization of ampyra , and that our commercial launch of inbrija in the u.s. , if approved , will benefit from the experiences and capabilities of this team . ampyra general ampyra was approved by the fda in january 2010 to improve walking in adults with ms. to our knowledge , ampyra is the first and only drug approved for this indication . efficacy was shown in people with all four major types of ms ( relapsing remitting , secondary progressive , progressive relapsing and primary progressive ) . ampyra was made commercially available in the united states in march 2010. net revenue for ampyra was $ 543.3 million for the year ended december 31 , 2017 and $ 492.8 million for the year ended december 31 , 2016. since the march 2010 launch of ampyra , approximately 130,000 people with ms in the u.s. have tried ampyra . we believe that ampyra is increasingly considered by many physicians a standard of care to improve walking in adults with ms. eight years after approval , ampyra continues to grow , reflecting the continued unmet medical need among adults with ms for a treatment to improve walking . as of december 31 , 2017 , approximately 70 % of all people with ms who were prescribed ampyra received a first refill , and approximately 40 % of all people with ms who were prescribed ampyra have been dispensed at least six months of the medicine through refills , consistent with previously reported trends . these refill rates exclude patients who started ampyra through our 60-day free trial program . our 60-day free trial program which provides eligible patients with two months of ampyra at no cost . during 2017 , on average , approximately 80 % of new ampyra patients enrolled in 60-day free trial . the program is in its seventh year , and data show that 60-day free trial participants have higher compliance and persistency rates over time compared to patients not in the program . approximately 50 % of patients who initiate therapy with the 60-day free trial free trial program convert to paid prescriptions . 69 ampyra is marketed in the u.s. through our own specialty sales force and commercial infrastructure . we currently have approximately 90 sales representatives in the field calling on a priority target list of approximately 7,000 physicians . we also have established teams of medical science liaisons , regional reimbursement directors , and market access account directors who provide information and assistance to payers and physicians on ampyra ; a national trade account director who works with our limited network of specialty pharmacies ; and market development managers who work collaboratively with field teams and corporate personnel to assist in the execution of the company 's strategic initiatives . ampyra is distributed in the u.s. exclusively through a limited network of specialty pharmacy providers that deliver the medication to patients by mail ; kaiser permanente , which distributes ampyra to patients through a closed network of on-site pharmacies ; and asd specialty healthcare , inc. ( an amerisourcebergen affiliate ) , which distributes ampyra to the u.s. bureau of prisons , the u.s. department of defense , the u.s. department of veterans affairs , or va , and other federal agencies . the specialty pharmacy providers that deliver ampyra by mail , and kaiser permanente , are contractually obligated to hold no more than 20 days of inventory , and some have agreed to hold a minimum of 8 to 10 business days of inventory . story_separator_special_tag we resubmitted the nda in december 2017. the resubmission addressed the two issues raised in the rtf and included all additional information requested by the fda in the rtf . on february 20 , 2018 , we announced that the resubmitted nda was accepted for filing by the fda , and that under the prescription drug user fee act , or pdufa , the fda has set a target date of october 5 , 2018. the nda was submitted under section 505 ( b ) ( 2 ) of the food drug and cosmetic act , referencing data from the branded l-dopa product sinemet® . we believe the phase 3 efficacy and safety clinical trial , combined with data from additional phase 3 long-term safety studies and supported by existing phase 2b data , are sufficient for the nda filing . our commercial preparations for the launch of inbrija continue . we believe we have built a leading neuro-specialty sales and marketing team through our commercialization of ampyra , and that our launch of inbrija in the u.s. , if approved , will benefit from the experiences and capabilities of this team . we are projecting that , if approved , annual peak net revenue of inbrija in the u.s. alone could exceed $ 800 million . we expect to file a marketing authorization application , or maa , with the european medicines agency in the first quarter of 2018. we are in discussions with potential partners regarding inbrija outside of the u.s. arcus product development in addition to inbrija ( levodopa inhalation powder ) , discussed above , we are exploring opportunities for other proprietary products in which inhaled delivery using our arcus drug delivery technology can provide a significant therapeutic benefit to patients . disorders of the central nervous system , or cns , in addition to parkinson 's disease , may be addressed by arcus products with the delivery of active agents to the cns with rapid onset and reduced systemic exposure . for example , we are currently developing cvt-427 , an inhaled triptan ( zolmitriptan ) intended for acute treatment of migraine by using the arcus drug delivery technology . triptans are the class of drug most commonly prescribed for acute treatment of migraine . oral triptans , which account for the majority of all triptan doses , can be associated with slow onset of action and gastrointestinal challenges . the slow onset of action , usually 30 minutes or longer , can result in poor response rates . patients cite the need for rapid relief from migraine symptoms as their most desired medication attribute . additionally , individuals with migraine may suffer from nausea and delayed gastric emptying which further impact the consistency and efficacy of the oral route of administration . triptans delivered subcutaneously ( injection ) provide the most rapid onset of action , but are not convenient for patients . many triptans are also available in nasally delivered formulations . however , based on available data , we believe that nasally delivered triptans generally have an onset of action similar to orally administered triptans . in december 2016 , we completed a special population study to evaluate safe inhalation of cvt-427 in people with asthma and in smokers . some subjects showed evidence of acute , reversible bronchoconstriction , post-inhalation . we plan to work on reformulating to move the program forward , once we have made more progress on the approval and launch of inbrija . in july 2015 , the bill & melinda gates foundation awarded us a $ 1.4 million grant to support the development of a formulation and delivery system for a dry powder version of lung surfactant , a treatment for neonatal respiratory distress syndrome , or nrds . in collaboration with the massachusetts institute of technology , we developed a novel formulation and delivery device based on our proprietary arcus drug delivery technology . nrds is a condition affecting prematurely born 73 infants in which their lungs are underdeveloped and thus lack a sufficient amount of lung surfactant . it can be fatal , or lead to severe , chronic health issues caused by a lack of oxygen getting to the baby 's brain and other organs . delivering liquid surfactant to the lungs via intubation is the standard of care . we believe that our formulation and delivery system may present a more practical alternative for use in developing areas of the world , where intubation poses numerous problems . this program is not aimed at developing a commercial product , but our work on this program could potentially generate information that is useful for adapting the arcus drug delivery technology to commercial pediatric uses . we are also beginning to formulate potential arcus products for two different rare lung diseases . other research and development programs following is a description of our other research and development programs . syn120 : syn120 is a potential treatment for parkinson's-related dementia , which we acquired with biotie therapies . data from a phase 2 exploratory study that we completed in 2017 showed that several of the outcome measures trended in favor of drug versus placebo , particularly with respect to neuropsychiatric symptoms . however , neither the primary nor key secondary endpoints achieved statistical significance . we are continuing to review the data , which will be presented at an upcoming medical meeting . btt1023 : through biotie therapies , we are also developing btt1023 ( timolumab ) , a product candidate for the orphan disease primary sclerosing cholangitis , or psc , a chronic and progressive liver disease . there are no approved drug therapies for psc and liver transplant is the only treatment . interim data from an ongoing phase 2 proof-of-concept clinical trial of btt1023 for psc are expected in the second quarter of 2018. rhigm22 : we are developing rhigm22 , a remyelinating antibody , as a potential therapeutic for ms. we

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liquidity and capital resources since our inception , we have financed our operations primarily through private placements and public offerings of our common stock and preferred stock , payments received under our collaboration and licensing agreements , sales of ampyra , zanaflex and qutenza , and , to a lesser extent , from loans , government grants , royalty monetizations , and our revenue interest financing arrangement . at december 31 , 2017 , we had $ 307.1 million of cash and cash equivalents , compared to $ 158.5 million at december 31 , 2016. there were no investments classified as short-term or long-term at december 31 , 2017. we expect that our existing cash and cash flows from operations will be sufficient to fund our ongoing operations over the next 12 months from the financial statement reporting date . our future capital requirements will depend on a number of factors , including the amount of revenue generated from sales of ampyra , whether inbrija receives fda approval for commercialization , whether we are successful with the ampyra patent appeal , the continued progress of our research and development activities , the amount and timing of milestone or other payments payable under collaboration , license and acquisition agreements , the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims and other intellectual property rights , and capital required or used for future acquisitions or to in-license new products and compounds including the development costs relating to those products or compounds . to the extent our capital resources are insufficient to meet future operating requirements we will need to raise additional capital , reduce planned expenditures , or incur indebtedness to fund our operations . if we require additional financing in the future , we can not assure you that it will be available to us on favorable terms , or at all . financing arrangements saints capital notes effective january 2017 , the company paid $ 0.8 million in full payment of these notes .

aerojet rocketdyne is a world-recognized engineering and manufacturing company that specializes in the development and production of propulsion systems for defense and space applications , armament systems for precision tactical systems and munitions , and is considered a domestic market leader in launch propulsion , in-space propulsion , missile defense propulsion , tactical missile propulsion and hypersonic propulsion systems . real estate — includes the activities of our wholly-owned subsidiary easton related to the re-zoning , entitlement , sale , and leasing of our excess real estate assets . we own approximately 11,500 acres of land adjacent to u.s. highway 50 between rancho cordova and folsom , california east of sacramento . we are currently in the process of seeking zoning changes and other governmental approvals on a portion of the sacramento land to optimize its value . in addition , we are currently in the process of completing certain infrastructure improvements to the sacramento land to enhance its value . a summary of the significant financial highlights for fiscal 2015 which management uses to evaluate our operating performance and financial condition is presented below . net sales for fiscal 2015 totaled $ 1,708.3 million compared to $ 1,602.2 million for fiscal 2014 . net loss for fiscal 2015 was $ ( 16.2 ) million , or $ ( 0.27 ) loss per share , compared to net loss of $ ( 50.0 ) million , or $ ( 0.86 ) loss per share , for fiscal 2014 . adjusted ebitdap ( non-gaap measure * ) for fiscal 2015 was $ 217.9 million , or 12.8 % of net sales , compared to $ 181.5 million , or 11.3 % of net sales , for fiscal 2014 . segment performance ( non-gaap measure * ) before environmental remediation provision adjustments , retirement benefit expense , and unusual items was $ 200.1 million for fiscal 2015 , compared to $ 152.8 million for fiscal 2014 . cash provided by operating activities in fiscal 2015 totaled $ 65.1 million , compared to $ 150.6 million in fiscal 2014 . free cash flow ( non-gaap measure * ) in fiscal 2015 totaled $ 28.3 million , compared to $ 107.2 million in fiscal 2014 . as of november 30 , 2015 , we had $ 2.4 billion of total funded contract backlog compared to $ 2.2 billion as of november 30 , 2014 . as of november 30 , 2015 , we had $ 4.1 billion of total contract backlog ( total funded and unfunded backlog ) compared to $ 3.1 billion as of november 30 , 2014 . as of november 30 , 2015 , we had $ 440.9 million in net debt ( non-gaap measure * ) compared to $ 516.3 million as of november 30 , 2014 . _ * we provide non-gaap measures as a supplement to financial results based on gaap . a reconciliation of the non-gaap measures to the most directly comparable gaap measures is presented later in the management 's discussion and analysis under the heading “ operating segment information ” and “ use of non-gaap financial measures . ” our fiscal year ends on november 30 of each year . the fiscal year of our subsidiary , aerojet rocketdyne , ends on the last saturday of november . as a result of the 2013 calendar , aerojet rocketdyne had 14 weeks of operations in the first quarter of fiscal 2013 compared to 13 weeks of operations in the first quarter of fiscal 2015 and 2014. the additional week of operations in the first quarter of fiscal 2013 accounted for $ 27.8 million in additional net sales . on january 20 , 2016 , our board of directors approved a change in our fiscal year-end from november 30 of each year to december 31 of each year . in july 2012 , we signed the original purchase agreement with utc to acquire the rocketdyne business from utc for $ 550 million . on june 12 , 2013 , we entered into an amended and restated purchase agreement with utc , which amended and restated the original purchase agreement , as amended . on june 14 , 2013 , we completed the acquisition of substantially all of the rocketdyne business pursuant to the amended and restated purchase agreement . the aggregate consideration to utc was $ 411 million which represents the initial purchase price of $ 550 million reduced by $ 55 million relating to the potential future acquisition of utc 's 50 % ownership interest of rd amross ( a joint venture with npo energomash of khimki , russia which sells rd-180 engines to rd amross ) and the portion of the utc business that markets and supports the sale of rd-180 engines . the acquisition of utc 's 50 % ownership interest of rd amross and utc 's related business was contingent upon certain conditions including receipt of certain russian governmental regulatory approvals , which was not obtained . pursuant to the terms of the amended and restated purchase agreement , on june 14 , 2015 , our obligations to consummate the rda acquisition expired . the unaudited pro forma information for fiscal 2013 set forth below gives effect to the acquisition as if it had occurred at the beginning of the year . these amounts have been calculated after applying our accounting policies and adjusting the results of the rocketdyne business to reflect depreciation and amortization that would have been charged assuming the fair value 33 adjustments to property , plant and equipment and intangible assets had been applied as at the beginning of the year , together with the tax effects , as applicable . the pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time or that may result in the future . story_separator_special_tag the increase in net sales was partially offset by ( i ) a decrease in the various standard missile contracts primarily from the transitioning of the standard missile-3 block ib contract from development activities to low-rate initial production , decreased development activities for the tdacs for the standard missile-3 block iia contract , and the cessation of deliveries on the 38 standard missile-1 regrain contract in fiscal 2014 as a result of contract completion ; ( ii ) an additional week of operations in the first quarter of fiscal 2013 resulting in $ 27.8 million in net sales ; ( iii ) lower sales a result of the completion of the t3 iia and iib contracts as the program entered the next development phase ; and ( iv ) decreased deliveries and changes in the estimated measurement of progress toward completion on the antares program . cost of sales ( exclusive of items shown separately below ) : replace_table_token_20_th * primary reason for change . the decrease in cost of sales as a percentage of net sales excluding retirement benefit expense and the step-up in fair value of inventory is primarily due to ( i ) land sale of approximately 550 acres of sacramento land resulting in gross profit of $ 30.6 million , 1.8 % of net sales , and ( ii ) the close-out of the antares aj-26 program . aerojet rocketdyne entered into a settlement and mutual release agreement ( the “ agreement ” ) with orbital sciences corporation ( “ orbital ” ) pursuant to which the parties mutually agreed to a termination for convenience of the contract relating to the provision by aerojet rocketdyne of 20 aj-26 liquid propulsion rocket engines to orbital for the antares program ( the “ contract ” ) . the agreement also settles all claims the parties may have had against one another arising out of the contract and the launch failure that occurred on october 28 , 2014 of an antares launch vehicle carrying the cygnus orb-3 service and cargo module . we incurred a $ 50.0 million legal settlement charge reported as an unusual item and not included in cost of sales related to the legal settlement . see table below and note 9 ( b ) of the notes to consolidated financial statements . replace_table_token_21_th * * primary reason for change . the increase in cost of sales excluding retirement benefit expense and step-up in fair value of inventory as a percentage of net sales was primarily due to $ 23.6 million of cost growth in fiscal 2014 on the antares aj-26 program , including the cost to repair or replace engines as necessary in light of the previously reported engine test failures , an associated increase in hardware inspections and corrective actions on remaining engines , costs to repair the damaged test stand , and costs resulting from delayed deliveries . 39 ar1 research and development ( `` r & d `` ) : replace_table_token_22_th * primary reason for change . during the third quarter of fiscal 2015 , we began separately reporting the portion of the engine development expenses associated with our newest liquid booster engine , the ar1 , which are currently not allocated across all contracts and programs in progress under u.s. governmental contractual arrangements . see additional discussion in note 1 of the notes to consolidated financial statements . selling , general and administrative ( “ sg & a ” ) : replace_table_token_23_th * primary reason for change . the increase in sg & a expense was primarily driven by : ( i ) an increase of $ 6.1 million in non-cash retirement benefit plan expense ( see discussion of “ retirement benefit plans ” below ) and ( ii ) an increase of $ 2.9 million in stock-based compensation primarily as a result of increases in the fair value of the stock appreciation rights . * * primary reason for change . the decrease in sg & a expense was primarily driven by ( i ) lower non-cash retirement benefit expense ( see discussion of “ retirement benefit plans ” below ) and ( ii ) a decrease of $ 8.4 million in stock-based compensation primarily as a result of decreases in the fair value of the stock appreciation rights . depreciation and amortization : replace_table_token_24_th * primary reason for change . the increase in depreciation and amortization is primarily due to the non-cash accelerated depreciation expense of $ 0.8 million in fiscal 2015 associated with changes in the estimated useful life of long-lived assets impacted by the cip . 40 * * primary reason for change . the increase in depreciation and amortization is primarily due to ( i ) an increase in depreciation expense related to the rocketdyne business since the acquisition ; ( ii ) an increase of $ 7.0 million of amortization of intangible assets associated with the rocketdyne business which is not allocable to our u.s. government contracts ; and ( iii ) an increase of $ 3.1 million of depreciation expense associated with the erp system which was placed into service in june 2013. other expense , net : replace_table_token_25_th * primary reason for change . the decrease in other expense , net was primarily due to a decrease of $ 9.8 million in unusual items charges ( see discussion of unusual items below ) . the decrease in unusual items was partially offset by an increase of $ 6.5 million in environmental remediation expense primarily associated with higher reserve requirements at the bpou site offset by the advance agreement with the u.s. government entered into in the fourth quarter of fiscal 2015 ( see discussion of “ environmental matters ” below ) . * * primary reason for change . the increase in other expense , net was primarily due to ( i ) an increase of $ 37.2 million in unusual item charges ( see discussion of unusual items below ) ; (

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net cash used in investing activities during fiscal 2015 , 2014 and 2013 , we had capital expenditures of $ 36.8 million , $ 43.4 million and $ 63.2 million , respectively . during fiscal 2014 and 2013 , capital expenditures total included $ 11.3 million and $ 25.4 million , respectively , related to consolidating the rocketdyne business facilities . additionally , during fiscal 2013 the capital expenditures total included $ 16.4 million related to our erp implementation . during fiscal 2014 , we received $ 0.2 million for a purchase price adjustment for the rocketdyne business and we generated proceeds of $ 7.5 million from the sale of non-core technology . during fiscal 2013 , we purchased the rocketdyne business for $ 411.2 million ( see note 5 in notes to consolidated financial statements . ) net cash ( used in ) provided by financing activities during fiscal 2015 , we had $ 81.2 million in debt cash payments ( see below ) . during fiscal 2014 , we repurchased 3.5 million of our common shares at a cost of $ 64.5 million . we also issued $ 189.0 million of debt and had $ 166.3 million in debt cash payments ( see below ) . in addition , we incurred $ 4.2 million of debt issuance costs . during fiscal 2013 , we issued $ 460.0 million of debt and had $ 12.8 million in cash payments of debt . in addition , we incurred $ 14.9 million of debt issuance costs . debt activity and covenants our debt activity during fiscal 2015 was as follows : replace_table_token_48_th we are subject to certain limitations including the ability to incur additional debt , make certain investments and acquisitions , and make certain restricted payments , including stock repurchases and dividends . the senior credit facility includes events of default usual and customary for facilities of this nature , the occurrence of which could lead to an acceleration of our obligations thereunder .

the consolidated financial statements reflect our financial position , results of operations , comprehensive income and cash flows as our business was operated as part of ebay prior to the capitalization . following the capitalization , our consolidated financial statements include the accounts of paypal holdings and its wholly-owned subsidiaries . the consolidated financial position , results of operations and cash flows as of dates and for periods prior to the separation may not be indicative of what our financial position , results of operations and cash flows would have been as a separate stand-alone entity during the periods presented , nor are they indicative of what our financial position , results of operations and cash flows may be in the future . for additional information , see “ note 1—overview and summary of significant accounting policies ” to our consolidated financial statements included elsewhere in this annual report on form 10-k. unless otherwise expressly stated or the context otherwise requires , references to “ we , ” “ our , ” “ us , ” “ the company ” and “ paypal ” refer to paypal holdings and its consolidated subsidiaries or , in the case of information as of dates or for periods prior to the separation , the consolidated entities of the payments business of ebay , including paypal , inc. and certain other assets and liabilities that had been historically held at the ebay corporate level but were specifically identifiable and attributable to the payments business . business environment we are a leading technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide . our vision is to democratize financial services , as we believe that managing and moving money is a right for all people , not just the affluent . our goal is to increase our relevance for consumers and merchants to manage and move their money anywhere in the world , anytime , on any platform and using any device . our combined payment solutions , including our paypal , paypal credit , braintree , venmo , xoom , and paydiant products , compose our proprietary payments platform . 37 we operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry . that focus continues to become even more heightened as regulators on a global basis focus on such important issues as countering terrorist financing , anti-money laundering , privacy and consumer protection . some of the laws and regulations to which we are subject were enacted recently and the laws and regulations applicable to us , including those enacted prior to the advent of digital and mobile payments , are continuing to evolve through legislative and regulatory action and judicial interpretation . non-compliance with laws and regulations , increased penalties and enforcement actions related to non-compliance , changes in laws and regulations or their interpretation , and the enactment of new laws and regulations applicable to us could have a material adverse impact on our business , results of operations and financial condition . therefore , we monitor these areas closely to ensure compliant solutions for our customers who depend on us . the united kingdom ( u.k. ) held a referendum on june 23 , 2016 in which a majority of voters approved an exit from the european union ( eu ) ( “ brexit ” ) . the outcome of this referendum caused volatility in global stock markets and foreign currency exchange rate fluctuations . brexit could adversely affect the u.k. , european and worldwide economic and market conditions and could contribute to instability in regional or global financial and foreign exchange markets , including volatility in the value of the british pound and euro . we have foreign exchange exposure management programs designed to help reduce the impact from foreign currency rate movements . in 2016 , 2015 and 2014 , net revenues generated from our u.k. operations constituted 12 % , 13 % and 14 % , respectively , of total net revenues . in 2016 , 2015 and 2014 , net revenues generated from the eu ( excluding the u.k. ) constituted approximately 20 % of total net revenues . for additional information on how brexit could affect our business , see “ item 1a . risk factors ” under the caption— “ the united kingdom 's departure from the european union could adversely affect us . ” information security risks for global payments and technology companies have significantly increased in recent years . although we are not aware of any material impacts relating to cyber-attacks or other information security breaches on our payments platform , there can be no assurance that we are immune to these risks and will not suffer such losses in the future . see “ item 1a . risk factors ” under the caption— “ our business is subject to cyberattacks and security and privacy breaches . ” overview of results of operations the following table provides a summary of our consolidated operating results for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_5_th all amounts in tables are rounded to the nearest millions , except as otherwise noted . as a result , certain amounts may not recalculate using the rounded amounts provided . ( 1 ) on july 17 , 2015 , the distribution date , ebay stockholders of record as of the close of business on july 8 , 2015 received one share of paypal common stock for every share of ebay common stock held as of the record date . basic and diluted net income per share for the year ended december 31 , 2014 was calculated using the number of common shares distributed on july 17 , 2015 . story_separator_special_tag 42 the following table summarizes our operating expenses and related metrics we use to assess the trend in each : replace_table_token_10_th 1 transaction expense rate is calculated by dividing transaction expense by tpv 2 transaction and loan loss rate is calculated by dividing transaction and loan losses by tpv * * not meaningful transaction expense transaction expense is primarily composed of the costs we incur to accept a customer 's funding source of payment . these costs include fees paid to payment processors and other financial institutions in order to draw funds from a customer 's credit or debit card , bank account or other funding source they have stored in their digital wallet . transaction expense also includes fees paid to disbursement partners to enable a transaction and interest expense on borrowings incurred to finance our portfolio of loans receivable arising from our paypal credit funding option . we refer to the allocation of funding sources used by our consumers as our “ funding mix . ” the cost of funding a transaction with a credit or debit card is generally higher than the cost of funding a transaction from a bank or through internal sources such as a paypal account balance or paypal credit . as we expand the availability of alternative funding sources to our customers , a change in funding mix can increase or decrease our transaction expense rate . for example , in connection with our customer choice initiatives , we expect that our transaction expense rate will increase . the cost of funding a transaction is also impacted by the geographic region or country in which a transaction occurs because we generally pay lower rates for transactions funded with credit cards outside the u.s. than in the u.s. transaction expense increased $ 736 million , or 28 % , in 2016 compared to 2015 . the increases in transaction expense in 2016 was primarily attributable to an increase in tpv , which increased 26 % in 2016 . transaction expense increased by $ 440 million , or 20 % , in 2015 compared to 2014 . the increase in transaction expense in 2015 was primarily attributable to an increase in tpv , offset by favorable foreign currency fluctuations due to the strengthening of the u.s. dollar . our transaction expense rate in 2016 increased compared to 2015 due primarily to changes in funding mix . for the years ended december 31 , 2016 , 2015 and 2014 , approximately 2 % of tpv was funded with paypal credit . for the years ended december 31 , 2016 , 2015 and 2014 , approximately 45 % , 45 % , and 48 % of tpv , respectively , was generated outside of the u.s. our transaction expense rate in 2015 increased compared to 2014 due to higher assessments charged by payments processors and other financial institutions partially offset by cost efficiencies from our payments platform and a more favorable funding mix . interest expense on borrowings incurred to finance our portfolio of loans receivable , included in transaction expense , was not material for the years ended december 31 , 2016 , 2015 and 2014 . transaction and loan losses transaction losses include the expense associated with our customer protection programs , fraud , and chargebacks . loan losses include the losses associated with our paypal credit loans receivable portfolio . we expect our transaction and loan losses to fluctuate depending on many factors , including tpv , macroeconomic conditions , changes to our customer protection programs , the impact of regulatory changes , and the credit quality of loans receivable arising from transactions funded with our paypal credit products and working capital advances to select merchant sellers . additionally , prior to the distribution we recovered certain amounts from ebay related to customer protection programs offered on eligible ebay purchases made with paypal . these costs included the actual amount of protection losses associated with ebay 's customer protection programs that we administered and 43 funded on behalf of ebay , which were included as a reduction of transaction and loan losses . recoveries associated with protection losses incurred on eligible ebay purchases during the years ended december 31 , 2015 and 2014 were $ 27 million and $ 43 million , respectively . following the distribution , we no longer administer ebay 's customer protection programs or recover amounts from ebay associated with protection losses incurred on eligible ebay purchases ; instead , we and ebay each independently administer our own customer protection programs . further , our customer protection programs extend to customers ' eligible purchases on ebay and therefore we have incurred and expect to continue to incur incremental costs associated with our customer protection programs following the distribution . the components of our transaction and loan losses for the years ended december 31 , 2016 , 2015 and 2014 were as follows : replace_table_token_11_th transaction and loan losses increased $ 279 million , or 34 % , in 2016 compared to 2015 , and increased $ 163 million , or 25 % , in 2015 compared to 2014 . transaction losses increased by $ 144 million , or 28 % , in 2016 compared to 2015 primarily attributable to higher tpv . our transaction loss rate , calculated by dividing transaction loss by tpv , in 2016 was flat compared to 2015 . the growth in transaction losses in 2016 was higher than the growth in tpv in 2016 due primarily to lower incremental costs in 2015 associated with our customer protection programs following the distribution . transaction losses increased by $ 103 million , or 25 % , in 2015 compared to 2014 primarily attributable to higher tpv . our transaction loss rate in 2015 increased compared to 2014 due to lower recoveries in 2015 associated with transaction losses incurred on eligible ebay purchases offset by improved consumer loss performance and a higher provision in the prior year from

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cash paid for income taxes in 2016 , 2015 and 2014 was $ 48 million , $ 216 million and $ 47 million , respectively . investing activities the net cash used in investing activities of $ 5 billion in 2016 was due primarily to purchases of available for sale investments of $ 21.0 billion , increases in our loan receivable portfolio ( net of collections ) originated through our paypal credit products of $ 1.5 billion , purchases of property and equipment of $ 669 million and net increases in funds receivable from customers and customer accounts of $ 176 million , including the reclassification of $ 800 million of european customer balances held in our luxembourg banking subsidiary as cash and cash equivalents . these net cash outflows were offset by maturities and sales of investments of $ 18.4 billion . the net cash used in investing activities of $ 8 billion in 2015 was due primarily to purchases of investments of $ 21.6 billion , acquisitions , net of cash acquired of $ 1.2 billion , increases in our loan receivable portfolio ( net of collections ) originated through our paypal credit products of $ 819 million and purchases of property and equipment of $ 722 million . these net cash outflows were offset in part by maturities and sales of investments of $ 16.1 billion and net cash inflows relating to receivables from ebay of $ 575 million . the net cash used in investing activities of $ 2.9 billion in 2014 was due primarily to purchases of available for sale investments of $ 8.7 billion , increases in our loan receivable portfolio ( net of collections ) originated through our paypal credit products of $ 1 billion , purchases of property and equipment of $ 492 million and net cash outflows relating to receivables from ebay of $ 362 million . these net cash outflows were offset in part by maturities and sales of investments of $ 7.8 billion .

the total net effect of the settlement of these intercompany transactions is reflected in the consolidated and combined statements of cash flow as a financing activity and in the consolidated and combined balance sheets as spg equity in the spg businesses for periods prior to the separation . 44 the combined historical financial statements prior to the separation do not necessarily include all of the expenses that would have been incurred had we been operating as a separate , stand-alone entity and may not necessarily reflect our results of operations , financial position and cash flows had we been a stand-alone company during the periods presented prior to the separation . our combined historical financial statements include charges related to certain spg corporate functions , including senior management , property management , legal , leasing , development , marketing , human resources , finance , public reporting , tax and information technology . these expenses have been charged based on direct usage or benefit where identifiable , with the remainder charged on a pro rata basis of revenues , headcount , square footage , number of transactions or other measures . we consider the expense allocation methodology and results to be reasonable for all periods presented . however , the charges may not be indicative of the actual expenses that would have been incurred had wpg operated as an independent , publicly traded company for the periods presented prior to the separation . wpg now incurs additional costs associated with being an independent , publicly traded company , primarily from newly established or expanded corporate functions . we believe that cash flow from operations will be sufficient to fund these additional corporate expenses . prior to the separation , wpg entered into agreements with spg under which spg provides various services to us relating primarily to the legacy spg businesses , including accounting , asset management , development , human resources , information technology , leasing , legal , marketing , public reporting and tax . the charges for the services are based on an hourly or per transaction fee arrangement and pass-through of out-of-pocket costs . in connection with the separation , we incurred $ 38.9 million of expenses , including investment banking , legal , accounting , tax and other professional fees , which are included in spin-off costs for the year ended december 31 , 2014 in the consolidated and combined statements of operations and comprehensive ( loss ) income . at the time of the separation , our assets consisted of interests in 98 shopping centers . in addition to these properties , the combined historical financial statements include interests in three shopping centers held within a joint venture portfolio of properties which were sold during the first quarter of 2013 as well as one additional shopping center which was sold by that same joint venture on february 28 , 2014. as of december 31 , 2015 , our assets consisted of material interests in 121 shopping centers . the merger on january 15 , 2015 , the company acquired glimcher realty trust ( `` glimcher `` ) , pursuant to a definitive agreement and plan of merger with glimcher and certain affiliated parties of each dated september 16 , 2014 ( the `` merger agreement `` ) , in a stock and cash transaction valued at approximately $ 4.2 billion , including the assumption of debt ( the `` merger `` ) . in the merger , glimcher 's common shareholders received , for each glimcher common share , $ 14.02 consisting of $ 10.40 in cash and 0.1989 of a share of the wpg inc. 's common stock valued at $ 3.62 per glimcher common share , based on the closing price of the wpg inc. 's common stock on the merger closing date . approximately 29.9 million shares of wpg inc. 's common stock were issued to glimcher shareholders in the merger , and wpg l.p. issued to wpg inc. a like number of common units as consideration for the common shares issued . additionally , included in the consideration were operating partnership units held by limited partners and preferred stock as noted below . in connection with the closing of the merger , an indirect subsidiary of wpg l.p. was merged into glimcher 's operating partnership . in the merger , we acquired material interests in 23 shopping centers comprised of approximately 15.8 million square feet of gross leasable area and assumed additional mortgages on 14 properties with a fair value of approximately $ 1.4 billion . the combined company , which was renamed wp glimcher inc. in may 2015 upon receiving shareholder approval , is comprised of approximately 69 million square feet of gross leasable area ( compared to approximately 53 million square feet for the company as of december 31 , 2014 ) and has a combined portfolio of material interests in 121 properties as of december 31 , 2015. in the merger , the preferred stock of glimcher was converted into preferred stock of wpg inc. , and wpg l.p. issued to wpg inc. preferred units as consideration for the preferred shares issued . additionally , each outstanding unit of glimcher 's operating partnership held by limited partners was converted into 0.7431 of a unit of wpg l.p. further , each outstanding stock option in respect of glimcher common stock was converted into a wpg inc. option , and certain other glimcher equity awards were assumed by wpg inc. and converted into equity awards in respect of wpg inc. 's common shares . story_separator_special_tag in the event estimates or assumptions prove to be different from actual results , adjustments are made in subsequent periods to reflect more current information . below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain . for a summary of our significant accounting policies , please refer to note 3 of the notes to the consolidated and combined financial statements . we , as a lessor , retain substantially all of the risks and benefits of ownership of the investment properties and account for our leases as operating leases . we generally accrue minimum rents on a straight-line basis over the terms of their respective leases . many of our retail tenants are also required to pay overage rents based on sales over a stated amount during the lease year . we recognize overage rents only when each tenant 's sales exceed its sales threshold as defined in their lease . we amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the related lease or occupancy term of the tenant , if shorter . we review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable . these circumstances include , but are not limited to , a decline in a property 's cash flows , ending occupancy , estimated market values or our decision to dispose of a property before the end of its estimated useful life . furthermore , this evaluation is conducted no less frequently than quarterly , irrespective of changes in circumstances . we measure any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization plus its residual value is less than the carrying value of the property . to the extent impairment has occurred , we charge to expense the excess of carrying value of the property over its estimated fair value . we estimate fair value using unobservable data such as operating income , estimated capitalization rates , leasing prospects and local market information . we may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values . we also review our investments , including investments in unconsolidated entities , if events or circumstances change indicating that the carrying amount of our investments may not be recoverable . we will record an impairment charge if we determine that a decline in the fair value of the investments below carrying value is other-than-temporary . changes in economic and operating conditions that occur subsequent to our review of recoverability of investment property and other investments could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results . to maintain its status as a reit , wpg inc. must distribute at least 90 % of its taxable income in any given year and meet certain asset and income tests . we monitor our business and transactions that may potentially impact wpg inc. 's reit status . in the unlikely event that wpg inc. fails to maintain reit status , and available relief provisions do not apply , then it would be required to pay federal income taxes at regular corporate income tax rates during the period it did not qualify as a reit . if wpg inc. lost its reit status , it could not elect to be taxed as a reit for four years unless its failure was due to reasonable cause and certain other conditions were met . as a result , failing to maintain reit status would result in a significant increase in the income tax expense recorded and paid during those periods . we make estimates as part of our recording of the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component . the most significant components of our allocations are typically the recording of the fair value of buildings as-if-vacant , land and market value of in-place leases . in the case of the fair value of buildings and the recording of the fair value of land and other intangibles , our estimates of the values of these components will affect the amount of depreciation we record over the estimated useful life of the property acquired or the remaining lease term . in the case of the market value of in-place leases , we make our best estimates of the tenants ' ability to pay rents based upon the tenants ' operating performance at the property , including the competitive position of the property in its market as well as tenant sales , rents per square foot , and overall occupancy cost for the tenants in place at the acquisition date . our assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases . 51 a variety of costs are incurred in the development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of professional judgment . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed when it is held available for occupancy , and accordingly , cease capitalization of costs upon opening . new accounting pronouncements

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unsecured debt the facility on may 15 , 2014 , we closed on a senior unsecured revolving credit facility , or revolver , and a senior unsecured term loan , or term loan ( collectively referred to as the `` facility '' ) . the revolver provides borrowings on a revolving basis up to $ 900 million , bears interest at one-month libor plus 1.25 % , and will initially mature on may 30 , 2018 , subject to two , six-month extensions available at our option subject to compliance with the terms of the facility and payment of a customary extension fee . the term loan provides borrowings in an aggregate principal amount up to $ 500 million , bears interest at one-month libor plus 1.45 % , and will initially mature on may 30 , 2016 , subject to three , 12-month extensions available at our option subject to compliance with the terms of the facility and payment of a customary extension fee . on february 17 , 2016 , we executed the first extension option to extend the maturity date of the term loan to may 30 , 2017. the interest rate on the facility may vary in the future based on the company 's credit rating . at december 31 , 2015 , borrowings under the facility consisted of $ 278.8 million outstanding under the revolver and $ 500.0 million outstanding under the term loan . on december 31 , 2015 , we had an aggregate available borrowing capacity of $ 620.9 million under the facility , net of $ 0.3 million reserved for outstanding letters of credit . at december 31 , 2015 , the applicable interest rate on the revolver was one-month libor plus 1.25 % , or 1.67 % , and the applicable interest rate on the term loan was one-month libor plus 1.45 % , or 1.87 % . new term loans on december 10 , 2015 , the company borrowed $ 340.0 million under an additional new term loan ( the `` december 2015 term loan '' ) , pursuant to a commitment received from bank lenders .

we have certain rights to c1-inh technology through agreements with sanquin , an amsterdam-based not-for-profit organization that provides blood and plasma products and related services , carries out research and provides education , primarily in the netherlands . from july 21 , 2003 ( inception ) through december 31 , 2007 , we have not generated any revenue from operations . we expect to incur additional losses to perform further research and development activities . we do not currently have any commercial biopharmaceutical products , and do not expect to have a product until mid-2008 at the earliest , subject to fda approval . as a company that may have limited product revenues , subject to fda approval , and no profit over the next year , management of cash flow is extremely important . the most significant use of our cash is for research and development activities , which include clinical trials and regulatory clearance . during 2007 , our research and development expenses were $ 15,379,305 . 41 research/product programs hereditary angioedema in january 2004 , we entered into a distribution and manufacturing services agreement with sanquin relating to the treatment of hae . sanquin currently manufactures and markets a highly purified preparation of c1-inh in europe and pursuant to the agreement , sanquin agreed to provide us with c1-inh for use in our clinical trials and for commercial distribution upon regulatory licensure . pursuant to the agreement , we have distribution rights in israel and all countries in north , central and south america , with the exception of the dutch overseas territories , argentina and brazil . under the distribution agreement , it is our responsibility to conduct the phase iii clinical trials of c1-inh for the treatment of hae and to prepare and file all regulatory applications necessary to register the product candidate . sanquin agreed to provide us with the technical data and support necessary to assist us in preparing and filing all such regulatory applications . furthermore , sanquin agreed to supply c1-inh for our phase iii clinical trials . upon receipt of fda approval for our product candidate for the treatment of hae , upon commercial launch of this product and thereafter during the term of the agreement , sanquin will supply us with our commercial requirements for c1-inh for the treatment of hae in each country where we have received regulatory approval . our purchase of c1-inh from sanquin is subject to minimum annual purchase requirements upon receipt of fda approval . on october 10 , 2007 , we entered into an amendment , dated as of september 24 , 2007 , to our distribution and manufacturing services agreement with sanquin . pursuant to this amendment , we agreed with sanquin on the terms regarding a construction project to scale-up the production facilities of sanquin to be used for the purpose of meeting our anticipated ongoing requirements for the commercial use of its c1-inh product , proposed to be marketed as cinryze . subject to the terms of the final project plan , we would provide sanquin with a non-interest bearing loan , up to a maximum amount of 7.5 million ( approximately us $ 11.0 million , based on the exchange rate as of december 31 , 2007 ) , to finance the construction project . in addition , sanquin agreed to manufacture our c1-inh product on a toll-manufacturing basis using blood plasma supplied by us . we agreed to purchase a specified amount of product from sanquin until the scale up is approved by the appropriate regulatory authorities and also agreed to an annual minimum purchase commitment of product of approximately $ 21.7 million during the term of the agreement commencing in the year in which the scale up is approved in the u.s. for commercial production . on january 17 , 2007 , we announced that we have completed patient treatment in the acute portion of a pivotal phase iii clinical trial for our lead product candidate , c1-inh for the treatment of hae and on march 14 , 2007 , we announced positive results from our phase iii clinical trial of c1-inh for the acute treatment of hae . in the acute trial , the protocol-defined primary endpoint was reached , showing a clinically and statistically significant reduction in the time to sustained relief of acute hae symptoms . based on the positive results of this trial , we filed a biologics license application , or bla , with the fda on july 31 , 2007. on may 31 , 2007 , we announced that we have completed patient treatment in the second phase of the trial , examining the effectiveness of c1-inh in preventing inflammatory attacks in more severely affected hae patients and on september 10 , 2007 we announced positive results from our phase iii clinical trial of c1-inh for the prophylactic treatment of hae . in the prophylactic trial , the protocol-defined primary endpoint was achieved , showing a clinically and statistically significant reduction in the number of hae attacks . based on the positive results of this study , we amended our bla filing with the fda on october 30 , 2007. if approved , we intend to commercialize c1-inh ourselves through a specialty sales force in the united states and market this product under the name cinryze . on january 30 , 2008 , we announced our receipt of a complete response letter from the fda regarding our bla for cinryze for the acute and prophylactic treatment of hae . in our announcement , we stated that the fda requested information with respect to chemistry , manufacturing and controls , as well as additional analyses of existing efficacy data from the cinryze trials . we are in the process of compiling our response to the information requested by fda . story_separator_special_tag after the mergers , pursuant to the exchange ratio in the agreement , warrants to purchase 190,327 and 111,341 shares of common stock were outstanding with exercise prices of $ 0.10 and $ 0.85 per share , respectively . the board believed this was unfair to the holders of the warrants and made a determination to treat the warrant holders on the same basis as the holders of common stock of old lev . accordingly , in may 2005 , the exercise price of outstanding warrants to purchase 190,327 shares was reduced from $ 0.10 to $ 0.04 per share , and the exercise price of other outstanding warrants to purchase 111,341 shares was reduced from $ 0.85 to $ 0.30 per share . at the date of this repricing , we recognized a charge to operations of approximately $ 28,000 for the incremental value of these warrants based upon the black scholes option pricing model . prior to the mergers , stock options to purchase 500,000 shares of common stock at an exercise price of $ 0.85 per share were held by each of joshua d. schein , ph.d. , our chief executive officer , and by judson cooper , our chairman . after the mergers , pursuant to the exchange ratio in the agreement , each person 's options were converted into options to purchase 1,427,450 shares of common stock with an exercise price of $ 0.85 per share ( an aggregate of 2,854,900 shares ) . in may 2005 , in addition to repricing the warrants , the board further determined , subject to obtaining stockholder approval at our next annual meeting , to reduce the exercise price of these options from $ 0.85 to $ 0.30 per share . the board made the determination to seek stockholder approval because it believed that stockholder approval was necessary to reduce the exercise price of such options under the terms of our 2004 omnibus incentive compensation plan . in addition , the board believed that the repricing of these options should be subject to stockholder approval because the reduction in exercise price of the stock options directly benefits our chief executive officer and chairman . however , it should be noted that our chief executive officer and chairman are also principal stockholders who voted on this proposal . the stockholders approved this repricing at the annual meeting held on december 12 , 2005. messrs. schein and cooper each own options to purchase 1,427,450 shares of common stock at an exercise price of $ 0.30 per share as opposed to the prior exercise price of $ 0.85 per share . if they exercise all of these options , messrs. schein and cooper would realize a cash savings of , and the proceeds received by the company would be reduced by , $ 785,098 for each of them . a charge of $ 1,427,450 was recorded to our consolidated statement of operations based upon our stock price when our stockholders approved the repricing at the stockholders ' meeting and subsequent changes to our stock price through december 31 , 2005. these charges ceased upon the adoption of sfas 123r on january 1 , 2006. the fair value of warrants granted to non-employees for financing or services are included in the financial statements and expensed over the life of the services performed . warrants issued in connection with services or financings were valued at the grant date using the black scholes option pricing model . the amounts recorded for the years ended december 31 , 2006 and december 31 , 2005 were $ 192,822 and $ 10,825 , respectively . recent accounting pronouncements on september 15 , 2006 the financial accounting standards board ( “ fasb ” ) issued statement no . 157 , fair value measurements . the statement provides guidance for using fair value to measure assets and liabilities . this statement references fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts . the statement applies whenever other standards require ( or permit ) assets or liabilities to be measured at fair value . the statement does not expand the use of fair value in any new circumstances . it is effective for financial statements issued for fiscal years beginning after november 15 , 2007 , and interim periods within those fiscal years . the adoption of sfas no . 157 is not expected to have a material impact on the company 's financial statements . 46 in february 2007 , the fasb issued sfas no . 159 , “ the fair value option for financial assets and financial liabilities including an amendment of fasb statement no . 115 ” ( sfas 159 ) , which permits entities to measure many financial instruments and certain other items at fair value . the objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions . sfas 159 is effective as of the beginning of fiscal years after november 15 , 2007. we are currently evaluating the impact that sfas 159 will have on our consolidated financial position , results of operations , and cash flows as of its adoption in 2008. in december 2007 , the sec issued sab 110 , codified as part of sab topic 14.d.2 , “ share-based payment : certain assumptions used in valuation methods - expected term . ” sab 110 permits companies , under certain circumstances , to continue to use the simplified method when calculating the expected term of “ plain vanilla ” share options . originally , the simplified method was due to expire on december 31 , 2007. a company may use the simplified method if it concludes that it is not reasonable

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liquidity and capital resources as of december 31 , 2007 , we had cash and cash equivalents of $ 21,910,084 and working capital of $ 31,688,853. net cash used in operations was $ 35,097,916 for the year ended december 31 , 2007 and was primarily due to our loss of $ 28,081,426 in addition to purchases of inventory of $ 10,645,129 and an increase to prepaid expenses and other assets of $ 2,354,131 primarily for funding of advance purchases for inventory . the operating loss was partially offset by non cash expenses of $ 5,458,661 primarily related to stock-based compensation related to employee stock options , purchases of c1-inh product and amortization of debt discount . pursuant to the sanquin loan agreement , purchases made during our phase iii clinical trials are added to our loan and we are not required to make any principal payments . the loan balance , net of debt discount as of december 31 , 2007 was $ 4,381,092 and will be forgiven when regulatory approval from the fda is received . if we do not receive regulatory approval , then the loan is repayable on the earlier of january 16 , 2014 , or the termination of the agreement . the loan does not bear interest and we impute interest using the effective interest rate method . for the year ended december 31 , 2007 , net cash provided by investing activities was $ 6,375,374 resulting from the sale of investments of $ 10,000,000 offset by the purchase of fixed assets for $ 200,405 and a loan receivable of $ 3,424,221. cash provided by financing activities for the year ended december 31 , 2007 was $ 42,744,991 resulting from $ 32,405,549 of net proceeds from the sale of common stock and warrants , $ 10,000,000 of gross proceeds from a term loan and $ 548,955 resulting from proceeds from the exercise of warrants , offset by $ 209,513 of the term loan financing costs .

adjusted ebitda performance metric in addition to measures of financial performance presented in our consolidated financial statements , we monitor “ adjusted ebitda ” to help us evaluate our ongoing operating performance including our ability to operate the business effectively . we define adjusted ebitda as net income ( loss ) attributable to innodata inc. and subsidiaries in accordance with gaap before income taxes , depreciation , amortization of intangible assets , impairment charges , changes in fair value of contingent consideration , stock-based compensation , loss attributable to non-controlling interests and interest income ( expense ) . we believe adjusted ebitda is useful to our management and investors in evaluating our operating performance and for financial and operational decision-making purposes . in particular , it facilitates comparisons of the core operating performance of our company from period to period on a consistent basis and helps us to identify underlying trends in our business . we believe it provides useful information about our operating results , enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to key metrics used by the management in our financial and operational decision-making . we use this measure to establish operational goals for managing our business and evaluating our performance . adjusted ebitda has limitations as an analytical tool and should not be considered in isolation or as a substitute for results reported under gaap . some of these limitations are : · adjusted ebitda does not reflect tax payments , and such payments reflect a reduction in cash available to us ; 28 · adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs and for our cash expenditures or future requirements for capital expenditures or contractual commitments ; · adjusted ebitda excludes the potential dilutive impact of stock-based compensation expense related to our workforce , interest income ( expense ) and net loss attributable to non-controlling interests , and these items may represent a reduction or increase in cash available to us ; · although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; and · other companies , including companies in our own industry , may calculate adjusted ebitda differently from our calculation , limiting its usefulness as a comparative measure . adjusted ebitda should be considered as a supplement to , and not as a substitute for or superior to , gaap net income . the following table shows reconciliation from net loss to adjusted ebitda for the periods presented ( in thousands ) : replace_table_token_6_th recent development as previously reported , during the first quarter of 2016 the company became aware of certain potentially improper payments and related transactions made by or at the direction of certain foreign employees of a foreign subsidiary in connection with the inspection of the subsidiary 's compliance with local employment-related tax requirements . the audit committee conducted an internal investigation into this matter with the assistance of independent counsel and other professionals , and voluntarily contacted the u.s. department of justice ( “ doj ” ) and the u.s. securities and exchange commission ( “ sec ” ) to advise them of the internal investigation . the doj and the sec have advised the company that they have closed their inquiry into the matter . results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 revenues total revenues were $ 63.1 million for the year ended december 31 , 2016 , an 8 % increase from $ 58.5 million for the year ended december 31 , 2015 . 29 revenues from the dds segment were $ 50.7 million and $ 51.7 million for the years ended december 31 , 2016 and 2015 , respectively , a decline of $ 1.0 million or approximately 2 % . the decline was on account of reduced volume from a key e-book client and a combination of lower volume and pricing concessions extended to another key client for certain projects . the decline was partially offset by an increase in revenue primarily attributable to a ramp-up on new projects for a european publisher and a ramp-up for two new customers , one for whom services began in the fourth quarter of 2015 and for other services began in the fourth quarter of 2016. in 2016 we deferred $ 750,000 of revenue from one client that will be accounted for on a cash basis . no revenue was deferred for this client in 2015. revenues from the iads segment were $ 4.3 million and $ 2.1 million for the years ended december 31 , 2016 and 2015 , respectively , an increase of $ 2.2 million or approximately 105 % . the increase primarily reflects additional volume from synodex clients . revenues from the mis segment were $ 8.1 million and $ 4.7 million for the year ended december 31 , 2016 and 2015 , respectively , an increase of $ 3.4 million or approximately 72 % . the increase is attributable to revenue of agility from the date of its acquisition in july 2016. two clients in the dds segment generated approximately 31 % , 33 % and 31 % of the company 's total revenues in the fiscal years ended december 31 , 2016 , 2015 and 2014 , respectively . another client in the dds segment accounted for less than 10 % of the company 's total revenues for the years ended december 31 , 2016 and 2015 but accounted for 10 % of the company 's total revenues for the year ended december 31 , 2014. no other client accounted for 10 % or more of total revenues during these periods . story_separator_special_tag the decline was partially offset by an increase in revenues from other clients including ramp-up on a new project for a european publisher . revenues from the iads segment were $ 2.1 million and $ 0.6 million for the years ended december 31 , 2015 and 2014 , respectively , an increase of $ 1.5 million or approximately 250 % . the increase is primarily attributable to an increase in the volume of work from synodex clients . revenues from the mis segment were $ 4.7 million and $ 1.7 million for the year ended december 31 , 2015 and for the period from the date of acquisition through december 31 , 2014 , respectively , an increase of $ 3.0 million or approximately 176 % . the increase is primarily due to the recognition of revenue for a full year in 2015 compared to the recognition of revenue for 2014 from the date of acquisition of mediamiser to december 31 , 2014 , in 2014. the increase also reflects the addition in 2015 of 21 net new subscriber customers for mediamiser 's enterprise products and services , and $ 0.5 million in 2015 from sales of bulldog reporter products . two clients in our dds segment generated approximately 33 % , 31 % and 26 % of the company 's total revenues in the fiscal years ended december 31 , 2015 , 2014 and 2013 , respectively . another client in our dds segment accounted for less than 10 % of the company 's total revenues for the year ended december 31 , 2015 but accounted for 10 % and 11 % of the company 's total revenues for the years ended december 31 , 2014 and 2013 , respectively . a fourth client in our dds segment accounted for less than 10 % of the company 's total revenues for the years ended december 31 , 2015 and 2014 but accounted for 15 % of the company 's total revenues for the year ended december 31 , 2013. no other client accounted for 10 % or more of total revenues during these periods . further , in the years ended december 31 , 2015 , 2014 and 2013 , revenues from non-us clients accounted for 51 % , 47 % and 35 % , respectively , of the company 's revenues . direct operating costs direct operating costs were approximately $ 43.9 million for each of the years ended december 31 , 2015 and 2014. direct operating costs for the dds segment were $ 37.0 million and $ 38.4 million for the years ended december 31 , 2015 and 2014 , respectively , a decrease of $ 1.4 million or approximately 4 % . the decline reflects efficiencies of approximately $ 1.8 million in technology and facility costs , favorable foreign exchange benefits of $ 0.3 million , a reduction in labor costs as a result of the decrease in 2015 dds revenues , offset in part by approximately $ 0.9 million in ramp-up costs on a new project for a european publisher and a $ 0.4 million expense accrual for retroactive bonuses required to be paid in india under recent legislation . 34 direct operating costs for the iads segment were approximately $ 4.3 million and $ 4.5 million for the respective periods , net of intersegment profits . direct operating costs for the mis segment were approximately $ 2.6 million and $ 1.0 million , net of intersegment profit , for the years ended december 31 , 2015 and 2014 , respectively . the increase is because costs in 2015 were recorded for the full year while costs for 2014 were recorded only from the date of acquisition . the increase also reflects additional overhead costs incurred in 2015. direct operating costs as a percentage of total revenues increased to 75 % for the year ended december 31 , 2015 from 74 % for the year ended december 31 , 2014. direct operating costs for the dds segment as a percentage of dds segment revenues were 72 % for the year ended december 31 , 2015 compared to 68 % for the year ended december 31 , 2014. the increase in direct operating costs for the dds segment as a percentage of dds segment revenues was principally attributable to the increase in expenses referred to above and the fixed costs-of-sales being apportioned over lower revenues . direct operating costs for the iads segment as a percentage of iads segment revenues were approximately 200 % and 725 % for the year ended december 31 , 2015 and 2014 , respectively . direct operating costs for the mis segment as a percentage of mis segment revenues were 55 % for the year ended december 31 , 2015 compared to 60 % for the period from the date of acquisition to december 31 , 2014. the decrease in direct operating costs for the mis segment as a percentage of mis segment revenues was primarily attributable to the fixed costs-of-sales being apportioned over higher revenues . selling and administrative expenses selling and administrative expenses were $ 16.8 million for the year ended december 31 , 2015 compared to $ 16.4 million for the year ended december 31 , 2014 , an increase of $ 0.4 million or approximately 2 % . selling and administrative expenses as a percentage of total revenues increased to 29 % for the year ended december 31 , 2015 compared to 28 % for the year ended december 31 , 2014. selling and administrative expenses for the dds segment were $ 11.9 million and $ 13.8 million in these respective periods . selling and administrative expenses for the iads segment for both the periods were $ 1.6 million , net of intersegment profits . selling and administrative expenses for the mis segment were $ 3.3 million and $ 1.0 million , net of intersegment profits . the decline in selling and administrative expenses for the dds

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liquidity and capital resources selected measures of liquidity and capital resources , expressed in thousands , are as follows : replace_table_token_7_th at december 31 , 2016 , we had cash and cash equivalents of $ 14.2 million , of which $ 11.7 million was held by our foreign subsidiaries , and the $ 2.5 million balance was held in the united states . if needed , amounts held by foreign subsidiaries could be repatriated to the united states to satisfy working capital needs of the u.s. entity , but under current law , they would be subject to united states federal income taxes . as of december 31 , 2016 , our intent is to permanently reinvest these funds outside the united states , except for $ 7.0 million in projected deemed dividends described below . 38 we have used , and plan to use , our cash and cash equivalents for ( i ) investments in iads which are expected to be at the rate of $ 0.1-0.4 million per quarter in the immediate future ; ( ii ) the expansion of our other operations ; ( iii ) general corporate purposes , including working capital ; and ( iv ) possible business acquisitions . as of december 31 , 2016 , we had working capital of approximately $ 14.4 million , as compared to working capital of approximately $ 25.0 million as of december 31 , 2015. we believe that our existing cash and cash equivalents and internally generated funds will provide sufficient sources of liquidity to satisfy our financial needs for the next 12 months . however , we have no bank facilities or lines of credit , and continuing material reductions in our cash and cash equivalents from operating losses , capital expenditures , acquisitions or otherwise could materially and adversely affect the company .

we also intend to continue to combine our land development expertise with our homebuilding operations to increase the flexibility of our business and to optimize our margin performance . from time to time , we may sell land in our communities if we believe it is best for our overall operations . we do not expect such sales to have a significant effect on our overall results , but they may impact our overall gross margins . we will continue to identify the preferences of our customer and demographic groups and offer them innovative , high-quality homes that are efficient and profitable to build . to achieve this goal , we conduct market research to determine preferences of our customer groups . 2015 highlights on january 28 , 2015 we closed the sale of monarch corporation , our former canadian business ( “ monarch ” ) . as a result of the sale , we do not have significant continuing involvement with monarch . see note 5 - discontinued operations in the notes to the consolidated financial statements included in item 8 of this annual report for further information . on april 30 , 2015 , we acquired jeh homes , an atlanta based homebuilder , for a purchase price of approximately $ 63.2 million , excluding contingent consideration . in addition , on july 21 , 2015 , we acquired three divisions of orleans homes in charlotte , chicago , and raleigh for a purchase price of approximately $ 167.3 million . see note 3 – business combinations in the notes to the consolidated financial statements included in item 8 of this annual report for further information regarding the assets acquired and the allocation of purchase price for both transactions . other key operational and financial results as of and for the year ended december 31 , 2015 are as follows : average community count increased 26 % from the prior year to 259 average communities net sales orders increased 17 % to 6,681 home closings increased 12 % to 6,311 average price of homes closed was $ 458,000 adjusted home closings gross margin was 21.3 % on a gaap basis , home closing gross margin was 18.4 % net income from continuing operations was $ 171.0 million factors affecting comparability of results the management 's discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements included elsewhere in this annual report . the primary factors that affect the comparability of our results of operations are our ipo in 2013 , the disposal of monarch and gain on foreign currency hedge in january 2015 , and the acquisitions of jeh and orleans homes in the second and third quarters of 2015 , respectively . for all periods presented , the results and assets and liabilities of monarch are included in discontinued 37 operations and historical periods have been recast to show the effects of our segment realignment . in addition to the impact of the matters discussed in the risk factors listed in item 1a of this annual report , our future results could differ materially from our historical results due to these changes . non-gaap measures in addition to the results reported in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , we have provided information in this annual report relating to “ adjusted home closings gross margins . ” adjusted home closings gross margins we calculate adjusted home closings gross margin from u.s. gaap gross margin by adding impairment charges , if any , attributable to the write-down of communities , and the amortization of capitalized interest through cost of home closings . management uses adjusted home closings gross margin to evaluate our operational and economic performance on a consolidated basis as well as the operational and economic performance of our segments . we believe adjusted home closings gross margin is relevant and useful to investors for evaluating our overall financial performance . this measure is considered a non-gaap financial measure and should be considered in addition to , rather than as a substitute for , the comparable u.s. gaap financial measure as a measure of our operating performance . although other companies in the homebuilding industry report similar information , the methods used may differ . critical accounting policies general the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities at the date of our financial statements . actual results may differ from these estimates under different assumptions or conditions , impacting our reported results of operations and financial condition . certain accounting policies involve significant judgments and assumptions by management , which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses . the estimates and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results are critical accounting policies and are described below . story_separator_special_tag east : backlog units and sales value increased by 57.1 % and 38.3 % , respectively , primarily due to an increase in net sales orders as a result of the acquisition of jeh and eastern divisions of orleans , which accounted for approximately 75 % of the increase in both units and sales value . the decrease in the average sales price was due to the shift in product mix from florida to the other divisions within the east that have a more moderate average selling price . central : backlog units and sales value decreased by 10.6 % and 5.1 % , respectively , primarily due to a decrease in net sales orders as result of inclement weather which caused pressure on construction trades , shortage of labor resources , and the economic uncertainty related to the oil industry in this region . west : backlog units and sales value increased by 89.1 % and 75.7 % , respectively , primarily due to an increase in net sales orders as a result of an increase in average active selling communities . a shift in product mix from homes in the california divisions to other divisions within the segment where homes are more moderately priced , resulted in a decrease in average selling price . 44 home closings revenue replace_table_token_18_th east : the number of homes closed and home closings revenue , net increased by 39.6 % and 48.2 % , respectively , as a result of the combination of increased average selling price in florida and the acquisitions of jeh and the orleans divisions . we believe economic market improvements , as well as a favorable homebuyer reception of new communities contributed to net home closings revenue increases . central : the number of homes closed and home closings revenue , net increased by 2.0 % and 3.4 % , respectively . the increase in the number of homes closed is consistent with the moderate increase in average active communities in the central segment . average selling price increased as a result of shift in product mix of homes closed from our moderately priced divisions to the higher priced divisions . home closings revenue increased as a result of the increased units and average selling price . west : the number of homes closed increased by 2.0 % whereas home closings revenue , net decreased by 2.3 % . the slight increase in units was due to the increase in average active communities . the decrease in home closings revenue , net is attributable to a shift in product mix of homes closed from higher priced homes in california to moderately priced homes in our other divisions . land closings revenue replace_table_token_19_th we generally purchase land and lots with the intent to build and sell homes . however , in some locations where we act as a developer , we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use , which we typically sell to commercial developers or municipalities . we also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land on which we would otherwise not achieve financial returns that are in line with our internal expectations as well as to enhance our returns and offset our risk . land and lot sales occur at various intervals and varying degrees of profitability . therefore , the revenue and gross margin from land closings will fluctuate from period to period , depending on market opportunities . for the year ended december 31 , 2015 , the west experienced higher sales to municipalities when compared to 2014 . segment home closings gross margins the following table sets forth a reconciliation between our home closings segment gross margins and our corresponding segment adjusted home closings gross margins . see — non-gaap measures — adjusted home closings gross margins . 45 replace_table_token_20_th consolidated : our consolidated adjusted home closings gross margin percentage for the year ended december 31 , 2015 decreased compared to the same period in 2014 . geographic and product mix had an impact on margin rate as well as the relatively lower margin communities in certain of our recently acquired divisions . in addition , our legacy divisions are experiencing higher land and development and construction costs as we naturally deplete our legacy land supply which has lower carrying costs . east : adjusted home closings gross margin percentage decreased to 24.4 % from 26.5 % for the year ended december 31 , 2015 compared to the prior year , primarily as a result of the addition of lower margin communities from our recent acquisitions and the effects of purchase accounting stemming from business combinations . central : adjusted home closings gross margin percentage decreased to 21.6 % from 22.1 % for the year ended december 31 , 2015 compared to the prior year . the decrease was due to increases in construction costs as a result of labor supply constraints . poor weather also contributed to the increased costs of home construction as cycle times were delayed . west : adjusted home closings gross margin percentage decreased to 18.6 % from 22.0 % for the year ended december 31 , 2015 compared to the prior year , primarily as a result of increased land , development and construction costs . mortgage operations our mortgage operations segment provides mortgage lending through our subsidiary , tmhf . the following is a summary of mortgage operations gross margin : replace_table_token_21_th 46 our mortgage operations segment 's revenue increased primarily due to increased closings volume and average loan amounts , while gross margin percentage decreased period over period due to increases in underwriting costs . the following details the number of loans closed , the aggregate value and capture rate on our loans for the last two years : replace_table_token_22_th our mortgage capture rate represents the percentage of our homes sold to a home purchaser

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cash generated from operations . we believe that we can fund our current and foreseeable liquidity needs for the next 12 months from : cash generated from operations ; borrowings under our revolving credit facility ; and additional offerings of senior notes , if available in the credit markets . we may access the capital markets to obtain additional liquidity through debt and equity offerings on an opportunistic basis . our principal uses of capital in the years ended december 31 , 2015 and 2014 were homebuilding acquisitions , land purchases , lot development , home construction , operating expenses , payment of debt service , income taxes , investments in joint ventures and the payment of various liabilities . cash flows for each of our communities depend on the status of the development cycle , 53 and can differ substantially from reported earnings . early stages of development or expansion require significant cash outlays for land acquisitions , on and off-site development , construction of model homes , general landscaping and other amenities . because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes , we incur significant cash outflows prior to recognition of earnings . the table below summarizes our total cash and liquidity as of the dates indicated ( in thousands ) : replace_table_token_32_th ( 1 ) total cash , including restricted cash for 2014 shown here , includes cash and cash equivalents and restricted cash held at monarch . operating cash flow activities our net cash used in operating activities increased approximately $ 129.0 million for the year ended december 31 , 2015 compared to 2014. the increase in cash used in operating activities was primarily attributable to a decrease in net income , net gain on sale from discontinued operations , gain on foreign currency forward , higher cash spending on real estate inventory and land deposits year over year , and an increase in income taxes payable as a result of the timing of estimated income tax payments . these uses were partially offset by an increase in cash received for customer deposits , mortgage loans held for sale and a loss on extinguishment of debt .

if our commercial loan pipeline is at all predictive , it appears that companies may be coming off the sidelines , and we may see an uptick in business investment during 2017. old national , along with all financial institutions , is also watching interest rates closely , and is encouraged by the 25 basis-point rate increase at the end of 2016. additional rate increases in 2017 will benefit old national as our assets tend to re-price faster and with more margin than our liabilities . in addition , old national 's dominant market share in many of the communities in which we serve will become more valuable as deposits typically cost less than other types of funding . 30 our focus for 2017 will be much like our focus in 2016 , as we execute on our revenue growth and expense management strategy . we have transitioned our footprint into higher growth markets and opportunistically will continue to do so . we believe we have the right people and the right products in the right markets , with strong leadership in place . core revenue growth , improvement in our operating leverage , and the prudent use of capital will remain priorities . results of operations the following table sets forth certain income statement information of old national for the years ended december 31 , 2016 , 2015 , and 2014 : replace_table_token_5_th ( 1 ) efficiency ratio is defined as noninterest expense before amortization of intangibles as a percent of fully taxable net interest income and noninterest income , excluding net gains from securities transactions . this presentation excludes intangible amortization and net securities gains , as is common in other company disclosures , and better aligns with true operating performance . this is a non-gaap financial measure that management believes to be helpful in understanding old national 's results of operations . comparison of fiscal years 2016 and 2015 net interest income net interest income is the most significant component of our earnings , comprising 61 % of 2016 revenues . net interest income and margin are influenced by many factors , primarily the volume and mix of earning assets , funding sources , and interest rate fluctuations . other factors include the level of accretion income on purchased loans , prepayment risk on mortgage and investment-related assets , and the composition and maturity of earning assets and interest-bearing liabilities . interest rates increased in the fourth quarter 2016 , driven by improving economic conditions evidenced by the federal reserve increasing the discount rate 25 basis points at their december meeting . the yield curve steepened as the spread between short and longer duration treasuries widened . these factors improve the outlook for our net interest income and margin . loans typically generate more interest income than investment securities with similar maturities . funding from client deposits generally costs less than wholesale funding sources . factors such as general economic activity , federal reserve board monetary policy , and price volatility of competing alternative investments , can also exert significant influence on our ability to optimize the mix of assets and funding and the net interest income and margin . net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities . for analytical purposes , net interest income is also presented in the table that follows , adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset . we used the federal statutory tax rate in effect of 35 % for all periods adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . this analysis portrays the income tax benefits associated in tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets . 31 management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis . therefore , management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons . replace_table_token_6_th net interest income was $ 402.7 million in 2016 , a $ 36.6 million increase from $ 366.1 million in 2015. taxable equivalent net interest income was $ 424.0 million in 2016 , a 10 % increase from $ 385.7 million in 2015. the net interest margin on a fully taxable equivalent basis was 3.58 % in 2016 , a 14 basis point decrease compared to 3.72 % in 2015. both 2016 and 2015 included accretion income ( interest income in excess of contractual interest income ) associated with acquired loans . excluding this accretion income in both periods , net interest income on a fully taxable equivalent basis would have been $ 365.9 million in 2016 compared to $ 322.6 million in 2015 ; and the net interest margin on a fully taxable equivalent basis would have been 3.09 % in 2016 and 3.11 % in 2015. the increase in net interest income in 2016 when compared to 2015 was primarily due to an increase in average earning assets of $ 1.478 billion in 2016. partially offsetting the higher average earning assets was a decrease in accretion income of $ 5.0 million . we expect accretion income on our purchased credit impaired loans to decrease over time , but this may be offset by future acquisitions . the following table presents a three-year average balance sheet and for each major asset and liability category , its related interest income and yield , or its expense and rate for the years ended december 31 . 32 replace_table_token_7_th ( 1 ) the 2016 , 2015 , and 2014 average balances include $ 24.8 million , $ 35.2 million , and $ 12.3 million , respectively , of required and excess balances held at the federal reserve . story_separator_special_tag billion , a 24 % increase compared to $ 11.992 billion at december 31 , 2015. the increase was primarily due to the acquisition of anchor in may 2016 , which had $ 2.166 billion in assets as of the closing date of the acquisition . earning assets earning assets , comprised of investment securities , portfolio loans , loans held for sale , money market investments , interest earning accounts with the federal reserve , and trading securities , were $ 12.796 billion at december 31 , 2016 , an increase of 22 % compared to $ 10.471 billion at december 31 , 2015. investment securities we classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity if needed , based on fluctuating interest rates or changes in our funding requirements . however , we also have $ 10.6 million of 15- and 20-year fixed-rate mortgage-backed securities , $ 40.1 million of u.s. government-sponsored entity and agency securities , and $ 694.3 million of state and political subdivision securities in our held-to-maturity investment portfolio at december 31 , 2016. trading securities , which consist of mutual funds held in trusts associated with deferred compensation plans for former directors and executives , are recorded at fair value and totaled $ 5.0 million at december 31 , 2016 compared to $ 3.9 million at december 31 , 2015. the increase was primarily due to the acquisition of anchor , which had $ 0.9 million in trading securities as of the closing date of the acquisition . at december 31 , 2016 , the investment securities portfolio , including trading securities , was $ 3.649 billion compared to $ 3.380 billion at december 31 , 2015 , an increase of $ 268.5 million , or 8 % . investment securities attributable to the anchor acquisition totaled $ 239.8 million as of the closing date of the acquisition . investment securities represented 29 % of earning assets at december 31 , 2016 , compared to 32 % at december 31 , 2015. investment securities also decreased as a percentage of total earning assets due to a proportionately larger increase in loan balances . stronger commercial loan demand in the future and management 's decision to deleverage the balance sheet could result in a reduction in the securities portfolio . as of december 31 , 2016 , management does not intend to sell any securities in an unrealized loss position and does not believe we will be required to sell such securities . the investment securities available-for-sale portfolio had net unrealized losses of $ 61.5 million at december 31 , 2016 , compared to net unrealized losses of $ 5.8 million at december 31 , 2015. net unrealized losses increased from december 31 , 2015 to december 31 , 2016 primarily due to an increase in long-term interest rates on municipal bonds and mortgage-backed securities . the investment portfolio had an effective duration of 4.61 at december 31 , 2016 , compared 3.99 at december 31 , 2015. effective duration measures the percentage change in value of the portfolio in response to a change in interest rates . generally , there is more uncertainty in interest rates over a longer average maturity , resulting in a higher duration percentage . the weighted average yields on available-for-sale investment securities were 2.44 % in 2016 and 2.38 % in 2015. the average yields on the held-to-maturity portfolio were 5.35 % in 2016 and 4.99 % in 2015. at december 31 , 2016 , old national had a concentration of investment securities issued by certain states and their political subdivisions with the following aggregate market values : $ 369.4 million by indiana , which represented 20.4 % of shareholders ' equity , and $ 198.2 million by texas , which represented 10.9 % of shareholders ' equity . of the indiana municipal bonds , 97 % are rated “a” or better , and the remaining 3 % generally represent non-rated local interest bonds where old national has a market presence . all of the texas municipal bonds are rated “aa” or better , and the majority of issues are backed by the “aaa” rated state of texas permanent school fund guarantee program . 39 loan portfolio we lend primarily to consumers and small to medium-sized commercial and commercial real estate clients in various industries including manufacturing , agribusiness , transportation , mining , wholesaling , and retailing . our policy is to concentrate our lending activity in the geographic market areas we serve , primarily indiana , kentucky , michigan , and wisconsin . the following table presents the composition of the loan portfolio at december 31. replace_table_token_11_th commercial and commercial real estate loans at december 31 , 2016 , commercial and commercial real estate loans were $ 5.048 billion , an increase of $ 1.364 billion , or 37 % , compared to december 31 , 2015. commercial and commercial real estate loans attributable to the anchor acquisition totaled $ 968.6 million as of the closing date of the acquisition . the following table presents the maturity distribution and rate sensitivity of commercial loans at december 31 , 2016 and an analysis of these loans that have predetermined and floating interest rates . a significant percentage of commercial loans are due within one year , reflecting the short-term nature of a large portion of these loans . replace_table_token_12_th residential real estate loans residential real estate loans , primarily 1-4 family properties , increased $ 426.2 million , or 26 % , at december 31 , 2016 compared to december 31 , 2015. residential real estate loans attributable to the anchor acquisition totaled $ 456.1 million as of the closing date of the acquisition . future increases in interest rates could result in a decline in the level of refinancings and new originations . consumer loans consumer loans , including automobile loans , personal and home

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cash and due from banks $ 98,347 $ 157,172 unencumbered government-issued debt securities — 1,215,831 unencumbered investment grade municipal securities — 361,791 unencumbered corporate securities — 80,908 availability of borrowings : amount available from federal reserve discount window * — 500,197 amount available from federal home loan bank indianapolis * — 502,541 total available funds $ 98,347 $ 2,818,440 * based on collateral pledged the parent company ( old national bancorp ) has routine funding requirements consisting primarily of operating expenses , dividends to shareholders , debt service , net derivative cash flows , and funds used for acquisitions . the parent company can obtain funding to meet its obligations from dividends and management fees collected from its subsidiaries , operating line of credit , and through the issuance of debt securities . additionally , the parent company has a shelf registration in place with the securities and exchange commission permitting ready access to the public debt and equity markets . at december 31 , 2016 , the parent company 's other borrowings outstanding were $ 214.8 million . federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval . prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year plus retained net profits for the preceding two years . prior regulatory approval to pay dividends was not required in 2015 or 2016 and is not currently required . off-balance sheet arrangements off-balance sheet arrangements include commitments to extend credit and financial guarantees . commitments to extend credit and financial guarantees are used to meet the financial needs of our customers . our banking affiliates have entered into various agreements to extend credit , including loan commitments of $ 2.354 billion and standby letters of credit of $ 51.7 million at december 31 , 2016. at december 31 , 2016 , approximately $ 2.207 billion of the loan commitments had fixed rates and $ 146.5 million had floating rates , with the floating interest rates ranging from 0 % to 25 % .

13 in july 2015 , we announced the exit of our delinquent loan servicing operations and we anticipate the orderly wind-down and final exit of these operations by the end of the first quarter 2016 . $ 2.9 million of exit-related costs were incurred during the fourth quarter 2015 , including $ 1.1 million of accelerated depreciation charges . through december 31 , 2015 , exit-related costs are approximately $ 3.5 million , and we expect the total charge to be incurred related to exiting these operations to be $ 5 million to $ 7 million . we finalized our review for impairment of goodwill and other intangibles associated with the segment and recorded an additional non-cash charge of $ 0.7 million ( $ 0.6 million net of tax ) in the fourth quarter 2015. the mortgage services segment reported a pretax loss of $ 12.5 million in the fourth quarter 2015 compared to pretax income of $ 7.4 million in the fourth quarter 2014 and a pretax loss of $ 43.4 million in the third quarter 2015 ( which included a goodwill impairment charge of $ 35.0 million ) . fourth quarter 2015 results for the segment include the additional $ 0.7 million goodwill impairment charge and $ 3.0 million of other non-operating charges , primarily relating to exiting the delinquent loan servicing operations , while fourth quarter 2014 results included $ 6.2 million of net realized gains , partially offset by $ 0.6 million of aggregate charges relating to integration of acquisitions and the cost management program . these items represent approximately $ 9.3 million of the $ 19.9 million overall decline in pretax income relative to the prior year quarter , with the remainder of the decline due to decreased revenues . during the fourth quarter 2015 , we declared and paid a dividend of $ 0.30 per common share in connection with the announced increase in our annual dividend to $ 1.20 per common share starting in the fourth quarter . we remain committed to returning capital to stockholders on a regular basis while maintaining our ratings and a capital base that supports the growth in our business and our obligations to our policyholders . critical accounting estimates actual results can differ from our accounting estimates . while we do not anticipate significant changes in our estimates , there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods . title loss reserves our most critical accounting estimate is providing for title loss reserves . provisions for title losses , as a percentage of title operating revenues , were 5.6 % , 4.7 % and 5.9 % for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we recorded an increase related to large claims of $ 22.1 million in 2015 as compared with an $ 8.0 million decrease in 2014 , which included a policy loss reserve reduction in third quarter 2014 relating to a partial recovery on a large claim recorded in prior years . actual loss payment experience , including the impact of large losses , is the primary reason for increases or decreases in our loss provision . a change of 100 basis points in the loss provisioning percentage , a reasonably likely scenario based on our historical loss experience , would have increased or decreased our provision for title losses and pretax operating results approximately $ 18.9 million for the year ended december 31 , 2015 . replace_table_token_6_th 14 provisions for known claims arise primarily from prior policy years as claims are not typically reported until several years after policies are issued . provisions - incurred but not reported ( ibnr ) are estimates of claims expected to be incurred over the next 20 years ; therefore , it is not unusual or unexpected to experience adjustments to the provisions in both current and prior policy years as new loss development of policy years occurs . this loss experience may result in changes to our estimate of total ultimate losses expected ( i.e . , the ibnr policy loss reserve ) . as claims become known , provisions are reclassified from ibnr to known claims . adjustments relating to large losses may impact provisions for either known claims or for ibnr . known claims provisions increased for the year ended december 31 , 2015 to $ 95.1 million from $ 66.7 million in 2014 , primarily as a result of adjustments to existing claims on policies issued in previous years . additionally , the provision in 2014 included a large reduction related to a partial recovery for a large claim originally provided for in years prior to 2014. current year provisions - ibnr are recorded on policies issued in the current year as a percentage of premiums realized ( provisioning rate ) . for the year ended december 31 , 2015 , current year provisions - ibnr increased $ 7.8 million to $ 54.0 million compared to 2014. as a percentage of title operating revenues , provisions - ibnr for the current policy year increased from 2.7 % in 2014 to 2.9 % in 2015 due to an increase in the provisions for large claims beginning in the second quarter 2015. provisions - ibnr relating to prior policy years increased due to the adverse development relating to certain older policy years with higher than normal claims . in addition to title policy claims , we incur losses in our direct operations from escrow , closing and disbursement functions . these escrow losses typically relate to errors or other miscalculations of amounts to be paid at closing , including timing or amount of a mortgage payoff , payment of property or other taxes and payment of homeowners ' association fees . story_separator_special_tag our second and third quarters are the most active as the summer is the traditional home buying season , and while commercial transaction closings are skewed to the end of the year , individually large commercial transactions can occur any time of year . 18 industry data . published mortgage interest rates and other selected residential housing data for the years ended december 31 , 2015 , 2014 and 2013 follow ( amounts shown for 2015 are preliminary and subject to revision ) . the amounts below may not relate directly to or provide accurate data for forecasting our operating revenues or order counts . our statements on home sales , mortgage interest rates and loan activity are based on published industry data from sources including fannie mae , the national association of realtors ® , the mortgage bankers association and freddie mac . replace_table_token_7_th the real estate market remained strong in 2015 and mortgage rates remain low , although fannie mae is forecasting the 30-year rate to increase to around 4.2 % by the end of 2016. further , fannie mae expects total home sales to grow moderately by about 4.0 % in 2016. it is expected the rising share of new home sales will lead to a healthy increase in single-family construction of about 17.0 % , or 827,000 units . for the three years ended december 31 , 2015 , mortgage interest rates ( 30-year , fixed-rate ) have fluctuated from a monthly low of 3.41 % in january 2013 to a monthly high of 4.49 % in september 2013. in 2015 , total mortgage originations and refinancing mortgage originations increased 28.6 % and 50.2 % , respectively , from 2014. during 2015 , sales of new and existing homes increased 13.5 % and 5.3 % , respectively , from 2014. during 2014 , sales of new and existing homes increased 1.9 % and decreased 2.9 % , respectively , from 2013. order counts . the following open and closed order information for 2015 and 2014 is based on more detailed reporting information that became available beginning in the fourth quarter 2014. due to system constraints , we are unable to provide comparable data for 2013. the new reporting is more comprehensive than in prior quarters , as it now includes orders through our centralized title operations . replace_table_token_8_th 19 results of operations a comparison of our consolidated results of operations for 2015 to 2014 and 2014 to 2013 follows . factors contributing to fluctuations in results of operations are presented in the order of their monetary significance , and we have quantified , when necessary , significant changes . results from our mortgage services and corporate segments are included in year-to-year discussions and , when relevant , are discussed separately . our employee costs and certain other operating expenses are sensitive to inflation . title revenues . revenues from direct title operations increased $ 88.8 million , or 11.0 % , and $ 44.7 million , or 5.9 % , in 2015 and 2014 , respectively . revenues in 2015 increased primarily due to higher refinancing and residential resale closed orders , driven by the rise in new and existing home sales , and contribution from our centralized title operations acquired in mid-2014 . revenues in 2014 increased relative to 2013 primarily due to our 2014 acquisitions and a continued shift in mix to more residential resale and commercial orders , partially offset by a decline in refinance transaction volume . international revenues ( including foreign-sourced commercial revenues of $ 19.8 million and $ 25.4 million for 2015 and 2014 , respectively ) decreased $ 10.6 million , or 9.1 % , in 2015 compared to 2014 and increased $ 3.8 million , or 3.4 % , in 2014 compared to 2013. international revenues in 2015 grew on a local currency basis , however , the strengthening of the u.s. dollar , primarily against the canadian dollar and british pound , was the principal cause of the reported net revenues decline . total commercial revenues increased $ 15.8 million , or 9.3 % , and $ 18.4 million , or 13.4 % , in 2015 compared to 2014 and in 2014 compared to 2013 , respectively . while year-to-year results for commercial business can fluctuate considerably due to timing of when large transactions close , our commercial operation continued to improve its position in the marketplace . revenues from independent agencies increased $ 85.3 million , or 9.4 % , in 2015 compared to 2014 and decreased $ 140.3 million , or 13.4 % , in 2014 compared to 2013. revenues from independent agencies fluctuate based on the same general factors that influence revenues from direct title operations , although we do not specifically know our agents ' order composition . the 2015 increase in agency revenues was generally consistent with that of our direct title operations ' revenues . the decrease in 2014 , relative to our direct revenues , was due to the higher proportion of refinancing transactions in our independent agencies than in our direct operations and certain of our 2014 acquisitions that formerly contributed to agency revenues but are now recorded as direct revenues . consistent with our strategy for this channel , our focus is on increasing profit margins in every state , increasing premium revenue in states where remittance rates are above 20 % , and maintaining the quality of our agency network , which we believe to be the industry 's best , in order to mitigate claims risk and drive consistent future performance . while market share is important in our agency operations channel , it is not as important as margins , risk mitigation and profitability . title revenues by geographic location . the approximate amounts and percentages of consolidated title operating revenues for the last three years were as follows : replace_table_token_9_th mortgage services revenues . mortgage services revenues decreased $ 2.9 million , or 2.2

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financing activities and capital resources total debt and stockholders ' equity were $ 102.4 million and $ 637.1 million , respectively , as of december 31 , 2015. in 2015 and 2014 , we repaid $ 22.5 million and $ 63.8 million , respectively , of debt in accordance with the underlying terms of the debt instruments . 26 in october 2014 , we exchanged the remaining $ 27.2 million of our notes , at maturity , for an aggregate of 2,111,017 shares of common stock . in october 2014 , we replaced our $ 75.0 million unsecured line of credit with a $ 125.0 million unsecured line of credit , which expires october 2019. amounts outstanding under this line of credit at december 31 , 2015 were $ 98.0 million and were used principally to fund acquisitions and related working capital needs , as well as to strengthen the statutory liquidity of guaranty and to partially fund the 2014 and 2015 stock repurchases . in february 2016 , we entered into an amendment agreement , effective december 31 , 2015 , relating to our unsecured line of credit . the amendment primarily provided revisions to the limitations on restricted payments , as stipulated in the original line of credit agreement , provided for an exclusion from the calculation of ebitda ( as defined in the credit agreement ) of the non-cash goodwill impairment charge in the third quarter 2015 and increased the permitted capital expenditures for any calendar year from $ 20.0 million to $ 25.0 million . refer to note 10 to the consolidated financial statement for details of the amendment . during the second and third quarters of 2015 , the board of directors declared quarterly cash dividends of $ 0.25 per share to common stockholders . on november 16 , 2015 , the board of directors announced a 20 % increase , to $ 1.20 per share , in the company 's annual cash dividend payable to common stockholders and declared a quarterly dividend of $ 0.30 per share which was paid in december 2015. during 2014 , the board of directors declared an annual cash dividend of $ 0.10 per common share .

hei and its predecessor company , heco , have paid dividends continuously since 1901. the dividend has been stable at $ 1.24 per share annually since 1998. the indicated dividend yield as of december 31 , 2011 was 4.7 % . the dividend payout ratios based on net income for common stock for 2011 , 2010 and 2009 were 86 % , 102 % and 137 % , respectively . the hei board of directors considers many factors in determining the dividend quarterly , including but not limited to the company 's results of operations , the long-term prospects for the company , and current and expected future economic conditions . 41 hei 's subsidiaries from time to time consider various strategies designed to enhance their competitive positions and to maximize shareholder value . these strategies may include the formation of new subsidiaries or the acquisition or disposition of businesses . the company may from time to time be engaged in preliminary discussions , either internally or with third parties , regarding potential transactions . management can not predict whether any of these strategies or transactions will be carried out or , if so , whether they will be successfully implemented . economic conditions . note : the statistical data in this section is from public third-party sources ( e.g . , department of business , economic development and tourism ( dbedt ) ; university of hawaii economic research organization ( uhero ) ; u.s. bureau of labor statistics ; blue chip economic indicators ; u.s. energy information administration ; hawaii tourism authority ( hta ) ; honolulu board of realtors ® ; bureau of economic analysis and national and local newspapers ) . hawaii 's tourism industry , a significant driver of hawaii 's economy , maintained a positive growth trend in 2011. state visitor arrivals grew by 3.8 % in 2011 over 2010. state visitor expenditures continued to grow , increasing by 15.6 % in 2011 over 2010. hotel occupancies and room rates remain higher year-over-year . the outlook for the visitor industry remains positive with the hawaii tourism authority expecting a 3.8 % increase in airline seat capacity in the first quarter of 2012 , with growth in international flights offset by a slight decline in u.s. mainland capacity . hawaii 's unemployment rate was 6.6 % in december 2011 , higher than the 6.3 % in december 2010 , but lower than the national unemployment rate of 8.5 % in december 2011. hawaii 's unemployment rate has slowly worsened since june 2011 while the national unemployment rate improved to the lowest level since early 2009. hawaii jobs continued to grow year-over-year through december 2011 , but not enough to improve the unemployment rate . single family residential home sales on oahu decreased 14.1 % in december 2011 compared to december 2010 , and 2011 sales were lower than 2010 by 2.7 % . median prices were slightly higher in december 2011 , but for the full year 2011 median prices were 3 % lower than 2010. the price of a barrel of west texas intermediate ( wti ) crude oil reached $ 113.93 on april 29 , 2011 , its highest level since 2008 , but declined somewhat to average $ 99 per barrel in december 2011. however , while mainland wti u.s. prices have declined from the peak in april 2011 , hawaii 's petroleum product prices , which reflect supply and demand in the asia-pacific region and the price of crude oil on international markets , have remained high , owing in part to the disruption occasioned by the tragic earthquake and tsunami in japan in march 2011. the dramatic reduction in nuclear production has increased regional demand for oil and the utilities ' oil prices have remained consistently high for most of 2011. the federal open market committee ( fomc ) held the federal funds rate target at 0 to 0.25 percent on january 25 , 2012 , citing low rates of resource utilization and a subdued outlook for inflation . the fomc also expects the low federal funds rate to continue through late 2014 based on the current economic outlook and continued its program announced in september 2011 to extend the average maturity of the system open market account portfolio to support a stronger economic recovery . overall , hawaii 's economy is expected to see only modest growth in 2012 and 2013 with local economic growth supported by only moderate improvement in the u.s. economy and impeded by some apparent slowing in global economies . recent tax developments . the tax relief , unemployment insurance reauthorization and job creation act ( the 2010 act ) enacted at the end of 2010 contained major tax provisions which continue to impact the company . specifically the 50 % and 100 % bonus depreciation provisions for certain property result in an estimated net increase in federal tax depreciation of $ 153 million for 2011 and $ 128 million for 2012 , primarily attributable to the utilities . in addition , the 2010 act provided for a 2 % reduction in the social security tax on employees and self-employed individuals for 2011. the temporary payroll tax cut continuation act of 2011 extended this 2 % reduction through february 29 , 2012. in december 2011 , the internal revenue service ( irs ) issued temporary regulations , which provide a framework for determining whether expenditures are deductible as repairs . although labeled “temporary , ” 42 these regulations have the binding effect of final regulations and are effective january 1 , 2012. the irs is expected to issue additional revenue procedures containing transitional rules and guidance . the company will analyze these regulations and any subsequently issued guidance for their impacts and for the opportunities they present for 2012 and future years . results of operations . replace_table_token_19_th nmnot meaningful . story_separator_special_tag the company was required to make contributions of $ 72.9 million for 2011 and $ 19.1 million for 2010 , but was not required to make any contributions for 2009 to the qualified pension plans to meet minimum funding requirements pursuant to erisa , including changes promulgated by the pension protection act of 2006. the company also made additional voluntary contributions to these plans in 2011 , 2010 and 2009. contributions to the retirement benefit plans totaled $ 75 million in 2011 ( comprised of $ 73 million by the utilities , $ 2 million by hei and nil by asb ) , $ 32 million in 2010 and $ 25 million in 2009 and are expected to total $ 107 million in 2012 ( $ 104 million by the utilities , $ 3 million by hei and nil by asb ) . in addition , the company paid directly $ 2 million of benefits in each of 2011 and 2010 and $ 1 million in 2009 and expects to pay $ 2 million of benefits in 2012. depending on the performance of the assets held in the plans ' trusts and numerous other factors , additional contributions may be required in the future to meet the minimum funding requirements of erisa or to pay benefits to plan participants . the company believes it will have adequate cash flow or access to capital resources to support any necessary funding requirements . off-balance sheet arrangements . although the company has off-balance sheet arrangements , management has determined that it has no off-balance sheet arrangements that either have , or are reasonably likely to have , a current or future effect on the company 's financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors , including the following types of off-balance sheet arrangements : ( 1 ) obligations under guarantee contracts , ( 2 ) retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements that serve as credit , liquidity or market risk support to that entity for such assets , ( 3 ) obligations under derivative instruments , and ( 4 ) obligations under a material variable interest held by the company in an unconsolidated entity that provides financing , liquidity , market risk or credit risk support to the company , or engages in leasing , hedging or research and development services with the company . certain factors that may affect future results and financial condition . the company 's results of operations and financial condition can be affected by numerous factors , many of which are beyond its control and could cause future results of operations to differ materially from historical results . the following is a discussion of certain of these factors . also see “forward-looking statements” above and “certain factors that may affect future results and financial condition” in each of the electric utility and bank segment discussions below . economic conditions , u.s. capital markets and credit and interest rate environment . because the core businesses of hei 's subsidiaries are providing local electric public utility services and banking services in hawaii , the company 's operating results are significantly influenced by hawaii 's economy , which in turn is influenced by economic conditions in the mainland u.s. ( particularly california ) and asia ( particularly japan ) as a result of the impact of those conditions on tourism , by the impact of interest rates , particularly on the construction and real estate industries , and by the impact of world conditions on federal government spending in hawaii . the two largest components of hawaii 's economy are tourism and the federal government ( including the military ) . declines in the hawaii , u.s. and asian economies in recent years led to declines in kwh sales , delinquencies in asb 's loan portfolio and other adverse effects on hei 's businesses . if s & p or moody 's were to further downgrade hei 's or heco 's debt ratings , or if future events were to adversely affect the availability of capital to the company , hei 's and heco 's ability to borrow and raise capital could be constrained and their future borrowing costs would likely increase . changes in the u.s. capital markets can also have significant effects on the company . for example , pension funding requirements are affected by the market performance of the assets in the master pension trust , and by the discount rate used to estimate the service and interest cost components of net periodic 50 pension cost and value obligations . the electric utilities ' pension tracking mechanisms help moderate pension expense ; however , a decline in the value of the company 's defined benefit pension plan assets may increase the unfunded status of the company 's pension plans and result in increases in future funding requirements . because the earnings of asb depend primarily on net interest income , interest rate risk is a significant risk of asb 's operations . hei and its electric utility subsidiaries are also exposed to interest rate risk primarily due to their periodic borrowing requirements , the discount rate used to determine pension funding requirements and the possible effect of interest rates on the electric utilities ' rates of return and overall economic activity . interest rates are sensitive to many factors , including general economic conditions and the policies of government and regulatory authorities . hei can not predict future changes in interest rates , nor be certain that interest rate risk management strategies it or its subsidiaries have implemented will be successful in managing interest rate risk . changes in interest rates and credit spreads also affect the fair value of asb 's investment securities . in 2009 , the credit markets experienced significant disruptions , liquidity on many financial instruments

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liquidity and capital resources . selected contractual obligations and commitments . information about payments under the specified contractual obligations and commercial commitments was as follows : replace_table_token_23_th 1 deposits that have no maturity are included in the “less than 1 year” column , however , they may have a duration longer than one year . 2 includes contractual obligations and commitments for capital expenditures and expense amounts . december 31 , 2011 total ( in millions ) other commercial commitments to asb customers loan commitments ( primarily expiring in 2012 ) $ 24 loans in process 72 unused lines and letters of credit 1,243 total $ 1,339 the tables above do not include other categories of obligations and commitments , such as deferred taxes , trade payables , amounts that will become payable in future periods under collective bargaining and other employment agreements and employee benefit plans , obligations that may arise under indemnities provided to purchasers of discontinued operations and potential refunds of amounts collected under interim decision and orders ( d & os ) of the puc . as of december 31 , 2011 , the fair value of the assets held in trusts to satisfy the obligations of the company 's retirement benefit plans did not exceed the retirement benefit plans ' benefit obligation . minimum funding requirements for retirement benefit plans have not been included in the tables above ; however , see “retirement benefits” above for estimated minimum required contributions for 2012 and 2013. see note 3 of hei 's “notes to consolidated financial statements” for a discussion of fuel and power purchase commitments . t he company believes that its ability to generate cash , both internally from electric utility and banking operations and externally from issuances of equity and debt securities , commercial paper and bank borrowings , is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments , its forecasted capital expenditures and investments , its expected retirement benefit plan contributions and other cash requirements in the foreseeable future . the company 's total assets were $ 9.6 billion as of december 31 , 2011 and $ 9.1 billion as of december 31 , 2010 .

in 2017 , we implemented strategic initiatives , including certain pricing considerations , to defend and increase our market share in brazil . we expect brazil revenue to increase in future periods as a result of the current law requiring professional drivers to be tested every 2.5 years as opposed to every five years , beginning in september 2018. gross profit : the increase in costs of revenue and decrease in gross profit was primarily due to higher costs associated with higher volume . in 2017 , gross profit was adversely impacted by our brazil business with certain strategic pricing initiatives which we , in conjunction with our brazilian distributor , implemented to maintain and increase market share . in addition , gross profit was also negatively impacted by increased costs from brazilian sales taxes , which the company incurred as a result of the establishment of a brazilian subsidiary in 2017. gross profit was also impacted by an increase in depreciation expense . general and administrative ( “ g & a ” ) expenses : the increase in g & a expenses related to additional costs associated with the brazil operations and higher legal and audit fees . as a percentage of revenue , g & a expenses went up to 14.2 % in 2017 from 12.7 % in 2016. marketing and selling expenses : the decrease in marketing and selling expenses was primarily a result of a temporary decrease in personnel and personnel related costs in 2017. total marketing and selling expenses represented 11.8 % and 12.7 % of revenue for 2017 and 2016 , respectively . research and development ( “ r & d ” ) : r & d expenses represented 3.4 % and 3.6 % of revenue for 2017 and 2016 , respectively . other income : other income primarily consists of interest earned on cd 's which was partially offset by interest expense related to debt . the increase in income came from a reduction of interest expense from a lower loan balance and an increase in interest income from cd 's which did not exist in 2016. income taxes : during the year ended december 31 , 2017 , the company recorded a tax provision of $ 2.1 million representing a tax rate of 25 % . there were two significant items impacting the rate in 2017. the larger item was the passing of the “ tax cuts and jobs act ” ( the “ tax act ” ) in december . while this law changes tax rates effect in 2018 , the lower tax rate has required a remeasurement of the company 's deferred tax liability . the law also allowed for additional depreciation for assets purchased and placed in service in the fourth quarter of 2017. the impact of this ( primarily from the remeasurement of the deferred tax liability ) was a reduction of tax liability and income tax benefit of $ 1.2 million , or $ 0.22 diluted eps . this benefit was offset in part by the imposition of income taxes in brazil incurred as a result of the company 's formation of a subsidiary in brazil . the impact of this was an increase in the tax provision of $ 0.6 million , or $ 0.10 diluted eps . in 2016 , the company had an effective tax rate of 33 % . we expect the effective tax rate in 2018 to range from 29 % to 31 % , depending on the mix of business . 14 on december 22 , 2017 , the securities and exchange commission issued guidance under staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( “ sab 118 ” ) directing taxpayers to consider the impact of the u.s. legislation as “ provisional ” when it does not have the necessary information available , prepared or analyzed ( including computations ) in reasonable detail to complete its accounting for the change in tax law . at december 31 , 2017 , we have not completed our accounting for the tax effects of enactment of the tax act ; however , we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax . for the year ended december 31 , 2017 , we recognized no transition tax because the company 's brazil entity is a disregarded entity for u.s. income tax purposes . in all cases , we will continue to make and refine our calculations as additional analysis is completed . in addition , our estimates may also be affected as we gain a more thorough understanding of the tax law . results for the year ended december 31 , 2016 compared to results for the year ended december 31 , 2015 replace_table_token_7_th revenue : the increase was driven entirely from new business in brazil . the volume and average revenue per sample for the domestic business was essentially flat from 2015 to 2016. see note 12 for geographic breakdown of revenue . gross profit : the gross profit margin increased from 47 % in 2015 to 55 % in 2016. the increase in margin was primarily driven from increased sales . also , the gross profit margin in 2015 was lower than normal due to $ 1.4 million of expenditures related to capacity expansion . general and administrative ( “ g & a ” ) expenses : the increase in expenses related to additional costs associated with the new brazil opportunity and higher audit fees . as a percentage of revenue , g & a expenses went down to 12.8 % in 2016 from 16.9 % in 2015. marketing and selling expenses : total marketing and selling expenses represented 12.7 % and 18.7 % of revenue for 2016 and 2015 , respectively . story_separator_special_tag research and development ( “ r & d ” ) expenses : decreased primarily from one less headcount . r & d expenses represented 3.6 % and 6.0 % of revenue for 2016 and 2015 , respectively . other expense : primarily consists of interest expense related to long term debt . during the year ended december 31 , 2016 , the company recorded a tax provision of $ 3.3 million representing a tax rate of 33 % . in 2015 , the company recorded a tax benefit of $ 164 thousand , representing an effective tax rate of ( 12 % ) . the tax rate for 2015 was affected by additional r & d tax credits related to information technology development projects . story_separator_special_tag style= `` page-break-before : always ; margin-top : 6pt ; margin-bottom : 12pt `` > the company records revenue for the shipping of samples from the customer or independent hair collection facility to the laboratory for customers that choose to use the company 's shipping account . the company also records revenue for the collection of the hair sample for customers that choose to have the company manage this process at the same time the sample test is completed and results reported to the customer . the associated costs incurred in connection with these services is recorded as costs of revenue . the company records revenue for these services on a gross basis as it has determined it is the principal under these arrangements . the company also provides expert testimony , when and if necessary , to support the results of the tests , which is generally billed separately and recognized as the services are provided . estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates , including bad debts , long-lived asset lives , income tax valuation , stock based compensation and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . capitalized development costs we capitalize costs related to significant software projects developed or obtained for internal use in accordance with u.s. generally accepted accounting standards . costs incurred during the preliminary project work stage or conceptual stage , such as determining the performance requirements , system requirements and data conversion , are expensed as incurred . costs incurred in the application development phase , such as coding , testing for new software and upgrades that result in additional functionality , are capitalized and are amortized using the straight-line method over the useful life of the software for 5 years . costs incurred during the post-implementation/operation stage , including training costs and maintenance costs , are expensed as incurred . we capitalized internally developed software costs of approximately $ 511 thousand , $ 315 thousand and $ 364 thousand during the years ended december 31 , 2017 , 2016 and 2015 , respectively . the software development is for primarily for two projects . determining whether particular costs incurred are more properly attributable to the preliminary or conceptual stage , and thus expensed , or to the application development phase , and thus capitalized and amortized , depends on subjective judgments about the nature of the development work , and our judgments in this regard may differ from those made by other companies . general and administrative costs related to developing or obtaining such software are expensed as incurred . allowance for doubtful accounts the allowance for doubtful accounts is based on management 's assessment of the ability to collect amounts owed to it by its customers . management reviews its accounts receivable aging for doubtful accounts and uses a methodology based on calculating the allowance using a combination of factors including the age of the receivable along with management 's judgment to identify accounts that may not be collectible . the company routinely assesses the financial strength of its customers and , as a consequence , believes that its accounts receivable credit risk exposure is limited . the company maintains an allowance for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area . bad debt expense has been within management 's expectations . income taxes the company accounts for income taxes using the liability method , which requires the company to recognize a current tax liability or asset for current taxes payable or refundable and a net deferred tax liability for the estimated future tax effects of temporary differences between the financial statement and tax reporting bases of assets and liabilities to the extent that they are realizable . deferred tax expense ( benefit ) results from the net change in deferred tax assets and liabilities during the year . a deferred tax valuation allowance is required if it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cut and jobs act ( the “ tax act ” ) . the tax act made broad and complex changes to the u.s. tax code that affected 2017 , including , but not limited to , accelerated depreciation that allowed for full expensing of qualified property . the tax act also establishes new tax laws that affects 2018 and future years , including a reduction in the u.s. federal corporate income tax rate from 35 % to 21 % . as a result of the tax act , we remeasured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future , which is generally 21 %

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liquidity and capital resources at december 31 , 2017 , the company had $ 8.2 million of cash and cash equivalents , compared to $ 3.9 million at december 31 , 2016. the company 's operating activities generated net cash of $ 9.1 million in 2017 , $ 9.3 million in 2016 and $ 4.6 million in 2015. investing activities used $ 1.2 million in 2017 , $ 2.1 million in 2016 and $ 1.8 million in 2015. financing activities used $ 3.5 million in 2017 , used $ 5.9 million in 2016 and generated $ 3.7 million in 2015. operating cash flow of $ 9.1 million in 2017 primarily reflected net income of $ 6.1 million adjusted for depreciation and amortization of $ 2.8 million , stock compensation expense of $ 0.6 million , and a decrease in net deferred tax liabilities of $ 1.5 million . the net deferred tax liability was significantly different than in prior years due to change in the tax law . see income tax discussion above . operating cash flow was affected by the following changes in assets and liabilities : a decrease in accounts receivable of $ 1.3 million , a decrease in accounts payable of $ 1.0 million , an increase in accrued expenses of $ 0.9 million , and an increase in prepaid expenses ( and other current assets ) of $ 0.1 million . the operating cash flow was $ 0.1 million less than in 2016 . 15 operating cash flow of $ 9.3 million in 2016 primarily reflected net income of $ 6.7 million adjusted for depreciation and amortization of $ 2.3 million , stock compensation expense of $ 0.7 million , and an increase in net deferred tax liabilities of $ 0.2 million . this was affected by the following changes in assets and liabilities : an increase in accounts receivable of $ 2.3 million , an increase in accounts payable of $ 0.1 million , an increase in accrued expenses of $ 0.8 million , and a decrease in prepaid expenses ( and other current assets ) of $ 0.8 million .

also during 2020 , common warrants were exercised for 45,863,397 shares of common stock and net proceeds were approximately $ 10.3 million . in january 2021 , we closed on an offering of common stock . we issued 19,551,124 shares of common stock and net proceeds were approximately $ 8.5 million . in february 2021 , we closed on an offering of common stock . we issued 28,750,000 shares of common stock and net proceeds were approximately $ 26.7 million . in addition , since december 31 , 2020 common warrants were exercised for 2,325,000 shares of common stock and net proceeds were approximately $ 0.5 million . as a result of these transactions , as of february 28 , 2021 , we have 236,612,391 common shares outstanding . our net losses were $ 25.2million and $ 21.5 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 428.6 million . we expect to incur significant expenses and operating losses for the foreseeable future as we continue the development and clinical trials of , and seek regulatory approval for , our product candidates , even if milestones under our license and collaboration agreements may be met . as of december 31 , 2020 we had $ 19.0 million in cash and cash equivalents . as of february 28 , 2021 , we had $ 49.5 million in cash and cash equivalents . in december 2017 , we entered into a license and collaboration agreement with hanx biopharmaceuticals , inc. ( “ hanx ” ) , a company focused on development of novel oncology products , for the further development , registration and commercialization in greater china of on 123300. we believe on 123300 has the potential to overcome limitations of current generation cdk 4/6 inhibitors . under the terms of the agreement , we received an upfront payment , and will receive regulatory and commercial milestone payments , as well as royalties on chinese sales . the key feature of the collaboration is that hanx provides all funding required for chinese ind enabling studies performed for chinese health authority ind approval . the chinese ind was approved in january 2020. we and hanx also intended for these studies to comply with the fda standards . accordingly , such studies were used by us for an ind filing with the fda in november 2020. the fda study may proceed letter was received in december 2020 and first patient in the study is anticipated in the first half of 2021. drug product for the us study was manufactured in north america and stability data was submitted as part of the ind . in march 2018 , we entered into a license agreement with pint granting an exclusive , royalty-bearing license for the development and commercialization of rigosertib in south and central america . pint made an upfront equity investment of $ 1,250,000 in our common stock . in addition , we could receive a subsequent equity investment and additional regulatory , development and sales-based milestone payments as well as 45 tiered , double digit royalties based on net aggregate net sales in the territory . pint also has agreed to purchase rigosertib and the product exclusively from us in accordance with a supply and quality agreement between the parties . pint may terminate the license agreement in whole ( but not in part ) at any time upon 45 days ' prior written notice . the license agreement also contains customary provisions for termination by either party in the event of breach of the license agreement by the other party , subject to a cure period , or bankruptcy of the other party . in may 2019 , we and hanx entered into the hanx license agreement . under the terms of the hanx license agreement , we granted hanx an exclusive , royalty-bearing license , with the right to sublicense , under certain company patent rights and know-how to develop and commercialize any pharmaceutical product containing rigosertib in all uses of rigosertib or the product in humans therapeutics uses in the people 's republic of china , hong kong , macau and taiwan ( the “ territory ” ) . in connection with the hanx license agreement , we also entered into the hanx securities purchase agreement with each of hanx and its affiliate abundant . hanx did not fulfill its obligations under the hanx license agreement and effective january 16 , 2020 , in accordance with the terms of the hanx license agreement , the hanx license agreement was deemed to be void ab initio . upon this termination , the rights to hanx licensed product in the hanx territory reverted to us in accordance with the terms of the hanx license agreement . in addition , the hanx securities purchase agreements terminated automatically effective january 16 , 2020 upon the termination of the license agreement in accordance with the hanx securities purchase agreements . in november 2019 , we and knight entered into the knight license agreement . under the terms of the knight license agreement , we granted knight ( i ) a non-exclusive , royalty-bearing license , with the right to sublicense , under certain company patent rights and know-how to develop and manufacture any product containing rigosertib for canada ( and israel should knight exercise its option ) and in human uses , and ( ii ) an exclusive , royalty-bearing license , with the right to sublicense , under certain company patent rights and know-how to commercialize the knight licensed product in the knight territory and in the knight licensed field . knight made an upfront payment of $ 100,000 and we are eligible to receive clinical , regulatory and sale-based milestone payments.we are also eligible to receive tiered double-digit royalties based on net sales in the territory . story_separator_special_tag research and development expenses research and development costs are charged to expense as incurred and include , but are not limited to , license fees related to the acquisition of in-licensed products , employee-related expenses , including salaries , benefits and travel , expenses incurred under agreements with cros and investigative sites that conduct clinical trials and preclinical studies , the cost of acquiring , developing and manufacturing clinical trial materials , facilities , depreciation and other expenses , which include direct and allocated expenses for rent and 50 maintenance of facilities , insurance and other supplies and costs associated with preclinical activities and regulatory operations . we record costs for certain development activities , such as clinical trials , based on our evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations , or information provided to us by our vendors on their actual costs incurred . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in the consolidated financial statements as prepaid or accrued research and development expense , as the case may be . income taxes we recorded deferred tax assets of $ 168 million as of december 31 , 2020 , which have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits . the deferred tax assets are primarily composed of federal and state tax net operating loss ( “ nol ” ) , carry forwards and research and development tax credit carry forwards . as of december 31 , 2020 , we had federal nol carry forwards of $ 277 million , state nol carry forwards of $ 234 million , and research and development tax credit carry forwards of $ 87 million available to reduce future taxable income , if any . these federal nol carry forwards will begin to expire at various dates starting in 2022. the state nol carry forwards will begin to expire at various dates starting in 2025. in general , if we experience a greater than 50 percentage point aggregate change in ownership of specified significant stockholders over a three-year period , utilization of our pre-change us nol , tax credit and other tax attribute carry forwards may be subject to an annual limitations under sections 382 and 383 of the u.s. internal revenue code of 1986 , as amended ( the “ code ” ) and similar state laws . such limitations may result in expiration of a portion of the nol carry forwards before utilization and may be substantial . the amount of the annual limitation , if any , will be determined based on the value of the company immediately prior to the ownership change . subsequent ownership changes may further affect the limitation in future years . the company believes such a change occurred and may impact available net operating losses and carry over research credits generated . the company has not performed any detailed analysis as it expects these to expire before utilization and has provided for a full valuation allowance but will perform a section 382 and 383 study if any tax attributes are to be utilized in a given year . stock-based compensation we account for stock-based payments to employees and directors using an option pricing model for estimating fair value . accordingly , stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant , net of forfeitures . compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services , using the straight-line single option method . in accordance with authoritative guidance , the fair value of non-employee stock based awards is re-measured as the awards vest , and the resulting increase in fair value , if any , is recognized as expense in the period the related services are rendered . we record stock-based compensation expense as a component of research and development expenses or general and administrative expenses , depending on the function performed by the optionee . for the years ended december 31 , 2020 and 2019 , we allocated stock-based compensation as follows : replace_table_token_5_th fair value estimates since april 23 , 2013 , we estimate the fair value of share-based awards to employees and directors using the black-scholes option pricing model . the black-scholes model requires the input of highly complex and subjective assumptions , including ( a ) the expected stock price volatility , ( b ) the calculation of the expected 51 term of the award , ( c ) the risk free interest rate and ( d ) expected dividends . expected volatility is based on the historical volatility of the company 's common stock since its ipo in july 2013. we estimate the expected life of our employee stock options using the “ simplified ” method , whereby , the expected life equals the arithmetic average of the vesting term and the original contractual term of the option . the risk-free interest rates for periods within the expected life of the option are based on the u.s. treasury yield curve in effect during the period the options were granted . we have never paid , and do not expect to pay dividends in the foreseeable future . warrants common stock warrants are accounted for in accordance with applicable accounting guidance provided in asc topic 815 , derivatives and hedging — contracts in entity 's own equity ( asc topic 815 ) , as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement . some of our warrants are classified as liabilities because in certain circumstances they could require cash settlement . we estimate the fair value of warrants accounted for as liabilities using market quotes from an

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liquidity and capital resources since our inception , we have incurred net losses and experienced negative cash flows from our operations . we incurred net losses of $ 25.2 million and $ 21.5 million for the year ended december 31 , 2020 and 2019 , respectively . our operating activities used $ 23.1 million and $ 20.8 million of net cash during the year ended december 31 , 2020 and 2019 , respectively . at december 31 , 2020 , we had an accumulated deficit of $ 428.6 million , working capital of $ 9.8 million , and cash and cash equivalents of $ 19.0 million . subsequent to december 31 , 2020 , we received $ 35.2 million net proceeds from the sale of common stock and $ 0.5 million from warrant exercises . cash and cash equivalents at february 28 , 2021 were $ 49.5 million . we believe that our cash and cash equivalents will be sufficient to fund our ongoing trials and business operations for more than eighteen months . 54 cash flows the following table summarizes our cash flows for the year ended december 31 , 2020 and 2019 : replace_table_token_9_th net cash used in operating activities net cash used in operating activities was $ 23.1 million for the year ended december 31 , 2020 and consisted primarily of a net loss of $ 25.2 million , including an unfavorable change in fair value of warrant liability of $ 0.2 million and $ 0.4 million of noncash stock-based compensation and depreciation expense . changes in operating assets and liabilities resulted in a net increase in cash of $ 1.5 million .

further , our rates and rate filings are developed using methods 30 consistent with the standards of actuarial practices and we endeavor to sustain a commercial medical care ratio in a stable range for an equivalent mix of business . we have requested and received rate increases above 10 % in a number of markets due to the combination of medical cost trends and the incremental costs of health care reform . we expect commercial pricing to continue to be highly competitive . the intensity of pricing competition depends on local market conditions and competitive dynamics . overall , the industry has experienced lower medical costs trends due to moderated utilization , which has impacted pricing trends . conversely , carriers are generally reflecting the 2014 health reform legislation industry fees in their pricing . in some markets , competitors have adjusted their pricing to reflect recent medical cost trend experience as well as the implication of rate review rules and new benefit changes from health reform legislation . in other areas we are seeing greater price competition due to pricing adjustments and other varied approaches used by competitors . the medicare advantage rate structure is changing and funding has been cut in recent years , with additional reductions to take effect in 2014 and 2015 , as discussed below in “ regulatory trends and uncertainties . ” we expect these factors to result in year-over-year pressure on gross margin percentages for our medicare business during 2014. states are struggling to balance budget pressures with increases in their medicaid expenditures . during 2013 , rate changes for some medicaid programs were slightly negative year-over-year . in general , we expect continued pressure on net margin percentages due to the medicaid reimbursement rate environment , which we expect will remain tight due to the potential non-collectability of the insurer fee primarily related to medicare dual snp programs and medicaid . we continue to work with our state customers to advocate for actuarially sound rates that are commensurate with our medical cost trends , including fees and related taxes , and to take a prudent , market-sustainable posture for both new bids and maintenance of existing medicaid contracts . medical cost trends . we expect our 2014 commercial medical cost trend to be in the range of 6.0 % plus or minus 50 basis points , compared to approximately 5 % in 2013. in 2014 , we expect relatively consistent unit cost and utilization trends compared to 2013 , before taking into account reform impacts . the impact of health reform legislation and mandates is expected to pressure 2014 medical cost trends . driving the increases are mandated essential health benefits and limits on out-of-pocket maximums . consistent with recent years , our 2014 trend is expected to be driven primarily by continued unit cost pressure from health care providers . we expect 2014 pharmacy trends to be consistent with 2013. the primary drivers of prescription drug trends continue to be unit cost pressure on brand name drugs and a shift towards expensive new specialty drugs . in recent years , the recent weak economic environment combined with our medical cost management strategies has had a favorable impact on utilization trends . we believe the expected stability in the utilization trends in 2014 is influenced by our medical management strategies , our continued focus on value-based contracting arrangements and greater consumer engagement . delivery system and payment modernization . the health care market is changing based on demographic shifts , new regulations , political forces and both payer and patient expectations . health plans and care providers are being called upon to work together to close gaps in care and improve overall care for people , improve the health of populations and reduce costs . the focus on delivery system modernization and payment reform is critical and the alignment of incentives between key constituents remains an important theme . through expansion of our existing programs and the creation of new programs , we are increasingly rewarding care providers for delivering improvements in quality and cost-efficiency . as of december 31 , 2013 , more than 2 million people we serve were directly aligned through the most progressive of these arrangements , including full risk , shared risk and bundled episode of care payment approaches . this trend is also creating needs for health management services that can coordinate care around the primary care physician , including new primary care channels , and for investment in new clinical and administrative information and management systems , providing growth opportunities for our optum business platform . government reliance on private sector . the government , as a benefit sponsor , has been increasingly relying on private sector programs . we expect this trend to continue as we believe the private sector provides a more flexible , better managed , higher quality health care experience than do traditional passive indemnity programs typically used in governmental benefit programs . many states are expanding their interest in managed care with particular emphasis on consumers who have complex and expensive health care needs . medicaid managed care is increasingly viewed as an effective method to improve quality and manage costs . for example , there are nearly 10 million dually eligible beneficiaries who typically have complex conditions , with costs of care that are far higher than those of a typical medicare or medicaid beneficiary . similarly , a small but complex group of nearly 4 million individuals who qualify for additional benefits under ltc programs represent only 6 % of the total medicaid population yet account for more than 30 % of total medicaid expenditures . the long-term care market represents a portion of the more than 15 million abd americans . while these individuals ' health needs are more complex and more costly , 31 they have primarily been historically served in unmanaged environments . story_separator_special_tag optum 's earnings from operations and operating margin in 2013 increased significantly compared to 2012 , reflecting progress on optum 's plan to accelerate growth and improve productivity by strengthening integration and business alignment . the results by segment were as follows : optumhealth revenue increases at optumhealth in 2013 were primarily due to market expansion , including growth related to 2012 acquisitions in local care delivery , and organic growth . earnings from operations and operating margins in 2013 increased primarily due to revenue growth and an improved cost structure across the business , including local care delivery , population health and wellness solutions , and health-related financial services offerings . optuminsight revenues at optuminsight in 2013 increased primarily due to the impact of a 2012 acquisition and growth in services to commercial payers . the increases in earnings from operations and operating margins in 2013 reflected increased revenues , changes in product mix and continuing improvements in business alignment and efficiency . optumrx the increase in optumrx revenues in 2013 were due to the insourcing of unitedhealthcare 's commercial pharmacy benefit programs and growth in both unitedhealthcare 's medicare part d members and external clients . over the course of 2013 , we completed our transition of 12 million migrating and new members to the optumrx platform from a third party . earnings from operations and operating margins in 2013 increased primarily due to strong revenue growth , pricing disciplines , and greater use of generic medications . 2012 results of operations compared to 2011 results c onsolidated financial results revenues revenue increases in 2012 were driven by growth in the number of individuals served and premium rate increases related to underlying medical cost trends in our unitedhealthcare businesses and growth in our optum health service and technology offerings . medical costs medical costs increased in 2012 due to risk-based membership growth in our public and senior markets businesses , unit cost inflation across all businesses and continued moderate increases in health system use , partially offset by an increase in favorable medical reserve development . unit cost increases represented the primary driver of our medical cost trend , with the largest contributor being price increases to hospitals . operating costs the increases in operating costs for 2012 were due to business growth , including increases in revenues from unitedhealthcare fee-based benefits and optum services , which carry comparatively higher operating costs , as well as investments in the optumrx pharmacy management services and unitedhealthcare military & veterans businesses . income tax rate the increase in our effective income tax rate for 2012 was due to the favorable resolution of various tax matters in 2011 , which lowered the 2011 effective income tax rate . 37 reportable segments unitedhealthcare unitedhealthcare 's revenue growth in 2012 was primarily due to growth in the number of individuals served , commercial premium rate increases related to expected increases in underlying medical cost trends and the impact of lower premium rebates . unitedhealthcare 's earnings from operations for 2012 increased compared to the prior year primarily due to the factors that increased revenues combined with an improvement in the medical care ratio that was driven by effective management of medical costs and increased favorable medical reserve development . the favorable development for 2012 was driven by lower than expected health system utilization levels and increased efficiency in claims handling and processing . optum . total revenues increased in 2012 due to business growth and 2011 acquisitions at optumhealth , partially offset by a reduction in pharmacy service revenues related to reduced levels of unitedhealthcare medicare part d prescription drug membership and related prescription volumes . optum 's earnings from operations and operating margin for 2012 increased compared to 2011 due to improvements in operating cost structure stemming from advances in business simplification , integration and overall efficiency and revenue growth in higher margin products . the results by segment were as follows : optumhealth revenue increases at optumhealth for 2012 were primarily due to market expansion , including growth related to 2011 acquisitions in integrated care delivery , and strong overall business growth . earnings from operations for 2012 and operating margins increased compared to 2011 primarily due to gains in operating efficiency and cost management as well as increases in earnings from integrated care operations . optuminsight revenues at optuminsight for 2012 increased primarily due to the impact of growth in compliance services for care providers and payment integrity offerings for commercial payers , which was partially offset by the june 2011 divestiture of the clinical trials services business . the increases in earnings from operations and operating margins for 2012 reflect an improved mix of services and advances in operating efficiency and cost management . optumrx the decreases in optumrx revenues in 2012 were due to the reduction in unitedhealthcare medicare part d plan participants . optumrx earnings from operations and operating margins for 2012 decreased primarily due to decreased prescription volume in the medicare part d business and investments to support growth initiatives , which were partially offset by earnings contributions from specialty pharmacy growth and greater use of generic medications . liquidity , financial condition and capital resources liquidity introduction we manage our liquidity and financial position in the context of our overall business strategy . we continually forecast and manage our cash , investments , working capital balances and capital structure to meet the short-term and long-term obligations of our businesses while seeking to maintain liquidity and financial flexibility . cash flows generated from operating activities are principally from earnings before non-cash expenses . our regulated subsidiaries generate significant cash flows from operations and are subject to financial regulations and standards in their respective jurisdictions . these standards , among other things , require these subsidiaries to maintain specified levels of statutory capital , as defined by each jurisdiction , and restrict the timing and amount of dividends and other distributions that may be paid to their

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capital resources and uses of liquidity in addition to cash flow from operations and cash and cash equivalent balances available for general corporate use , our capital resources and uses of liquidity are as follows : commercial paper . we maintain a $ 4.0 billion commercial paper borrowing program , which facilitates the private placement of unsecured debt through third-party broker-dealers . the commercial paper program is supported by the bank credit facilities described below . as of december 31 , 2013 , we had $ 1.1 billion of commercial paper outstanding at a weighted-average annual interest rate of 0.2 % . bank credit facilities . we have $ 3.0 billion five-year and $ 1.0 billion 364-day revolving bank credit facilities with 23 banks , which mature in november 2018 and november 2014 , respectively . these facilities provide liquidity support for our commercial paper program and are available for general corporate purposes . there were no amounts outstanding under these facilities as of december 31 , 2013 . the interest rates on borrowings are variable depending on term and are calculated based on the libor plus a credit spread based on our senior unsecured credit ratings . as of december 31 , 2013 , the annual interest rates on both bank credit facilities , had they been drawn , would have ranged from 1.0 % to 1.2 % . our bank credit facilities contain various covenants , including covenants requiring us to maintain a debt to debt-plus-equity ratio of not more than 50 % . our debt to debt-plus-equity ratio , calculated as the sum of debt divided by the sum of debt and shareholders ' equity , which reasonably approximates the actual covenant ratio , was 34.4 % as of december 31 , 2013 . we were in compliance with our debt covenants as of december 31 , 2013 . long-term debt . periodically , we access capital markets and issue long-term debt for general corporate purposes , for example , to meet our working capital requirements , to refinance debt , to finance acquisitions or for share repurchases .

 with the aforementioned successes serving as a foundation for future growth , condor 's management is excited about 2018 and is confident in its ability to achieve the mission of providing attractive total returns in the lodging sector to condor 's shareholders . condor remains cautiously optimistic on the outlook of the hospitality sector in 2018. the hospitality sector experienced its eighth straight year of positive revpar growth in 2017 , albeit at a deaccelerated pace compared to previous years . most industry forecasts estimate that u.s. revpar will continue to grow in 2018 with industry estimates ranging from 2.0 % - 3.0 % . condor management believes the sectors and segments it targets will see growth in excess of these estimates . while many primary markets have a large influx of new supply , the markets condor targets continue to experience less aggressive supply growth . additionally , the markets condor targets are less affected , we believe , by alternative lodging platforms like airbnb . we believe these supply factors , combined with the possibility of continued positive economic growth , should enable our hotels to continue to outperform industry forecasts in 2018 .  we believe that the performance of the hotel industry is strongly correlated with the performance of the macro-economy . the equity markets have reached new highs and experienced heightened volatility at the start of 2018. the fundamentals of the u.s. macroeconomy remain strong . gdp continues to grow and the united states is experiencing a period of extremely low unemployment . that being said , the continued threat of terrorism , economic and geopolitical turbulence abroad , and gridlock in the federal government could derail the macro-economy . barring any major disruption to the u.s. economy , we expect a continued improvement in lodging fundamentals . the manner in which the economy continues to grow , if at all , is not predictable and outside of our control . as a result , there can be no assurances that we will be able to grow our hotel revenue , adr , occupancy , or revpar . factors that might contribute to less than anticipat ed performance are detailed in item 1a . risk factors . condor 's management continually monitors the economic environment and works to adjust its strategy to seek to maximize value and returns to shareholders .  30 hotel property portfolio activity  acquisitions  during the year ended december 31 , 2017 , the company acquired the following seve n wholly owned hotel properties ( in thousands ) :   replace_table_token_7_th ( 1 ) the lake mary purchase price was subject to a post-closing adjustment of up to $ 250 to be paid to the seller if the hotel achieved a stipulated hotel net operating income level in 2017. the full amount of $ 250 was paid to the seller in december of 2017 and is not included in this amount . ( 2 ) debt of $ 9,096 with morgan stanley bank of america merrill lynch trust 2014-c18 was assumed related to the home2 suites southaven , ms acquisition . this loan remains outstanding at december 31 , 2017. all other debt was drawn from the credit facility at acquisition . ( 3 ) total issuance of 1,9 40,451 common units .  additionally , a s discussed further in note 17 , subsequent events , to the consolidated financial statements presented elsewhere in this form 10-k , subsequent to december 31 , 2017 , the company closed on the acquisition of two hotels , the 122-room towneplace suites austin north tech ridge and the 93-room home2 suites summerville / charleston .  dispositions  pursuant to our disposition strategy , the following h otel sales were completed in 2017 :   replace_table_token_8_th  net proceeds , a fter the payment of related expenses , totale d $ 27.7 million in 2017 . all net proceeds from the hotel dispositions in 2017 were used to repay borrowings under the company 's $ 150.0 million credit facility with the 31 exception of the net proceeds from the sale of the comfort inn in harlan , which was unencumbered at the time of its sale .  additionally , a s discussed further in note 17 , subsequent events , to the consolidated financial statements presented elsewhere in this form 10-k , subsequent to december 31 , 2017 , the company closed on the sale of the 41-room supertel inn in cr eston , iowa for gross proceeds of $ 2.1 million and the sale of the 135-room comfort suites in south bend , indiana for gross proceeds of $ 6.1 million .  based on the criteria discussed in the footnotes to the consolidated financial statements , as of december 31 , 2017 , the company had three hotels classified as held for sale . at the be ginning of 2017 , the company had seven hotels held for sale and during the year classified an additional four hotels as held for sale . eight of th ese hotels were sold during 2017 . if a hotel is considered held for sale as of the most recent balance sheet presented or was sold in any period presented , the hotel property and the debt it collateralizes are shown as held for sale in all periods presented .  as discussed in the footnotes to the consolidated financial statements , as of october 1 , 2014 we adopt ed accounting standards update ( “ asu ” ) 2014-08 which changes the criteria for reporting a discontinued operation such that only disposals representing a strategic shift in operations should be presented as discontinued operations subsequent to adoption . story_separator_special_tag additionally , these measures are not indicative of funds available to fund cash needs or our ability to make cash distributions as they have not been adjusted to consider cash requirements for capital expenditures , property acquisitions , debt service obligations , or other commitments .  ffo and affo  we calculate ffo in accordance with the standards established by the national association of real estate investment trusts ( “ nareit ” ) , which defines ffo as net earnings or loss computed in accordance with gaap , excluding gains or losses from sales of real estate assets , impairment , and the depreciation and amortization of real estate assets . ffo is calculated both for the company in total and as ffo attributable to common shares and common units , which is ffo reduced by preferred stock dividends . affo is ffo attributable to common shares and common units adjusted to exclude items we do not believe are representative of the results from our core operations , including non-cash gains or losses on derivatives and convertible debt , stock-based compensation expense , amortization of certain fees , losses on debt extinguishment , and in-kind dividends above stated rates , and cash charges for acquisition and equity transaction costs . all reits do not calculate ffo and affo in the same manner ; therefore , our calculation may not be the same as the calculation of ffo and affo for similar reits .  we consider ffo to be a useful additional measure of performance for an equity reit because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization , which assumes that the value of real estate assets diminishes predictably over time . since real estate values have historically risen or fallen with market conditions , we believe that ffo provides a meaningful indication of our performance . we believe that affo provides useful supplemental information to investors regarding our ongoing operating performance that , when considered with net income and ffo , is beneficial to an investor 's understanding of our operating performance .  the following tabl e reconciles net earnings to ffo and affo for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations as well as our portion of the results of our unconsolidated atlanta jv .   replace_table_token_12_th  37 ebtida , adjusted ebitda , and hotel ebitda  we calculate ebitda and adjusted ebitda by adding back to net earnings or loss certain non-operating expenses and certain non-cash charges that are based on historical cost accounting that we believe may be of limited significance in evaluating current performance . we believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing decisions and facilitate comparisons of core operating profitability between periods . in calculating ebitda , we add back to net earnings or loss interest expense , loss on debt extinguishment , income tax expense , and depreciation and amortization expense . in calculating adjusted ebitda , we adjust ebitda to add back net gain/loss on disposition of assets , acquisition and terminated transactions expense , and equity transactions expense , which are cash charges . we also add back impairment , stock –based compensation expense , and gain/loss on derivatives and convertible debt , which are non-cash charges . ebitda and adjusted ebitda , as presented , may not be comparable to similarly titled measures of other companies .  we believe ebitda and adjusted ebitda to be useful additional measures of our operating performance , excluding the impact of our capital structure ( primarily interest expense ) , our asset base ( primarily depreciation and amortization expense ) , and other items we do not believe are representative of the results from our core operations .  the company further excludes general and administrative expenses , other non-operating income or expense , and certain hotel and property operations expenses that are not allocated to individual properties in assessing hotel performance ( primarily certain general liability and other insurance costs , land lease costs , and office and banking fees ) from adjusted ebitda to calculate hotel ebitda . hotel ebitda , as presented , may not be comparable to similarly titled measures of other companies .  hotel ebitda is intended to isolate property level operational performance over which the company 's hotel operators have direct control . we believe hotel ebitda is helpful to investors as it better communicates the comparability of our hotels ' operating results for all of the company 's hotel properties and is used by management to measure the performance of the company 's hotels and the effectiveness of the operators of the hotels .  the following tabl e reconciles net earnings to ebitda , adjusted ebitda , and hotel ebitda for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations as well as our portion of the results of our unconsolidated atlanta jv . 38     replace_table_token_13_th  liquidity and capital resources  story_separator_special_tag style= `` margin:0pt ; text-align : center ; text-justify : inter-ideograph ; font-family : helvetica-narrow ; font-size : 10pt `` > 40 repaid within one year upon the sale of the related hotel properties . aggregate annual principal payments on debt for the next five years and thereafter are as follows ( in thousands ) :  replace_table_token_14_th financial covenants  we are required to satisfy various financial covenants within our debt agreements , including the following financial covenants within our credit facility : · leverage ratio : the ratio of consolidated total indebtedness to consolidated total asset value can not exceed 60 % . when the first extension option becomes effective , the foregoing leverage ratio will no longer be applicable , and in lieu thereof , the ratio

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liquidity requirements  we expect to meet our short-term liquidity requirements through net cash provided by operations , existing cash balances and working capital , short-t erm borrowings under our $ 150 . 0 million secured revolving credit fa cility and the release of restricted cash by our lenders upon the satisfaction of usage requirements . at december 31 , 2017 , the company had $ 5.4 million of cash and cash equivalents on hand and $ 11.9 million of unused availability under its credit facility . our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties , recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards , interest expense and scheduled principal payments on outstanding indebtedness , restricted cash funding obligations , and the payment of dividends in accordance with the reit requirements of the code and as required in connection with our series e preferred stock . prior to the consideration of any asset sales or our ability to refinance debt subsequent to december 31 , 2017 , contractual principal payments on our debt outstanding , which include only normal amortiza tion , total $ 1.4 million through march 31 , 2019. we also presently expec t to invest approximately $ 4.0 million to $ 5.0 million in capital expenditures related to hotel properties we currently own through march 31 , 2019 .  to maintain our reit tax status , we generally must distribute at least 90 % of our taxable income to our shareholders annually . in addition , we are subject to a 4 % non-deductible excise tax if the actual amount distributed to shareholders in a calendar year is less than a minimum amount specified under the federal income tax laws . we have a general dividend policy of paying out approximately 100 % of annual reit taxable income . the actual amount of any future dividends will be determined by the board of directors based on our actual results of operations , economic conditions , capital expenditure requirements , and other factors that the board of directors deems relevant .

for additional information regarding these transactions , see note 3 , “ business acquisitions and divestitures , `` to our audited consolidated financial statements as of and for the year ended december 31 , 2013 , included in this form 10-k. our operating revenue consists of premiums , administrative fees and other revenue . premium revenue comes from fully-insured contracts where we indemnify our policyholders against costs for covered health and life benefits . administrative fees come from contracts where our customers are self-insured , or where the fee is based on either processing of transactions or a percent of network discount savings realized . additionally , we earn administrative fee revenues from our medicare - 42 - processing business and from other health-related businesses including disease management programs . other revenue includes miscellaneous income other than premium revenue and administrative fees . our benefit expense primarily includes costs of care for health services consumed by our members , such as outpatient care , inpatient hospital care , professional services ( primarily physician care ) and pharmacy benefit costs . all four components are affected both by unit costs and utilization rates . unit costs include the cost of outpatient medical procedures per visit , inpatient hospital care per admission , physician fees per office visit and prescription drug prices . utilization rates represent the volume of consumption of health services and typically vary with the age and health status of our members and their social and lifestyle choices , along with clinical protocols and medical practice patterns in each of our markets . a portion of benefit expense recognized in each reporting period consists of actuarial estimates of claims incurred but not yet paid by us . any changes in these estimates are recorded in the period the need for such an adjustment arises . while we offer a diversified mix of managed care products and services through our managed care plans , our aggregate cost of care can fluctuate based on a change in the overall mix of these products and services . our managed care plans include : preferred provider organizations , or ppos ; health maintenance organizations , or hmos ; point-of-service plans , or pos plans ; traditional indemnity plans and other hybrid plans , including consumer-driven health plans , or cdhps ; and hospital only and limited benefit products . we classify certain claims-related costs as benefit expense to reflect costs incurred for our members ' traditional medical care , as well as those expenses which improve our members ' health and medical outcomes . these claims-related costs may be comprised of expenses incurred for : ( i ) medical management , including case and utilization management ; ( ii ) health and wellness , including disease management services for such conditions as diabetes , high-risk pregnancies , congestive heart failure and asthma management and wellness initiatives like weight-loss programs and smoking cessation treatments ; and ( iii ) clinical health policy . these types of claims-related costs are designed to ultimately lower our members ' cost of care . our selling expense consists of external broker commission expenses , and generally varies with premium or membership volume . our general and administrative expense consists of fixed and variable costs . examples of fixed costs are depreciation , amortization and certain facilities expenses . other costs are variable or discretionary in nature . certain variable costs , such as premium taxes , vary directly with premium volume . other variable costs , such as salaries and benefits , do not vary directly with changes in premium , but are more aligned with changes in membership . the acquisition or loss of a significant block of business would likely impact staffing levels , and thus associated compensation expense . examples of discretionary costs include professional and consulting expenses and advertising . other factors can impact our administrative cost structure , including systems efficiencies , inflation and changes in productivity . our results of operations depend in large part on our ability to accurately predict and effectively manage health care costs through effective contracting with providers of care to our members and our medical management and health and wellness programs . several economic factors related to health care costs , such as regulatory mandates of coverage as well as direct-to-consumer advertising by providers and pharmaceutical companies , have a direct impact on the volume of care consumed by our members . the potential effect of escalating health care costs , any changes in our ability to negotiate competitive rates with our providers and any regulatory or market driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in health care costs , including increases in unit costs and utilization resulting from the aging of the population and other demographics , as well as advances in medical technology , may impose further risks to our ability to profitably underwrite our business , and may have a material impact on our results of operations . our future results of operations will also be impacted by certain external forces and resulting changes in our business model and strategy . in 2010 , the u.s. congress passed and the president signed into law the patient protection and affordable care act , or aca , as well as the health care and education reconciliation act of 2010 , or collectively , health care reform , which represents significant changes to the u.s. health care system . the legislation is far-reaching and is intended to expand access to health insurance coverage over time by increasing the eligibility thresholds for state medicaid programs and providing certain other individuals and small businesses with tax credits to subsidize a portion of the cost of health insurance coverage . story_separator_special_tag operating cash flow for the year ended december 31 , 2012 was $ 2,744.6 , or 1.0 times net income . the increase in operating cash flow from 2012 of $ 307.7 was driven primarily by an increase in net income adjusted for non-cash items , primarily due to the loss on disposal of discontinued operations , changes in amortization expense and realized losses on extinguishment of debt . the increase was further attributable to lower payments for litigation related matters , incentive compensation and minimum mlr rebates ; and a net increase in the collection of income tax refunds in 2013. we intend to expand through a combination of organic growth , strategic acquisitions and efficient use of capital in both existing and new markets . our growth strategy is designed to enable us to take advantage of additional economies of scale as well as providing us access to new and evolving technologies and products . in addition , we believe geographic and product diversity reduces our exposure to local or regional regulatory , economic and competitive pressures and provides us with increased opportunities for growth . while we have achieved strong growth as a result of strategic mergers and acquisitions , we have also achieved organic growth in our existing markets over time by providing excellent service , offering competitively priced products , access to high quality provider networks and effectively capitalizing on the brand strength of the blue cross and blue shield names and marks . - 47 - significant transactions the more significant transactions that have occurred over the last three years that have impacted or will impact our capital structure or that have or will influence how we conduct our business operations include : use of capital—board of directors declaration of dividends on common stock ( 2013 , 2012 and 2011 ) and a 16.7 % increase in the quarterly dividend to $ 0.4375 per share ( 2014 ) ; authorization for repurchases of our common stock ( 2013 and prior ) ; and debt repurchases and new debt issuance ( 2013 and prior ) ; acquisition of amerigroup and the related debt issuance ( 2012 ) ; acquisition of 1-800 contacts ( 2012 ) and subsequent divestiture ( 2014 ) ; and acquisition of caremore ( 2011 ) . for additional information regarding these transactions , see note 3 , “ business acquisitions and divestitures , ” note 13 , `` debt `` and note 15 , “ capital stock , ” to our audited consolidated financial statements as of and for the year ended december 31 , 2013 , included in this form 10-k. membership our medical membership includes seven different customer types : local group , individual , national accounts , bluecard ® , medicare , medicaid and fep . bcbs-branded business generally refers to members in our service areas licensed by the bcbsa . non-bcbs-branded business refers to amerigroup and caremore members as well as healthlink and unicare members predominantly outside of our bcbsa service areas . local group consists of those employer customers with less than 5 % of eligible employees located outside of the headquarter state , as well as customers with more than 5 % of eligible employees located outside of the headquarter state with up to 5,000 eligible employees . in addition , local group includes unicare local group members . these groups are generally sold through brokers or consultants working with industry specialists from our in-house sales force . local group insurance premiums may be based on claims incurred by the group or sold on a self-insured basis . the customer 's buying decision is typically based upon the size and breadth of our networks , customer service , the quality of our medical management services , the administrative cost included in our quoted price , our financial stability , reputation and our ability to effectively service large complex accounts . local group accounted for 41.2 % , 40.5 % and 44.4 % of our medical members at december 31 , 2013 , 2012 and 2011 , respectively . individual consists of individual customers under age 65 ( including unicare ) and their covered dependents . individual policies are generally sold through independent agents and brokers , retail partnerships , our in-house sales force or via the internet . individual business is sold on a fully-insured basis . we offer on-exchange products through state or federally facilitated marketplaces and off-exchange products . federal premium subsidies are available only for certain on-exchange individual products . individual customers are generally more sensitive to product pricing and , to a lesser extent , the configuration of the network , and the efficiency of administration . account turnover is generally higher with individual as compared to local group . individual business accounted for 4.9 % , 5.1 % and 5.4 % of our medical members at december 31 , 2013 , 2012 and 2011 , respectively . national accounts generally consist of multi-state employer groups primarily headquartered in a wellpoint service area with at least 5 % of the eligible employees located outside of the headquarter state and with more than 5,000 eligible employees . some exceptions are allowed based on broker relationships . service area is defined as the geographic area in which we are licensed to sell bcbs products . national accounts are generally sold through independent brokers or consultants retained by the customer working with our in-house sales force . we have an advantage when competing for very large national accounts due to the size and breadth of our networks and our ability to access the national provider networks of bcbs companies at their competitive local market rates . national accounts represented 19.0 % , 19.4 % and 21.6 % of our medical members at december 31 , 2013 , 2012 and 2011 , respectively . bluecard ® host customers represent enrollees of blue cross and or blue shield plans not owned by wellpoint who receive health

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net cash flow used in financing activities was $ 1,717.8 during the year ended december 31 , 2013 , compared to net cash flow provided by financing activities of $ 2,088.9 for the year ended december 31 , 2012 . the change in cash flow from financing activities of $ 3,806.7 primarily resulted from an increase in long-term borrowings in 2012 primarily used to fund the acquisition of amerigroup compared to an increase in net repayments of long-term borrowings in 2013. the change in cash flow from financing activity was further attributable to a decrease in common stock repurchases , changes in securities lending payable , and an increase in proceeds from the issuance of common stock under our employee stock plans . liquidity— year ended december 31 , 2012 compared to year ended december 31 , 2011 during the year ended december 31 , 2012 , net cash flow provided by operating activities was $ 2,744.6 , compared to $ 3,374.4 for the year ended december 31 , 2011 , a decrease of $ 629.8 . this decrease was driven primarily by payments related to the run-out of medical claims for former members , net operating cash outflows by our amerigroup subsidiary during the post-acquisition period ( including claims payments , change-in-control payments and payments for transaction costs ) , increased litigation settlement payments and the addition of required minimum mlr rebate payments in 2012 ( which were established as liabilities during the year ended december 31 , 2011 ) . net cash flow used in investing activities was $ 4,551.6 during the year ended december 31 , 2012 , compared to $ 942.0 for the year ended december 31 , 2011 . the increase in cash flow used in investing activities of $ 3,609.6 between the two periods primarily resulted from an increase in the purchase of subsidiaries , reflecting the acquisitions of amerigroup and 1-800 contacts during 2012 , and an increase in purchases of property and equipment , partially offset by changes in securities lending collateral and an increase in the net proceeds from the sales of investments .

we have also experienced accelerated pressure on wages in the united states during fiscal 2017. some of this is attributed to regulatory changes in certain states and municipalities , while the larger portion is being driven by general market pressures with lower unemployment rates and some specific actions taken in recent years by other retailers . the regulatory changes are going to continue , as evidenced by the areas that have passed legislation to increase their wages substantially over the next few years , but we are still assessing to what degree these changes will impact our earnings growth in future periods . during fiscal 2017 , failure and maintenance related categories represented the largest portion of our sales mix , at approximately 84 % of total sales , with failure related categories continuing to be our largest set of categories . while we have not experienced any fundamental shifts in our category sales mix as compared to previous years , in our domestic stores we did experience a slight increase in mix of sales of the failure category as compared to last year . we believe the improvement in this sales category was driven by differences in regional weather patterns and improved merchandise assortments due to the products we have added over the last year . our sales mix can be impacted by severe or unusual weather over a short term period . over the long term , we believe the impact of the weather on our sales mix is not significant . our primary response to fluctuations in the demand for the products we sell is to adjust our advertising message , store staffing , and product assortment . in recent years , we initiated a variety of strategic tests focused on increasing inventory availability in our domestic stores . as part of those tests , we closely studied our hub distribution model , store inventory levels and product assortment , which led to strategic tests on increased frequency of delivery to our domestic stores and significantly expanding parts and assortment in select domestic stores we call mega hubs . during fiscal 2015 , we concluded our tests on these specific new concepts . during fiscal 2016 and most of fiscal 2017 , we continued the implementation of more frequent deliveries from our distribution centers to additional domestic stores and the execution of our mega hub strategy . in the fourth quarter of fiscal 2017 , however , we made substantial changes to test different scenarios to determine the optimal approach around increased delivery frequency . we expect to conclude this test in fiscal 2018. the two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road . miles driven we believe that as the number of miles driven increases , consumers ' vehicles are more likely to need service and maintenance , resulting in an increase in the need for automotive hard parts and maintenance items . while over the long-term we have seen a close correlation between our net sales and the number of miles driven , we have also seen certain time frames of minimal correlation in sales performance and miles driven . during the periods of minimal correlation between net sales and miles driven , we believe net sales have been positively impacted by other factors , including the number of seven year old or older vehicles on the road . since the beginning of the fiscal year and through june 2017 ( latest publicly available information ) , miles driven in the u.s. increased by 1.2 % compared to the same period in the prior year . seven year old or older vehicles between 2008 and 2012 , new vehicle sales were significantly lower than historical levels , which we believe contributed to an increasing number of seven year old or older vehicles on the road . we estimate vehicles are driven an average of approximately 12,500 miles each year . in seven years , the average miles driven equates to approximately 87,500 miles . our experience is that at this point in a vehicle 's life , most vehicles are not covered by warranties and increased maintenance is needed to keep the vehicle operating . 24 according to the latest data provided by the auto care association , as of january 1 , 2017 , the average age of vehicles on the road is 11.7 years as compared to 11.6 years as of january 1 , 2016. although the average age of vehicles continues to increase , it is increasing at a decelerated rate primarily driven by the improvement in new car sales in recent years . however , in the near term , we expect the aging vehicle population to continue to increase as consumers keep their cars longer in an effort to save money . as the number of seven year old or older vehicles on the road increases , we expect an increase in demand for the products we sell . results of operations fiscal 2017 compared with fiscal 2016 for the fiscal year ended august 26 , 2017 , we reported net sales of $ 10.889 billion compared with $ 10.636 billion for the year ended august 27 , 2016 , a 2.4 % increase from fiscal 2016. this growth was driven primarily by net sales of $ 172.5 million from new domestic autozone stores and domestic same store sales increase of 0.5 % . story_separator_special_tag for the fiscal year ended august 26 , 2017 , cash flow before share repurchases and changes in debt was $ 1.018 billion as compared to $ 1.167 billion during the comparable prior year period . cash flow before share repurchases and changes in debt is calculated as the net increase or decrease in cash and cash equivalents less increases in debt plus share repurchases . we use cash flow before share repurchases and changes in debt to calculate the cash flows remaining and available in an effort to increase shareholder value in the form of share repurchases . we believe this is important information regarding our allocation of available capital where we prioritize investments in the business and utilize the remaining funds to repurchase shares , while maintaining debt levels that support our investment grade credit ratings . if we allowed these funds to accumulate on our balance sheet instead of repurchasing our shares , we believe our earnings per share and stock price would be negatively impacted . refer to the “reconciliation of non-gaap financial measures” section for further details of our calculation . subsequent to august 26 , 2017 , we have repurchased 383,165 shares of common stock at an aggregate cost of $ 225.8 million . considering the cumulative repurchases subsequent to august 26 , 2017 , we have $ 597.9 million remaining under the board 's authorization to repurchase our common stock . 30 financial commitments the following table shows our significant contractual obligations as of august 26 , 2017 : replace_table_token_7_th ( 1 ) debt balances represent principal maturities , excluding interest , discounts , and debt issuance costs . ( 2 ) represents obligations for interest payments on long-term debt . ( 3 ) operating lease obligations are inclusive of amounts accrued within deferred rent and closed store obligations reflected in our consolidated balance sheets . ( 4 ) capital lease obligations include related interest . ( 5 ) self-insurance reserves reflect estimates based on actuarial calculations . although these obligations do not have scheduled maturities , the timing of future payments are predictable based upon historical patterns . accordingly , we reflect the net present value of these obligations in our consolidated balance sheets . we have pension obligations reflected in our consolidated balance sheets that are not reflected in the table above due to the absence of scheduled maturities and the nature of the account . during fiscal 2017 , we made contributions of $ 17.8 million to the pension plan . we expect to make contributions of approximately $ 20.3 million during fiscal 2018 ; however a change to the expected cash funding may be impacted by a change in interest rates or a change in the actual or expected return on plan assets . as of august 26 , 2017 , our defined benefit obligation associated with our pension plans is $ 314.7 million and our pension assets are valued at $ 316.3 million , resulting in a net pension asset position of $ 1.5 million . amounts recorded in accumulated other comprehensive loss are $ 118.9 million at august 26 , 2017. the balance in accumulated other comprehensive loss will be amortized into pension expense in the future , unless the losses are recovered in future periods through actuarial gains . additionally , our tax liability for uncertain tax positions , including interest and penalties , was $ 15.4 million at august 26 , 2017. approximately $ 2.6 million is classified as current liabilities and $ 12.8 million is classified as long-term liabilities . we did not reflect these obligations in the table above as we are unable to make an estimate of the timing of payments of the long-term liabilities due to uncertainties in the timing and amounts of the settlement of these tax positions . off-balance sheet arrangements the following table reflects outstanding letters of credit and surety bonds as of august 26 , 2017 : ( in thousands ) total other commitments standby letters of credit $ 88,633 surety bonds 28,759 $ 117,392 a substantial portion of the outstanding standby letters of credit ( which are primarily renewed on an annual basis ) and surety bonds are used to cover reimbursement obligations to our workers ' compensation carriers . 31 there are no additional contingent liabilities associated with these instruments as the underlying liabilities are already reflected in our consolidated balance sheets . the standby letters of credit and surety bond arrangements expire within one year , but have automatic renewal clauses . reconciliation of non-gaap financial measures “selected financial data” and “management 's discussion and analysis of financial condition and results of operations” include certain financial measures not derived in accordance with generally accepted accounting principles ( “gaap” ) . these non-gaap financial measures provide additional information for determining our optimum capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders ' value . non-gaap financial measures should not be used as a substitute for gaap financial measures , or considered in isolation , for the purpose of analyzing our operating performance , financial position or cash flows . however , we have presented the non-gaap financial measures , as we believe they provide additional information that is useful to investors as it indicates more clearly our comparative year-to-year operating results . furthermore , our management and compensation committee of the board use the above-mentioned non-gaap financial measures to analyze and compare our underlying operating results and use select measurements to determine payments of performance-based compensation . we have included a reconciliation of this information to the most comparable gaap measures in the following reconciliation tables . reconciliation of non-gaap financial measure : cash flow before share repurchases and changes in debt the following table reconciles net increase ( decrease ) in cash and cash equivalents to cash flow before share repurchases and changes in debt , which is presented in “selected financial data”

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debt facilities on november 18 , 2016 , we amended and restated our existing multi-year revolving credit facility ( the “new multi-year revolving credit agreement” ) by increasing the committed credit amount from $ 1.25 billion to $ 1.6 billion , extending the expiration date by two years and renegotiating other terms and conditions . this credit facility is available to primarily support commercial paper borrowings , letters of credit and other short-term unsecured bank loans . the capacity of the credit facility may be increased to $ 2.1 billion prior to the maturity date at our election and subject to bank credit capacity and approval , and may include up to $ 200 million in letters of credit . under the revolving credit facility , we may borrow funds consisting of eurodollar loans , base rate loans or a combination of both . interest accrues on eurodollar loans at a defined eurodollar rate , defined as libor plus the applicable percentage , as defined in the revolving credit facility , depending upon our senior , unsecured , ( non-credit enhanced ) long-term debt rating . interest accrues on base rate loans as defined in the credit facility . we also have the option to borrow funds under the terms of a swingline loan subfacility . the revolving credit facility expires on november 18 , 2021 , but we may , by notice to the administrative agent , make up to two requests to extend the termination date for an additional period of one year . the first such request must be made no earlier than 60 days , and no later than 45 days , prior to november 18 , 2017 , while the second request must be made no earlier than 60 days , and no later than 45 days , prior to november 18 , 2018. on november 18 , 2016 , we amended and restated our existing 364-day revolving credit facility ( the “new 364-day credit agreement” ) by decreasing the committed credit amount from $ 500 million to $ 400 million , extending the expiration date by one year and renegotiating other terms and conditions .

45 selected financial information the following is an overview of our results of operations ( in millions , except percentages and per share data ) : replace_table_token_7_th in the following discussion of changes in product sales , any reference to unit demand growth or decline refers to changes in the purchases of our products by healthcare providers , such as physicians or their clinics , dialysis centers , hospitals and pharmacies . total product sales for 2017 decreased slightly as a decline in u.s. product sales was offset partially by an increase in row product sales . the u.s. decrease was driven primarily by lower unit demand resulting from competition , offset partially by increases in net selling prices and favorable changes in inventory . the increase in row product sales for 2017 was driven primarily by higher unit demand , offset partially by unfavorable changes in foreign exchange rates and declines in net selling prices . operating expenses for 2017 decreased 2 % . all expense categories benefited from savings resulting from our transformation and process improvement efforts . although changes in foreign currency exchange rates result in increases or decreases in our reported international product sales , the benefit or detriment that such movements have on our international product sales is offset partially by corresponding increases or decreases in our international operating expenses and our related foreign currency hedging activities . our hedging activities seek to offset the impacts , both positive and negative , that foreign currency exchange rate changes may have on our net income by hedging our net foreign currency exposure , primarily with respect to product sales denominated in euros . the net impact from changes in foreign currency exchange rates was not material in 2017 , 2016 or 2015 . 46 results of operations product sales worldwide product sales were as follows ( dollar amounts in millions ) : replace_table_token_8_th future sales of our products will depend , in part , on the factors discussed in the overview , part i , item 1. business—marketing , distribution and selected marketed products—competition , in part i , item 1a . risk factors , and any additional factors discussed in the individual product sections below . in addition , for a list of our products ' significant competitors , see part i , item 1. business—marketing , distribution and selected marketed products—competition . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_9_th the decrease in enbrel sales for 2017 was driven primarily by lower unit demand and net selling price , offset partially by an increase in inventory . for 2018 , we expect the trends of lower unit demand and net selling price to continue . the increase in enbrel sales for 2016 was driven primarily by an increase in net selling price , offset partially by the impact of competition . neulasta ® total neulasta ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_10_th the decreases in global neulasta ® sales for 2017 and 2016 were driven primarily by lower unit demand , offset partially by an increase in net selling price in the united states . as of the end of december 2017 , utilization of the neulasta ® onpro ® kit continues to grow in the united states . 47 our final material u.s. patent for neulasta ® expired in october 2015. therefore , we expect to face competition in the united states , which over time may have a material adverse impact on future sales of neulasta ® . multiple companies have announced applications to the fda for proposed biosimilar versions of neulasta ® . while a number of these companies have announced receipt of complete response letters from the fda regarding their applications , certain of these companies may receive approval in 2018. for discussion of ongoing patent litigations with these and other companies developing proposed biosimilar versions of neulasta ® , see part iv—note 18 , contingencies and commitments , to the consolidated financial statements . in addition , supplementary protection certificates issued by certain countries , including france , germany , italy , spain and the united kingdom , relating to our european patent for neulasta ® expired in august 2017. for further information regarding our patents , see part i , item 1. business—marketing , distribution and selected marketed products—patents . neulasta ® sales have been and will continue to be impacted by the development of new protocols , tests and or treatments for cancer and or new treatment alternatives that have reduced and may continue to reduce the use of myelosuppressive regimens in some patients . aranesp ® total aranesp ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_11_th the decrease in global aranesp ® sales for 2017 was driven primarily by unfavorable changes in foreign currency exchange rates , offset partially by higher unit demand , including a shift of some u.s. dialysis centers from epogen ® . the increase in global aranesp ® sales for 2016 was driven primarily by higher unit demand , including a shift of some u.s. dialysis centers from epogen ® , offset partially by a decrease in net selling price in row . for 2018 , we expect aranesp ® to face increasing competition from branded products . we could also face competition from biosimilar versions of epogen ® in 2018 if they launch in the united states . prolia ® total prolia ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_12_th the increases in global prolia ® sales for 2017 and 2016 were driven primarily by higher unit demand . story_separator_special_tag on december 22 , 2017 , the united states enacted the 2017 tax act that imposes a repatriation tax on accumulated earnings of foreign subsidiaries , implements a territorial tax system together with a current tax on certain foreign earnings and lowers the general corporate income tax rate to 21 % . on december 22 , 2017 , the sec staff issued staff accounting bulletin no . 118 ( sab 118 ) that allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date . we currently are analyzing the 2017 tax act , and in certain areas , have made reasonable estimates of the effects on our consolidated financial statements and tax disclosures , including the amount of the repatriation tax and changes to our existing deferred tax balances . the repatriation tax is based primarily on our accumulated foreign earnings and profits that we previously deferred from u.s. income taxes . we recorded an estimated amount for our repatriation tax liability of $ 7.3 billion as of december 31 , 2017. we no longer reinvest our undistributed earnings of our foreign operations indefinitely outside the united states . in addition , we remeasured certain net deferred and other tax liabilities based on the tax rates at which they are expected to reverse in the future . the estimated amount recorded related to the remeasurement of these balances was a net benefit of $ 1.2 billion . the net estimated impact of the 2017 tax act is $ 6.1 billion . we consider the key estimates on the repatriation tax , net deferred tax remeasurement and the impact on our unrealized tax benefits to be incomplete due to our continuing analysis of final year-end data and tax positions . our analysis could affect the measurement of these balances and give rise to new deferred tax assets and liabilities . since the 2017 tax act was passed late in the fourth quarter of 2017 , and further guidance and accounting interpretation is expected over the next 12 months , our review is still pending . we expect to complete our analysis within the measurement period . as previously disclosed , we received a rar from the irs for the years 2010 , 2011 and 2012. the rar proposes to make significant adjustments that relate primarily to the allocation of profits between certain of our entities in the united states and the u.s. territory of puerto rico . on november 29 , 2017 , we received a modified rar that revised their calculation but continued to propose substantial adjustments . we disagree with the proposed adjustments and are pursuing resolution through the irs administrative appeals process , which we believe will likely not be concluded within the next 12 months . final resolution of the irs audit could have a material impact on our results of consolidated operations and cash flows if not resolved favorably , however , we believe our income tax reserves are appropriately provided for all open tax years . see summary of critical accounting policies—income taxes , and part iv—note 5 , income taxes , to the consolidated financial statements . 53 financial condition , liquidity and capital resources selected financial data was as follows ( in millions ) : replace_table_token_20_th cash , cash equivalents and marketable securities we now have global access to our $ 41.7 billion balance of cash , cash equivalents and marketable securities , as we no longer reinvest our undistributed foreign earnings indefinitely outside the united states . under the 2017 tax act , we owe a repatriation tax on undistributed earnings generated from operations in foreign tax jurisdictions estimated at $ 7.3 billion that will be paid over eight years . see contractual obligations below . we will also have access to global cash generated from operations in the future . the primary objective of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal , prudent levels of liquidity and acceptable levels of risk . our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings and places restrictions on maturities and concentration by asset class and issuer . capital allocation consistent with the objective to optimize our capital structure , we will seek to deploy our accumulated cash balances in an efficient manner and will consider several alternatives such as share repurchases , payment of cash dividends , repayment of debt , and strategic transactions that expand our portfolio of products in areas of therapeutic interest . in addition to deploying our cash balances , we intend to continue to invest in our business and return capital to stockholders through the payment of cash dividends and stock repurchases reflecting our confidence in the future cash flows of our business . the timing and amount of future dividends and stock repurchases will vary based on a number of factors , including future capital requirements for strategic transactions , the availability of financing on acceptable terms , debt service requirements , our credit rating , changes to applicable tax laws or corporate laws , changes to our business model and periodic determination by our board of directors that cash dividends and or stock repurchases are in the best interests of stockholders and are in compliance with applicable laws and agreements of the company . in addition , the timing and amount of stock repurchases may also be affected by the stock price and blackout periods , during which we are restricted from repurchasing stock . the manner of stock repurchases may include private block purchases , tender offers and market transactions . the board of directors declared quarterly cash dividends of $ 0.79 per share of common stock in 2015 , increased our quarterly cash dividend by 27 % to $ 1.00 per share of common stock in 2016 , and increased

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cash flows a summary of our cash flow activity was as follows ( in millions ) : replace_table_token_21_th operating cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds . cash provided by operating activities increased during 2017 due primarily to a higher operating margin and the timing of payments to vendors and receipts from customers , offset partially by higher payments to taxing authorities . cash provided by operating activities increased during 2016 due primarily to an improved operating margin and the timing of customer payments , offset partially by inventory build , the monetization of foreign currency forward contracts in 2015 and the timing of tax payments . investing cash used in investing activities during 2017 , 2016 and 2015 was due primarily to net cash outflows related to marketable securities of $ 3.2 billion , $ 7.7 billion and $ 4.4 billion , respectively . capital expenditures , which were associated primarily with site development costs , including our thousand oaks campus , as well as manufacturing capacity expansions in puerto rico , singapore and ireland , were $ 664 million , $ 738 million and $ 594 million in 2017 , 2016 and 2015 , respectively . we currently estimate 2018 spending on capital projects to be approximately $ 750 million . financing cash used in financing activities during 2017 was due primarily to the repayment of debt of $ 4.4 billion , the payment of dividends of $ 3.4 billion , repurchases of our common stock of $ 3.2 billion and withholding taxes arising from shares withheld for share-based payments of $ 191 million , offset partially by net proceeds from the issuance of debt of $ 4.5 billion . cash used in financing activities during 2016 was due primarily to the repayment of debt of $ 3.7 billion , the payment of dividends of $ 3.0 billion , repurchases of our common stock of $ 3.0 billion and withholding taxes arising from shares withheld for share-based payments of $ 260 million , offset partially by net proceeds from the issuance of debt of $ 7.3 billion .

we will continue to employ a disciplined approach when assessing , acquiring or managing portfolios of risk . we manage claims in a professional and disciplined manner , drawing on our global team of in-house claims management experts as we aim to proactively manage risks and claims efficiently . we employ an opportunistic commutation strategy in which we negotiate with policyholders and claimants with a goal of commuting or settling existing insurance and reinsurance liabilities at a discount to the ultimate liability and also to avoid unnecessary legal and other associated run-off fees and expense . as a result of the number of transactions we have completed over the years , we have a complex organizational structure consisting of licensed entities across many jurisdictions . in managing our group , we continue to look for opportunities to simplify our legal structure by way of company amalgamations and mergers , reinsurance , or other transactions to improve capital efficiency and decrease ongoing compliance and operational costs over time . in addition , we seek to pool risk in areas where we maintain the expertise to manage such risk to achieve operational efficiencies , which will allow us to most efficiently manage our assets and to achieve capital diversification benefits . underwriting our underwriting results can be affected by changes in premium rates , significant losses , development of prior year loss reserves and current year underwriting margins . in general , our expectation for 2018 is that underwriting margins will be slightly higher than in 2017 , with premium rates expected to be impacted by both market and general economic conditions . we continue to see overcapacity in many markets which can impact premium rates and or terms and conditions . if general economic conditions worsen , a decrease in the level of economic activity may impact insurable risks and our ability to write premium that is acceptable to us . we may adjust our level of reinsurance to maintain an amount of net exposure that is aligned with our risk tolerance . for the year ended december 31 , 2017 compared to 2016 , total gross premiums written were relatively consistent in our atrium segment and marginally higher in our starstone segment as we selectively grew in certain lines , which included the development of additional underwriting capabilities . starstone 's net earned premium , net incurred losses and acquisition costs decreased significantly as a result of the 35 % quota share reinsurance agreement with our equity method investee kaylare holdings ltd. ( `` kaylare `` ) , which covers the 2016 and subsequent underwriting years . the insurance and reinsurance industry was significantly impacted by large losses in the second half of 2017 , notably hurricanes harvey , irma and maria , as well as the mexico earthquake and the wildfires in california . given the nature and complexity of these events it may take some time before the full extent of the losses is known , and the initial reported losses may develop favorably or adversely in the future . additionally , the losses may have an impact on capacity and pricing . however at this time we can not estimate with any certainty whether any such impacts would be significant . our industry continues to experience challenging underwriting market conditions , and o ur strategy is to maintain our disciplined underwriting approach and strong risk management practices , which may result in us writing less premium in certain lines of business than we wrote in 2017. however , we will seek to mitigate these challenging conditions through our diversified book of business , established distribution channels and geographic reach . we will continue to seek growth in certain areas where we have identified opportunities for expansion and the opportunity for increases in premium rates . in addition , our underwriting operations are well-positioned to capture profitable active business from our run-off transactions , where such business is in attractive specialty lines . in both our atrium and starstone segments we will maintain our focus on underwriting for profitability . 46 investments markets are inherently uncertain and investment performance may be impacted with changes in market volatility . we expect to maintain our investment strategy , which is to seek superior risk adjusted returns while preserving liquidity and capital and maintaining a prudent diversification of assets . we are implementing strategies to more closely align the duration in certain investment portfolios to the duration of our reserves . we will continue allocating a portion of our portfolio to non-investment grade securities or alternative investments , in accordance with our investment guidelines , which carry significant diversification and return benefits . net investment income is a significant component of our earnings and we see fully priced asset valuations across many asset classes compared to historical averages . if investment conditions or general economic conditions change during 2018 , we may experience further pressure on our investment yields and realized or unrealized losses on investments could materialize . for further discussion of our investments , see `` investable assets `` below . u.s. taxation reform on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) , as described in `` item 1a . risk factors - risk relating to taxation . `` the tax act makes broad changes to the u.s. tax code , some of which were applicable in 2017 and others effective for tax years ending after december 31 , 2017. the impact of the tax act to enstar in 2017 is described in `` consolidated results of operations - consolidated overview `` below . in response to the introduction of the tax act , as of january 1 , 2018 we non-renewed certain of our active underwriting affiliate reinsurance transactions ceded from our u.s. operating entities to our non-u.s. affiliates . story_separator_special_tag `` 53 net premiums earned : the following table shows the gross and net premiums written and earned for the non-life run-off segment for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_9_th because business in this segment is in run-off , our general expectation is for premiums associated with legacy business to decline in future periods . however , the actual amount in any particular year will be impacted by new acquisitions during the year , and the run-off of premiums from acquisitions completed in recent years . 2017 versus 2016 : premiums written and earned in 2017 and 2016 related primarily to sussex 's run-off business . 2016 versus 2015 : premiums written and earned in 2016 and 2015 related primarily to sussex 's run-off business . net incurred losses and lae : the following table shows the components of net incurred losses and lae for the non-life run-off segment for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_10_th ( 1 ) net change in case and lae reserves comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys , less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims . ( 2 ) net change in ibnr represents the gross change in our actuarial estimates of ibnr , less amounts recoverable . 54 2017 versus 2016 : the net reduction in incurred losses and lae for the year ended december 31 , 2017 of $ 190.7 million included net incurred losses a nd lae of $ 5.9 million related to current period net earned premium , primarily for the portion of the run-off business acquired with sussex . excluding current period net incurred losses and lae of $ 5.9 million , net incurred losses and lae liabilities relating to prior periods were reduced by $ 196.5 million , which was attributable to a reduction in estimates of net ultimate losses of $ 181.3 million , a reduction in provisions for bad debt of $ 1.5 million and a reduction in provisions for unallocated lae of $ 54.1 million , relating to 2017 run-off activity , partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $ 10.1 million and a change in fair value of $ 30.3 million related to our assumed retroactive reinsurance agreements with rsa and qbe completed in 2017 and for which we have elected the fair value option . the reduction of estimates in net ultimate losses for the year ended december 31 , 2017 was reduced by amortization of the deferred charge of $ 14.4 million . overall , the reduction in net incurred losses and lae was lower by $ 95.2 million in 2017 compared with 2016 , primarily due to experiencing approximately $ 82.0 million of adverse net loss reserve development on certain asbestos reserves relating to increases in our estimates of ultimate losses as well as certain claims judgments . the reduction in estimates of net ultimate losses relating to prior periods of $ 181.3 million comprised reductions in ibnr reserves of $ 393.1 million partially offset by net incurred loss development of $ 211.8 million , which includes amortization of deferred charges of $ 14.4 million . the decrease in the estimate of net ibnr reserves of $ 393.1 million ( compared to $ 349.7 million during the year ended december 31 , 2016 ) , comprised a decrease of $ 70.0 million relating to asbestos liabilities ( compared to an increase of $ 39.4 million in 2016 ) , an decrease of $ 7.5 million relating to environmental liabilities ( compared to an increase $ 35.5 million in 2016 ) , a decrease of $ 7.2 million relating to general casualty liabilities ( compared to $ 0.8 million in 2016 ) , a decrease of $ 156.2 million relating to workers ' compensation liabilities ( compared to $ 333.2 million in 2016 ) and a decrease of $ 152.2 million relating to all other remaining liabilities ( compared to $ 90.6 million in 2016 ) . the reduction in net ibnr reserves of $ 393.1 million relating to prior periods was a result of the application , on a basis consistent with the assumptions applied in the prior period , of our actuarial methodologies to revised historical loss development data , following 59 commutations and policy buy-backs , to estimate loss reserves required to cover liabilities for unpaid losses and lae relating to non-commuted exposures . the prior period estimate of net ibnr reserves was reduced as a result of the combined impact on all classes of business of loss development activity during 2017 , including commutations and the favorable trend of loss development related to non-commuted policies compared to prior forecasts . the net incurred loss development resulting from settlement of net advised case and lae reserves of $ 381.5 million for net paid losses of $ 578.9 million related to the settlement of non-commuted losses in the year and 59 commutations and policy buy-backs of assumed and ceded exposures . net advised case and lae reserves settled by way of commutation and policy buyback during the year ended december 31 , 2017 amounted to $ 7.4 million ( comprising $ 23.2 million of assumed case reserves and lae reserves , partially offset by $ 15.8 million of ceded incurred reinsurance recoverable case reserves ) . the reduction in provisions for bad debt of $ 1.5 million was a result of the favorable resolution of contractual disputes with reinsurers , the reduction in bad debt provisions for insolvent reinsurers as a result of distributions received and the reduction of specific provisions held for potential disputes with reinsurers . 2016 versus 2015 : the net reduction in incurred losses

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cash provided by investing activities for 2017 primarily related to net cash provided by sale of subsidiaries of $ 122.4 million , compared to net cash used in acquisitions of $ 18.5 million 2016 . in addition , net redemptions of other investments and net sales of available for sale securities provided cash of $ 122.9 million and $ 71.5 million , compared to $ 154.0 million and $ 29.0 million , in 2017 and 2016 , respectively . cash used in financing activities for 2017 primarily related to net outflows of $ 38.0 million from our credit facilities , consisting of the repayment of the sussex facility in full , the repayment of a portion of the egl revolving credit facility , partially offset by the issuance of our $ 350.0 million senior notes . in addition we paid $ 27.5 million in dividends to noncontrolling interests . during 2016 , we had net inflows of $ 77.8 million from our credit facilities primarily utilized to finance acquisitions and significant new business . 2016 versus 2015 : cash used in operating activities was $ 202.7 million and $ 265.2 million for the years ended december 31 , 2016 and 2015 , respectively . the negative operating cash flow was predominantly driven by : ( i ) net paid losses in our non-life run-off segment for the years ended december 31 , 2016 and 2015 of $ 533.8 million and $ 517.3 million , respectively , partially offset by ( ii ) cash and restricted cash acquired in non-life run-off reinsurance transactions for the years ended december 31 , 2016 and 2015 of $ 174.5 million and $ 468.3 million , respectively . cash provided by investing activities for 2016 primarily related to net redemptions of other investments of $ 154.0 million . cas h provided by investing activities for 2015 primarily related to net purchases of other investments of $ 149.9 million and purchases of available for sale securities of $ 102.2 million , offset by acquisitions net of cash acquired of $ 130.7 million and sales and maturities of available for sale securities of $ 142.8 million .

we believe the pace of this convergence is accelerating , driven by price pressure in traditional ffs healthcare , public policy , a regulatory environment that is incentivizing value-based care models , a rapid expansion of retail insurance driven by the emergence of the health insurance exchanges and innovation in data and technology . we believe providers are positioned to lead this transition to value-based care because of their control over large portions of healthcare delivery costs , their primary position with consumers and their strong local brand . we market and sell our services primarily to major providers throughout the united states . we typically work with our partners in two phases . in the transformation phase , we initially work with our partners to develop a strategic plan for their transition to a value-based care model which includes sizing the market opportunity for our partner and creating a blueprint for executing that opportunity . during the second portion of the transformation phase , which typically lasts twelve to fifteen months , we generally work with our partner to implement the blueprint by establishing the resources necessary to launch its strategy and capitalize on the opportunity . during the transformation phase , we seek to enter into long-term agreements which we call the platform and operations phase and for 37 which we deliver a wide range of services that support our partner in the execution of its new strategy . contracts in the platform and operations phase can range from three to ten years in length . in the platform and operations phase we establish a local market presence and typically embed our resources alongside our partners . revenue from these long-term contracts is not guaranteed because certain of these contracts are terminable for convenience by our partners after a notice period has passed , and certain partners would be required to pay us a termination fee in certain circumstances . as of december 31 , 2015 , we had entered into long-term contractual relationships with eleven partners and we have subsequently entered into a long-term contractual relationship with one additional partner , and a significant portion of our revenue is concentrated with several partners . our five largest partners , piedmont wellstar health plan , indiana university health , wakemed health and hospitals , premier health partners and medstar health , inc. comprised 19.6 % , 15.6 % , 14.1 % , 11.8 % and 11.2 % , respectively , of our revenue for 2015 , or 72.3 % in the aggregate . on february 1 , 2016 , the company entered into a strategic alliance with university health care , inc. d./b/a passport health plan ( “ passport ” ) , a leading nonprofit community-based and provider-sponsored health plan administering kentucky medicaid and federal medicare advantage benefits to over 280,000 kentucky medicaid and medicare advantage beneficiaries . as part of the transaction , we issued 1,067,271 class a common shares to acquire capabilities and assets from passport to enable us to build out a medicaid center of excellence based in louisville , kentucky . additional equity consideration of up to $ 10.0 million may be earned by passport should we obtain new third party medicaid businesses in future periods . this transaction also includes a 10-year arrangement under which we will provide various health plan management and managed care services to the passport . we believe the medicaid center of excellence , which combines passport 's capabilities with our existing capabilities and technology platform , will enhance our ability to further expand into the growing market in provider-sponsored , community-based medicaid health plans throughout the united states . we have not yet finalized the accounting for this transaction which will be included in our financial results beginning february 1 , 2016. we expect the revenue from the 10-year service arrangement will contribute significantly to our future revenues . at times our contracts may be amended to change the nature and price of the services and or the time period over which they are provided . for example , in 2015 we signed two amendments to our agreement with piedmont wellstar health plan that reduced our expected revenue under that contract . revenue estimates are based on various assumptions and may vary depending on the performance of our partner 's health plan and other factors . we expect our 2016 revenue attributable to that contract to be approximately 75 % of our revenue attributable to that contract in 2015 or approximately 50 % of our adjusted revenue attributable to that contract in 2015 , with minimal revenue anticipated in subsequent years . in connection with the amendment signed in april 2015 , the partner also sold its 2.2 % ownership interest in us to certain of our pre-ipo investors , consisting of tpg , the advisory board and upmc . during the fourth quarter of 2015 , we agreed to amend the terms of our contract with wakemed health and hospitals and changed our fee structure from a pmpm-based fee to a combination of a fixed-fee and a performance-based fee . the fixed portion of our fee will be an amount equal to approximately 60 % of our 2015 revenue attributable to this customer . the performance-based portion of our fee relates to populations that will move to a new program . the performance-based fee for these populations , which accounted for approximately 30 % of our 2015 revenue attributable to wakemed health and hospitals , is contingent upon our customer achieving certain performance metrics . in addition , if wakemed health and hospitals exceeds the performance metrics , we will be entitled to additional payments under the amended agreement . the performance metrics will be measured and the revenue related to the performance-based fees will be recognized in the calendar year following the relevant service period . story_separator_special_tag expenses in 2015 were $ 139.9 million , as compared to zero in 2014 and $ 46.8 million in 2013. the increase in both revenue and operating expenses in 2015 over the prior years was a result of the consolidation of evolent health llc , growth in the organization and an increase in customers under long-term contracts . see “ evolent health , inc. adjusted results ” below for further discussion of the adjusted operating results . interest income ( expense ) , net as a result of the offering reorganization , the cash and cash equivalents and investments of evolent health llc are now consolidated and reflected on our consolidated balance sheet . interest income consists of interest from investing cash in money market funds and interest from our long-term investments . we expect our average cash and cash equivalents to decline in future periods as we utilize those funds for operations . 41 during the period january 1 , 2013 , through september 22 , 2013 , interim funding for the company was provided from pre-ipo investors in the form of convertible term notes bearing interest at a rate of 8 % per annum , with such interest accruing on a daily basis and compounded annually . the total outstanding principal amount of the interim funding provided was $ 23.0 million which was converted into equity ownership of evolent health , inc. or evolent health llc on the closing of the series b reorganization on september 23 , 2013. evolent health , inc. recorded interest expense of $ 0.8 million in 2013 prior to the conversion of the notes . gain on consolidation as part of the offering reorganization and as a result of gaining control of evolent health llc , we recognized a gain of $ 414.1 million in the second quarter of 2015. we accounted for obtaining control of evolent health llc as a step acquisition and , accordingly , recognized the fair value of evolent health llc 's assets and liabilities as of the effective date of the offering reorganization , including goodwill of $ 608.9 million and intangible assets of $ 169.0 million ( consisting of $ 19.0 million , $ 120.0 million and $ 30.0 million for the corporate trade name , existing customer relationships and existing technology , respectively ) . gain on deconsolidation as part of the series b reorganization and as a result of a loss of control of evolent health llc , we recognized a gain of $ 46.2 million in the third quarter of 2013. income ( loss ) from affiliate evolent health , inc. 's proportionate share of the losses of evolent health llc in 2015 ( prior to the offering reorganization ) was $ 28.2 million which included $ 0.8 million related to the amortization of a basis differential . evolent health , inc. 's proportionate share of the losses of evolent health llc in 2014 and 2013 were $ 25.2 million , and $ 4.2 million , respectively , which included $ 2.0 million and $ 0.7 million , respectively , related to the amortization of a basis differential . as a result of the offering reorganization , the financial results of evolent health llc are now consolidated and reflected in our financial results . provision ( benefit ) for income taxes our income tax expense relates to federal and state jurisdictions in the united states . the difference between our effective tax rate and our statutory rate is due primarily to the fact that we have certain permanent items which include , but are not limited to , income attributable to the non-controlling interest , offering reorganization gain attributable to nondeductible goodwill and our allocable share of evolent health llc 's stock issuance costs associated with the ipo and offering reorganization , nondeductible stock-based compensation expense , the impact of certain tax deduction limits related to meals and entertainment and other permanent nondeductible expenses . evolent expects that the effect of the ipo and offering reorganization related factors on the effective income tax rate will eventually diminish in the future . the company will report taxes only on its share of evolent health llc income and the consolidated income tax benefit therefore excludes earnings allocable to the non-controlling interest . the company expects this factor will continue to impact the consolidated effective tax rate until all class b common units are exchanged . additionally , the income tax expense for the year was impacted by changes to the deferred tax liability related to the increased difference in the book and tax basis in our partnership interest in evolent health llc pursuant to the offering reorganization , which resulted in a step-up in our book basis without a corresponding increase in the tax basis . we recorded $ 23.5 million in income tax provision as a result . additionally , as part of the $ 23.5 million in income tax provision recorded during 2015 , the company recorded an income tax benefit of $ 5.1 million related to a measurement period adjustment in the fourth quarter of 2015 resulting from a decrease in the basis difference related to stock-based awards . during 2015 management examined all sources of taxable income that may be available for the realization of its remaining net deferred tax assets . given the company 's cumulative loss position , management concluded that there are no other current sources of taxable income and are currently reflecting a full valuation allowance in our financial statements . due to the impact of the offering reorganization , our effective tax rate in 2015 was lower than the 35 % u.s. federal statutory rate . net income ( loss ) attributable to non-controlling interests as a result of the offering reorganization and as of june 4 , 2015 , we now consolidate the results of evolent health llc as we have 100 % of the voting rights of the entity ; however , we own 70.3

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liquidity and capital resources as noted in “ results of operations ” above , evolent health , inc. is the managing member of evolent health llc and the financial statements of evolent health , inc. include the consolidated results and cash flows of evolent health llc for the periods june 4 , 2015 , through december 31 , 2015 , and january 1 , 2013 , through september 22 , 2013 , and reflect the results of evolent health llc as an equity method investment for the period september 23 , 2013 , through june 3 , 2015. since its inception , the company has incurred operating losses and cash outflows from operations . the company incurred operating losses of $ 43.0 million , zero , and $ 21.2 million , in 2015 , 2014 and 2013 , respectively . net cash used in operating activities was $ 18.5 million , zero and $ 13.6 million in 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , the company had $ 145.7 million of cash and cash equivalents . we believe our current cash , short-term investments and other sources of liquidity will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months .

the first patient was enrolled in february 2015 , and enrollment was completed in june 2015. a pre-specified partial unblinding and top-line analysis of 24 week data was completed in q1 of 2016. the objective of the analysis was to determine whether early high level data could be useful in planning the anticipated phase iii program or support ongoing r & d activities that could accelerate the overall clinical development of the technology . in the 3 rd quarter of 2016 , following full un-blinding of the data , the company will be able to more fully evaluate the data including 48 week follow up , patient subset analyses , and the effect on knee cartilage as measured by magnetic resonance imaging results changes between baseline and 48 weeks . another therapeutic target under evaluation is stress urinary incontinence in men following radical prostatectomy , which is based on positive data reported in a peer reviewed journal . in july 2015 , a company-supported male stress urinary incontinence ( sui ) trial in japan for male prostatectomy patients ( after prostate surgery ) received approval to being enrolled from the japanese ministry of health , labor and welfare . the goal of this investigator-initiated trial is to gain regulatory approval in japan of our cytori cell therapy for this indication . 34 cytori cell therapy is also being developed for the treatment of thermal burns combined with radiation injury . in the third quarter of 2012 , we were awarded a contract to develop a new countermeasure for thermal burns valued at up to $ 106 million with the u.s. department of health and human service 's biomedical advanced research and development authority ( barda ) . the initial base period included $ 4.7 million over two years and covered preclinical research and continued development of cytori 's celution® system to improve cell processing . the additional contract options , if fully executed , could cover our clinical development through fda approval under a device-based pma regulatory pathway . the cost-plus-fixed-fee contract is valued at up to $ 106 million , with a guaranteed two-year base period of approximately $ 4.7 million . we submitted reports to barda in late 2013 detailing the completion of the objectives in the initial contract . an in-process review meeting in the first half of 2014 confirmed completion of the proof of concept phase . in august and december 2014 , barda awarded to us contract options of $ 14 million . the options allowed for continuation of research , regulatory , clinical , and other activities required for approval and completion of a pilot clinical trial using cytori cell therapy ( dcct-10 ) for the treatment of thermal burns combined with radiation injury . in august 2014 , we announced the execution of a contract option with barda to fund the continued investigation and development of cytori cell therapy for use in thermal burn injuries . the extension was valued at approximately $ 12.1 million . upon investigational device exemption ( ide ) approval by the fda , we anticipate that barda would provide funding to cover costs associated with execution of the clinical trial , currently estimated at approximately $ 8.3 million , bringing the combined value to up to $ 20.4 million . the execution of this option served to fund the remaining research and development activities required to enable a pilot clinical trial of cytori cell therapy in thermal burn . it also served to fund approximately two years of preclinical studies in other burn-related areas that could lead to broadening of the utility of cytori technology to burn centers and in wound healing more generally . our contract with barda contains two additional options to fund a pivotal clinical trial and additional work in thermal burn complicated by radiation exposure valued at up to $ 45 million and $ 23 million , respectively . the total award under the barda contract is intended to support all clinical , preclinical , regulatory , and technology development activities needed to complete the fda approval process for use in thermal burn injury under a device-based pma regulatory pathway . results of operations product revenues product revenues consisted of revenues primarily from our celution® system devices , consumables and stemsource® cell banks . the following table summarizes the components for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_3_th a majority of our product revenue in 2015 was derived from japan . with two new regenerative medicine laws in japan going into effect in november 2014 that removed regulatory uncertainties and provided a clear path for us to offer cytori cell therapy in japan , we expect continued demand from researchers at academic hospitals seeking to perform investigator-initiated and funded studies . 35 we experienced a decrease in product revenue during the year ended december 31 , 2015 as compared to the same period in 2014 , primarily due to decreased revenue in americas of $ 0.2 million and decreased revenue in japan of $ 0.7 million , offset by increased revenues in asia pacific of approximately $ 0.8 million . revenue deferred in the years ended december 31 , 2015 , 2014 , and 2013 was $ 0.1million , $ 1.4 million , and $ 3.6 million , respectively . the future : we expect to continue to generate a majority of product revenues from the sale of celution® system devices and consumables to researchers , clinicians , and distributors in emea , japan , asia pacific , and americas . in japan and emea , researchers will use the celution® system to construct ongoing and new investigator-initiated and funded studies focused on , but not limited to , hand scleroderma , crohn ' disease , peripheral artery disease , erectile dysfunction , and diabetic foot ulcer . story_separator_special_tag the aggregate value of the consideration paid by bimini at the execution of the agreement was $ 5.0 million . · on october 29 , 2013 , we entered into a partnership with lorem vascular , to commercialize cytori cell therapy ( oich-d3 ) for the cardiovascular , renal and diabetes markets , in china , hong kong , malaysia , singapore and australia ( the “ license/supply agreement ” ) , and a common stock purchase agreement . on january 30 , 2014 we entered into the amended and restated license/supply agreement with lorem vascular ( the “ restated agreement ” ) expanding the licensed field to all uses excepting alopecia ( hair loss ) . under the restated agreement , lorem vascular committed to pay up to $ 500 million in license fees in the form of revenue milestones . in addition , lorem is required to pay us 30 % of their gross profits in china , hong kong and malaysia for the term of the restated agreement . cytori cell therapy is derived from our celution® system , which enables access to a patient 's own adipose-derived regenerative cells ( adrcs ) at the point-of-care . in addition , lorem vascular agreed to purchase our celution® system and consumables under the restated agreement . pursuant to the related common stock purchase agreement , we received $ 24.0 million in exchange for 8.0 million shares of our common stock issued to lorem vascular at $ 3.00 per share . the equity purchased was closed in two equal installments , in november 2013 and january 2014 . · in may 2014 , we and 47 holders of warrants to purchase a total of 3,156,238 shares of our common stock issued in a private offering in may 2009 , agreed to extend the expiration date of the warrants from may 14 , 2014 to may 14 , 2015 and increase the exercise price of the warrants from $ 2.62 per share to $ 3.50 per share pursuant to an amendment to warrant to purchase common stock . one holder of warrants did not agree to the amendment , and their warrants , covering 38,500 shares of common stock , expired unexercised on may 14 , 2014 in accordance with the original terms . 42 · in may 2014 , we entered into subscription agreements with certain institutional investors pursuant to which we sold a total of 4,048,584 units , with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a purchase price of $ 2.47 per unit , in a registered direct offering . each warrant had an exercise price of $ 3.00 per share , was exercisable immediately after issuance and expires five years from the date of issuance . the transaction was completed on june 4 , 2014 raising approximately $ 10.0 million in gross proceeds before deducting any offering expenses or fees payable by us . under the terms of our placement agent agreement , we granted wbb securities , llc warrants to purchase 202,429 shares of common stock . the placement agent warrants have the same terms as the warrants issued to the purchasers in the offering , except that such warrants have an exercise price of $ 3.09 . · in september 2014 , we and 13 holders of warrants dated june 4 , 2014 to purchase a total of 4,032,389 shares of our common stock agreed to amend the warrants in order to reduce the exercise price from $ 3.00 per share to $ 1.00 per share and change the expiration date from june 4 , 2019 to september 10 , 2014. we received proceeds of approximately $ 4.1 million from the exercise of the warrants . in addition , pursuant to the terms of the amendment , upon each holder 's exercise of all warrants for cash prior to the amended expiration date , we issued additional warrants for the same number of common shares to the holders . the additional warrants have an exercise price of $ 2.00 per share , and are exercisable on the date that is six months and one day from the date of issuance and expire five years from the date of issuance . for those investors participating in the october 2014 issuance of series a 3.6 % convertible preferred stock , we agreed to reduce the exercise price of 3,384,601 warrants from $ 2.00 per share to $ 0.5771 per share , conditioned upon shareholder approval which was obtained in january 2015 . · in september 2014 , we entered into a 2 nd amendment to the loan agreement with the lenders pursuant to the amended loan agreement , under which we were provided a conditional waiver of principal payments subject to meeting certain capital raise requirements , which we achieved in october . the waiver of principal payments continues from november 1 , 2014 through april 1 , 2015 and thereafter we are required to make payments of principal and accrued interest in equal monthly installments of $ 1.0 million , sufficient to amortize the term loans through the maturity date . · in october , 2014 , we entered into a securities purchase agreement with certain institutional investors pursuant to which we sold a total of 13,500 units for a purchase price of $ 1,000 per unit , with each unit consisting of one share of our series a 3.6 % convertible preferred stock , which was convertible into shares of our common stock with a conversion price of $ 0.52 , and warrants to purchase up to a number of shares of common stock equal to 100 % of the conversion shares under the shares of preferred stock , in a registered direct offering . each warrant had an exercise price of $ 0.5771 per share , was exercisable six months after the date of issuance and expires five years from

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liquidity and capital resources short-term and long-term liquidity the following is a summary of our key liquidity measures at december 31 , 2015 and 2014 : replace_table_token_13_th we incurred net losses of $ 18,744,000 , $ 37,368,000 and $ 26,177,000 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we have an accumulated deficit of $ 357,017,000 as of december 31 , 2015. additionally , we have used net cash of $ 20,468,000 , $ 30,330,000 and $ 34,563,000 to fund our operating activities for years ended december 31 , 2015 , 2014 and 2013 , respectively . at december 31 , 2015 , we had $ 14.3 million of cash and had a joint venture purchase obligation of $ 1.8 million and our loan and security agreement contains cash liquidity requirements to maintain at least $ 5 million of cash on hand to avoid an event of default . the combination of these facts and the balance of cash and cash equivalents at december 31 , 2015 raises substantial doubt as to the company 's ability to continue as a going concern . to date , these operating losses have been funded primarily from outside sources of invested capital and gross profits . we have had , and we will likely continue to have , an ongoing need to raise additional cash from outside sources to fund our future operations . however , our ability to raise capital was adversely affected once fda put a hold on our athena trials in mid-2014 , which had an adverse impact to stock price performance and our corresponding ability to restructure our debt . more recently , a continued downward trend in our stock price resulting from general economic and industry conditions as well as the market 's unfavorable view of our recent equity financings ( which financings were priced at a discount to market and included 100 % warrant coverage ) and our nasdaq listing deficiency , have made it more difficult to procure additional capital on terms reasonably acceptable to us .

we finance our rmbs with leverage , the amount of which will vary from time to time depending on the particular characteristics of our portfolio , the availability of financing and market conditions . we do not have a targeted leverage ratio for our rmbs . our borrowings for rmbs consist of short-term borrowings under master repurchase agreements . we have also invested in agency cmos consisting of ios as well as risk-sharing securities issued by fannie mae and freddie mac . subject to maintaining our qualification as a reit , we utilize derivative financial instruments ( or hedging instruments ) to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates . in utilizing leverage and interest rate hedges , our objectives include , where desirable , locking in , on a long-term basis , a spread between the yield on our assets and the cost of our financing in an effort to improve returns to our stockholders . we also operate our business in a manner that permits us to maintain our exclusion from registration as an investment company under the investment company act . 37 on march 29 , 2017 , we issued and sold 5,175,000 shares of common stock , par value $ 0.01 per share , raising approximately $ 81.1 million after underwriting discounts and commissions but before expenses of approximately $ 229,000. all of the net proceeds were used to invest in rmbs . on august 17 , 2017 , we issued and sold 2,400,000 shares of our series a preferred stock , raising approximately $ 58.1 million after underwriting discounts and commissions before expenses of approximately $ 193,000. all of the net proceeds from the series a preferred stock offering were also invested in rmbs . the company anticipates that a significant portion of the paydowns from these rmbs , together with , to the extent necessary to fund the purchase price of msrs , sales proceeds from certain of those rmbs will be deployed into the acquisition of msrs . this has caused a significant change in the composition of our investment portfolio which will likely persist until significant funds can be deployed into the acquisition of msrs . factors impacting our operating results our income is generated primarily by the net spread between the income we earn on our assets and the cost of our financing and hedging activities as well as the amortization of any purchase premiums or the accretion of discounts . our net income includes the actual interest payments we receive on our rmbs , the net servicing fees we receive on our msrs and the accretion/amortization of any purchase discounts/premiums . changes in various factors such as market interest rates , prepayment speeds , estimated future cash flows , servicing costs and credit quality could affect the amount of premium to be amortized or discount to be accreted into interest income for a given period . prepayment speeds vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . our operating results may also be affected by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers whose mortgage loans underlay the msrs held by aurora . set forth below is the positive gross spread between the yield on rmbs and our costs of funding those assets at the end of each of the quarters indicated below : average net yield spread at period end replace_table_token_6_th the average cost of funds also includes the benefits of related swaps . changes in the market value of our assets we hold our servicing related assets as long-term investments . our excess msrs were , and our msrs are , carried at their fair value with changes in their fair value recorded in other income or loss in our consolidated statements of income . those values may be affected by events or headlines that are outside of our control , such as brexit , other events impacting the u.s. or global economy generally or the u.s. residential market specifically , and events or headlines impacting the parties with which we do business . see “item 1a . risk factors – risks related to our business.” 38 our rmbs are carried at their fair value , as available-for-sale in accordance with asc 320 , investments – debt and equity securities , with changes in fair value recorded through accumulated other comprehensive income ( loss ) , a component of stockholders ' equity . as a result , we do not expect that changes in the market value of our rmbs will normally impact our operating results , but such changes will affect our book value . however , at least on a quarterly basis , we assess both our ability and intent to continue to hold our rmbs as long-term investments . as part of this process , we monitor our rmbs for other-than-temporary impairment . a change in our ability and or intent to continue to hold any of our rmbs could result in our recognizing an impairment charge or realizing losses while holding these assets . impact of changes in market interest rates on our assets the value of our assets may be affected by prepayment rates on mortgage loans . prepayment speed is the measurement of how quickly borrowers pay down the upb of their loans or how quickly loans are otherwise liquidated or charged off . generally , in a declining interest rate environment , prepayment speeds tend to increase . conversely , in an increasing interest rate environment , prepayment speeds tend to decrease . story_separator_special_tag investments in msrs the company has elected the fair value option to record its investments in msrs in order to provide users of our consolidated financial statements with better information regarding the effects of prepayment risk and other market factors on the msrs . under this election , the company records a valuation adjustment on its investments in msrs on a quarterly basis to recognize the changes in fair value in net income as described 42 below . the company 's msrs represent the right to service mortgage loans . as an owner and manager of msrs , the company may be obligated to fund advances of principal and interest payments due to third-party owners of the loans , but not yet received from the individual borrowers . these advances are reported as servicing advances within the “receivables and other assets” line item on the consolidated balance sheets . although transactions in msrs are observable in the marketplace , the valuation includes unobservable market data inputs ( prepayment speeds , delinquency levels , costs to service and discount rates ) . changes in the fair value of msrs as well as servicing fee income and servicing expenses are reported on the consolidated statements of income . in determining the valuation of msrs , management uses internally developed models that are primarily based on observable market-based inputs but which also include unobservable market data inputs . for additional information on our fair value methodology , see “item 8. consolidated financial statements and supplementary data–note 9. fair value.” revenue recognition on investments in msrs mortgage servicing fee income represents revenue earned for servicing mortgage loans . the servicing fees are based on a contractual percentage of the outstanding principal balance and are recognized as revenue as the related mortgage payments are collected . corresponding costs to service are charged to expense as incurred . approximately $ 5.9 million and $ 1.5 million in reimbursable servicing advances were receivable at december 31 , 2017 and december 31 , 2016 , respectively , and have been classified within “receivables and other assets” on the consolidated balance sheets . servicing fee income received and servicing expenses incurred are reported on the consolidated statements of comprehensive income . the difference between the fair value of msrs and their amortized cost basis is recorded on the consolidated statements of income as “unrealized gain ( loss ) on investments in msrs.” fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the msrs and , therefore , may differ from their effective yields . revenue recognition on securities interest income from coupon payments is accrued based on the outstanding principal amount of the rmbs and their contractual terms . premiums and discounts associated with the purchase of the rmbs are amortized into interest income over the projected lives of the securities using the effective interest method . our policy for estimating prepayment speeds for calculating the effective yield is to evaluate historical performance , consensus prepayment speeds , and current market conditions . adjustments are made for actual prepayment activity . repurchase transactions we finance the acquisition of our rmbs for our portfolio through repurchase transactions under master repurchase agreements . repurchase transactions are treated as collateralized financing transactions and are carried at their contractual amounts as specified in the respective transactions . accrued interest payable is included in “accrued expenses and other liabilities” on the consolidated balance sheets . securities financed through repurchase transactions remain on our consolidated balance sheet as an asset and cash received from the purchaser is recorded on our consolidated balance sheet as a liability . interest paid in accordance with repurchase transactions is recorded in interest expense on the consolidated statements of income . income taxes the company elected to be taxed as a reit under the code commencing with its short taxable year ended december 31 , 2013. the company expects to continue to qualify to be treated as a reit . as long as the company qualifies as a reit , the company generally will not be subject to u.s. federal income taxes on its taxable income to the extent it annually distributes at least 90 % of its reit taxable income to stockholders and does not engage in prohibited transactions . the company 's subsidiary trs , solutions and its wholly-owned subsidiary , aurora , are subject to u.s. federal income taxes on their taxable income . the company accounts for income taxes in accordance with asc 740 , income taxes . asc 740 requires the recording of deferred income taxes that reflect the net tax effect of temporary differences between the carrying amounts of the company 's assets and liabilities for financial reporting purposes and the amounts used for income tax purposes , including operating loss carry forwards . deferred tax assets and liabilities are measured using 43 enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date . the company assesses its tax positions for all open tax years and determines if it has any material unrecognized liabilities in accordance with asc 740. the company records these liabilities to the extent it deems them more-likely-than-not to be incurred . the company records interest and penalties related to income taxes within the provision for income taxes in the consolidated statements of income . the company has not incurred any interest or penalties . emerging growth company status on april 5 , 2012 , the jobs act was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . because we qualify as an “emerging growth company , ” we

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cash flows operating and investing activities our operating activities provided cash of approximately $ 40.2 million and our investing activities used cash of approximately $ 1,224.5 million for the year ended december 31 , 2017. the cash used investing activities resulted from the two equity offerings that we completed in 2017 as well as the execution of our ongoing investment strategy . dividends we conduct our operations in a manner intended to satisfy the requirements for qualification as a reit for u.s. federal income tax purposes . u.s. federal income tax law generally requires that a reit distribute annually at least 90 % of its reit taxable income , without regard to the deduction for dividends paid and excluding net capital gains , and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100 % of its taxable income . we intend to make regular quarterly distributions of all or substantially all of our reit taxable income to holders of our common and preferred stock out of assets legally available for this purpose , if and to the extent authorized by our board of directors . before we pay any dividend , whether for u.s. federal income tax purposes or otherwise , we must first meet both our operating requirements and debt service on our repurchase agreements and other debt payable . if our cash available for distribution is less than our reit taxable income , we could be required to sell assets or borrow funds to make cash distributions , or , with respect to our common stock , we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities . we will make distributions only upon the authorization of our board of directors .

our global designer lifestyle brands , tommy hilfiger and calvin klein , together generated over 75 % of our revenue . results of operations operations overview we generate net sales from ( i ) the wholesale distribution to retailers , franchisees , licensees and distributors of men 's dress shirts , neckwear and underwear , jeanswear , sportswear , intimate apparel , swim products , footwear , accessories and related products under owned and licensed trademarks , and ( ii ) the sale through ( a ) over 1,500 company-operated free-standing retail store locations worldwide under our calvin klein , tommy hilfiger , van heusen and izod trademarks , ( b ) over 1,100 company-operated concessions/shop-in-shops worldwide under our calvin klein and tommy hilfiger trademarks , and ( c ) e-commerce websites in certain regions under our calvin klein and tommy hilfiger trademarks , of apparel , footwear , accessories and other products , and speedo 's own e-commerce website in north america of swimwear and related products . we also operated g.h . bass & co . stores through the end of the third quarter of 2013 , at which time we sold substantially all of the assets of our bass business . we generate royalty , advertising and other revenue from fees for licensing the use of our trademarks . as noted above , a substantial portion of our calvin klein licensing revenue was generated from warnaco prior to the acquisition and , therefore , our royalty , advertising and other revenue decreased significantly in 2013 as compared to 2012. in addition , the loss of such licensing revenue had a negative impact on our gross margin and operating margin as compared to 2012 , as licensing revenue carries no cost of goods sold . we recorded pre-tax charges during 2014 , 2013 and 2012 principally in connection with the warnaco acquisition , integration and restructuring that totaled $ 139 million , $ 471 million and $ 46 million , respectively . the amounts incurred in 2013 included noncash charges of approximately $ 175 million , principally related to short-lived valuation adjustments and amortization . we also recorded pre-tax debt modification and extinguishment charges in 2014 and 2013 that totaled $ 93 million and $ 40 million , respectively . we recorded a net gain of $ 8 million in 2014 resulting from the deconsolidation of certain calvin klein subsidiaries in australia and new zealand and our previously consolidated calvin klein joint venture in india ( please see footnote 5 , “ investments in unconsolidated affiliates ” and footnote 6 , “ redeemable non-controlling interest ” in the notes to consolidated financial statements included in item 8 of this report for a further discussion ) . we expect to incur additional pre-tax charges of approximately $ 50 million during 2015 in connection with the warnaco integration and related restructuring . our future results of operations will continue to be significantly impacted by the warnaco acquisition , particularly through the operations of the calvin klein business and through the changes in our capital structure that were necessary to complete the acquisition , as more fully discussed below . in january 2015 , we announced the closure of our izod retail business , with the closing expected to be completed by the end of 2015. in connection with the closure , we recorded pre-tax charges of $ 21 million in 2014 , including $ 18 million of noncash impairment charges . we expect to incur additional pre-tax charges of approximately $ 20 million during 2015 in connection with the closure of our izod retail business . 31 on november 4 , 2013 , we sold substantially all of the assets of our bass business and recorded a net pre-tax loss of $ 20 million during 2013 in connection with the sale . please see the section entitled “ sale of bass ” within “ liquidity and capital resources ” below for a further discussion . we acquired tommy hilfiger in the second quarter of 2010. we incurred pre-tax charges of $ 21 million during 2012 in connection with the integration of tommy hilfiger and the related restructuring . our calvin klein and tommy hilfiger businesses each have substantial international components , which expose us to foreign exchange risk . amounts recorded in local foreign currencies are translated back to united states dollars using an average exchange rate over the representative period . our international revenue and profit is unfavorably impacted during times of a strengthening united states dollar and favorably impacted during times of a weakening united states dollar . the united states dollar has strengthened recently against certain major currencies , particularly the euro , which is our largest foreign currency exposure . in 2014 , approximately 45 % of our revenue was subject to foreign currency translation , the majority of which relates to our operations in europe , resulting in a negative impact on our 2014 results of operations as more fully discussed below . we currently expect the strength of the united states dollar and resulting unfavorable impact on our revenue and earnings to continue into 2015 as more fully discussed below . our calculations of the comparable store sales percentages throughout this discussion are based on local currencies and comparable weeks and , therefore , exclude an extra week in 2012 , as our 2012 fiscal year included 53 weeks of operations . the following table summarizes our income statements in 2014 , 2013 and 2012 : replace_table_token_1_th total revenue net sales our net sales were $ 7.849 billion in 2014 , $ 7.806 billion in 2013 and $ 5.541 billion in 2012. the net sales increase of $ 43 million in 2014 as compared to 2013 was due principally to the effect of the following items : the aggregate addition of $ 141 million in net sales attributable to growth in our tommy hilfiger north america and tommy hilfiger international segments . story_separator_special_tag we expect that these decreases in our sg & a expenses as a percentage of revenue will be 35 partially offset by the impact of expected faster growth in our higher-expense calvin klein and tommy hilfiger businesses than in our lower-expense heritage brands business . our actual sg & a expense may be significantly different than our projections because of expense associated with our retirement plans . retirement plan expense recorded throughout the year is calculated using actuarial valuations that incorporate assumptions and estimates about financial market , economic and demographic conditions . differences between estimated and actual results give rise to gains and losses that are recorded immediately in earnings , generally in the fourth quarter of the year , which can create volatility in our operating results . debt modification and extinguishment costs we incurred costs totaling $ 93 million in 2014 in connection with the amendment and restatement of our senior secured credit facilities and the related redemption of our 7 3/8 % senior notes due 2020. please refer to the section entitled “ liquidity and capital resources ” below for a further discussion . we incurred costs totaling $ 40 million in 2013 related to the modification and extinguishment of previously outstanding term loans and the replacement of such term loans with the senior secured credit facilities entered into in 2013 in connection with the warnaco acquisition . please refer to the section entitled “ liquidity and capital resources ” below for a further discussion . equity in income of unconsolidated affiliates , net the equity in income of unconsolidated affiliates , net during 2014 was $ 10 million , as compared to $ 8 million during 2013 and $ 5 million during 2012. these amounts relate to our share of income from our joint ventures for the tommy hilfiger brand in china , india and brazil , for the calvin klein brand in india and australia , and for the karl lagerfeld brand . our investments in these joint ventures are being accounted for under the equity method of accounting . please refer to the section entitled “ investments in unconsolidated affiliates ” within “ liquidity and capital resources ” below for a further discussion of our investments in these joint ventures . interest expense , net net interest expense decreased to $ 139 million in 2014 from $ 185 million in 2013 due to lower average debt balances and interest rates as compared to the prior year , combined with the effect of the amendment and restatement of our senior secured credit facilities and the related redemption of our 7 3/8 % senior notes due 2020 in the first quarter of 2014. please see the section entitled “ financing arrangements ” within “ liquidity and capital resources ” below for a further discussion . net interest expense increased to $ 185 million in 2013 from $ 117 million in 2012 due principally to increased debt balances in 2013 incurred to finance the warnaco acquisition . please refer to the section entitled “ financing arrangements ” within “ liquidity and capital resources ” below for a further discussion . net interest expense for 2015 is currently expected to decrease to approximately $ 120 million to $ 125 million from $ 139 million in 2014 as anticipated debt payments of at least $ 425 million in 2015 and the full year impact of payments made in 2014 are expected to result in a decrease to net interest expense as compared to 2014. income taxes income tax expense was as follows : replace_table_token_4_th the effective income tax rate for 2014 was ( 12.1 ) % compared with 56.4 % in 2013 and 20.1 % in 2012. the volatility in our effective income tax rate in the last three years is due in large part to uncertain tax positions which provided a benefit in 2014 and an expense in 2013. the effective income tax rate in 2014 was a benefit to income principally due to the effects of lower tax rates in international jurisdictions where we file tax returns , and a reduction of $ 94 million in our estimate for uncertain tax positions , 36 which provided a 24 % benefit to our tax rate . this benefit resulted from the favorable resolutions of uncertain tax positions in certain international jurisdictions , as well as the expiration of the statute of limitations related to other uncertain tax positions . the effective tax rate in 2013 was higher than the united states statutory tax rate principally due to the recognition of $ 145 million of tax expense related to changes in estimates for uncertain tax positions , which increased the 2013 effective tax rate by 44 % . the majority of this expense relates to an increase to our previously established liability for an uncertain tax position related to european and united states transfer pricing arrangements . also contributing to the higher tax rate in 2013 was an expense related to valuation allowances recorded on deferred tax assets from our business in japan , and also on certain domestic state and local deferred tax assets . partially offsetting these increases was the impact of warnaco integration and restructuring expenses in 2013 , the majority of which were incurred in the united states , which lowered our domestic taxable income in relation to taxable income in lower tax international jurisdictions . the effective tax rate in 2012 was lower than the united states statutory tax rate primarily due to the benefit of lower tax rates in international jurisdictions where we file tax returns , partially offset by non-deductible acquisition expenses incurred in 2012 in connection with the warnaco acquisition . we currently expect our effective tax rate in 2015 to be lower than the united states statutory rate due principally to the benefit of overall lower tax rates in international jurisdictions where we file tax returns . our tax rate is affected by many factors , including the mix

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cash flow summary cash and cash equivalents at february 1 , 2015 was $ 479 million , a reduction of $ 114 million from the amount at february 2 , 2014 of $ 593 million . this reduction included $ 425 million of debt repayments . cash and cash equivalents at february 1 , 2015 excluded a restricted cash balance of $ 20 million , which was placed into an escrow account prior to year end to contribute funding to our joint venture in australia in the first quarter of 2015. cash flow in 2015 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including the amount of debt repayments we make in 2015. as of february 1 , 2015 , approximately $ 389 million of cash and cash equivalents was held by international subsidiaries whose undistributed earnings are considered permanently reinvested . our intent is to continue to reinvest these funds in international operations . if management decides at a later date to repatriate these funds to the united states , we would be required to pay taxes on these amounts based on applicable united states tax rates , net of foreign taxes already paid . operations cash provided by operating activities was $ 789 million in 2014 as compared with $ 412 million in 2013. the increase in cash provided by operating activities as compared to the prior year was primarily driven by an increase in net income , as adjusted for noncash charges in the current year period and a $ 57 million reduction in pension contributions .

the $ 11.9 million is recorded in other liabilities at october 31 , 2016. we have paid quarterly dividends to our shareholders continuously since our founding in 1969 and have increased the level of dividend payments to our shareholders for 22 consecutive years . we derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to long-term leases and focus our investment activities on community and neighborhood shopping centers , anchored principally by regional supermarket chains . we believe that because consumers need to purchase food and other types of staple goods and services generally available at supermarket-anchored shopping centers , the nature of our investments provides for relatively stable revenue flows even during difficult economic times . we have a conservative capital structure and do not have any secured debt maturing until october 2017 , for which we have entered into a commitment to refinance in july 2017. see `` significant financings and debt transactions in fiscal 2016 `` below in this item 7. we focus on increasing cash flow , and consequently the value of our properties , and seek continued growth through strategic re-leasing , renovations and expansions of our existing properties and selective acquisitions of income-producing properties . key elements of our growth strategies and operating policies are to : · acquire quality neighborhood and community shopping centers in the northeastern part of the united states with a concentration on properties in the metropolitan new york tri-state area outside of the city of new york , and unlock further value in these properties with selective enhancements to both the property and tenant mix , as well as improvements to management and leasing fundamentals ; · selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria ; · invest in our properties for the long term through regular maintenance , periodic renovations and capital improvements , enhancing their attractiveness to tenants and customers , as well as increasing their value ; · leverage opportunities to increase gla at existing properties , through development of pad sites and reconfiguring of existing square footage , to meet the needs of existing or new tenants ; · proactively manage our leasing strategy by aggressively marketing available gla , renewing existing leases with strong tenants , and replacing weak ones when necessary , with an eye towards securing leases that include regular or fixed contractual increases to minimum rents , replacing below-market-rent leases with increased market rents when possible and further improving the quality of our tenant mix at our shopping centers ; · maintain strong working relationships with our tenants , particularly our anchor tenants ; · maintain a conservative capital structure with low leverage levels ; and · control property operating and administrative costs . 16 highlights of fiscal 2016 ; recent developments set forth below are highlights of our acquisitions , other investments , dispositions and financings during fiscal 2016 : · in july 2016 , we purchased , for $ 45.3 million , the 72,000 square foot newfield green shopping center located in stamford , ct. · in july 2016 , we completed a follow-on class a common stock offering , raising proceeds of $ 73.7 million , of which we used $ 60.1 million to repay borrowings on our unsecured revolving credit facility ( the `` facility `` ) . · in july 2016 , we entered into a commitment to refinance our $ 44 million mortgage secured by our ridgeway shopping center in stamford , ct on july 17 , 2017 , the first day the current ridgeway mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 50 million and will have a term of ten years and will require payment of principal and interest at the rate of libor plus 1.9 % . concurrent with entering into the commitment , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.398 % per annum . · in august 2016 , we refinanced our existing facility , increasing the capacity to $ 100 million from $ 80 million , with the ability under certain conditions to additionally increase the capacity to $ 150 million . · in september 2016 , we refinanced our $ 7.2 million mortgage secured by two greenwich , ct. properties with the existing lender . the new mortgage principal balance will be $ 11 million and have a term of ten years and will require payments of principal and interest at the rate of libor plus 2.0 % . concurrent with entering into the mortgage , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.475 % per annum . · in october 2016 , we purchased , for $ 13.3 million , the 27,000 square foot 970 high ridge road shopping center located in stamford , ct. · in october 2016 , we originated a loan in the amount of $ 13.5 million , bearing interest at one-month libor plus 3.25 % per annum , secured by a first mortgage on a shopping center located in rockland county , ny , and maturing october 10 , 2017. known trends ; outlook we believe that shopping center reits face opportunities and challenges that are both common to and unique from other reits and real estate companies . as a reit , we are susceptible to changes in interest rates , the lending environment , the availability of capital markets and the general economy . for example , some experts are predicting an increased interest rate environment , which could negatively impact the attractiveness of reit stock to investors and our borrowing activities . story_separator_special_tag the company 's ability to borrow under the facility is subject to its compliance with the covenants and other restrictions on an ongoing basis . the principal financial covenants limit the company 's level of secured and unsecured indebtedness and additionally require the company to maintain certain debt coverage ratios . the company was in compliance with such covenants at october 31 , 2016 . · during the fiscal years ended october 31 , 2016 and 2015 , we borrowed $ 52 million and $ 104.8 million , respectively , on our facility to fund a portion of the equity for property acquisitions and capital improvements to our properties . during the fiscal years ended october 31 , 2016 and 2015 , we re-paid $ 66.8 million and $ 97.6 million , respectively , on our facility with proceeds from a combination of non-recourse mortgage financings , secured mortgage financings and available cash . · in september 2016 , we refinanced our $ 7.2 million mortgage secured by two properties with the existing lender . the new mortgage has a principal balance of $ 11 million , a term of ten years and requires payments of principal and interest at the rate of libor plus 2.0 % . concurrent with entering into the mortgage , we also entered into an interest rate swap contract which converts the variable interest rate ( based on libor ) to a fixed rate of 3.475 % per annum . · in july 2016 , we entered into a commitment to refinance our $ 44 million mortgage secured by our ridgeway shopping center in stamford , ct on july 17 , 2017 , the first day the current ridgeway mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 50 million , have a term of ten years and require payment of principal and interest at the rate of libor plus 1.9 % . concurrent with entering into the commitment , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.398 % per annum . · in july 2016 , we placed a $ 22.7 million mortgage secured by our newly acquired newfield green shopping center located in stamford , ct. the new mortgage has a term of fifteen years and requires payments of principal and interest at the fixed rate of 3.89 % per annum . · in july 2016 , we sold 2,750,000 shares of class a common stock in an underwritten follow-on common stock offering for $ 23.29 per share and raised net proceeds of $ 64.1 million . in august 2016 , the underwriters exercised their over-allotment option and purchased an additional 412,500 shares of class a common stock that raised additional net proceeds of $ 9.6 million . · in may 2016 , we repaid a $ 7.5 million mortgage that was secured by our bloomfield , nj property . 19 net cash flows from operating activities increase from fiscal 2015 to fiscal 2016 : the increase was primarily due to an increase in operating income at various properties in fiscal 2016 when compared with fiscal 2015 , resulting from new leasing completed in fiscal 2015 and fiscal 2016 and $ 4.8 million in extension fees collected from the entity under contract to purchase our white plains property . in addition , the increase was further aided by an increase in the collection of tenant receivables in fiscal 2016 when compared with fiscal 2015. increase from fiscal 2014 to fiscal 2015 : the increase was due primarily to an increase in the operating income generated by our properties in the year ended october 31 , 2015 versus fiscal 2014 offset by an increase in receivable and other assets and other liabilities . net cash flows from investing activities decrease in cash used from fiscal 2015 to fiscal 2016 : the decrease in cash flows used in investing activities in fiscal 2016 when compared to the prior fiscal year was the result of the purchase of two properties totaling $ 58.6 million is fiscal 2016 versus purchasing six properties totaling $ 138.5 million in fiscal 2015 , offset by the company receiving $ 42.9 million in fiscal 2015 in proceeds from the sale of the meriden property . in addition , we initiated a first mortgage loan in the amount of $ 13.5 million in fiscal 2016. increase in cash used from fiscal 2014 to fiscal 2015 : the increase in cash flows used in investing activities in fiscal 2015 when compared to the prior fiscal year was the result of the purchase of six properties totaling $ 138.5 million in fiscal 2015 , versus purchasing eight properties in fiscal 2014 totaling $ 81.7 million . we regularly make capital investments in our properties for property improvements , tenant improvements costs and leasing commissions . net cash flows from financing activities cash generated : fiscal 2016 : ( total $ 159.5 million ) · proceeds from issuance of class a common stock in the amount of $ 73.7 million . · proceeds from revolving credit line borrowings in the amount of $ 52.0 million . · proceeds from mortgage financings in the amount of $ 34.7 million . fiscal 2015 : ( total $ 237.6 million ) · proceeds from mortgage financings in the amount of $ 68.2 million . · proceeds from revolving credit line borrowings in the amount of $ 104.8 million . · proceeds from the issuance of series g preferred stock in the amount of $ 4.6 million . · proceeds from the issuance of class a common stock in the amount of $ 59.8 million . fiscal 2014 : ( total $ 198.8 million ) · proceeds from revolving credit line borrowings of $ 65.1 million . · proceeds from unsecured term loan borrowing of $ 25 million . · proceeds from

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cash used : fiscal 2016 : ( total $ 138.9 million ) · dividends to shareholders in the amount of $ 51.4 million . · repayment of mortgage notes payable in the amount of $ 21.7 million . · repayment of revolving credit line borrowings in the amount of $ 66.8 million . fiscal 2015 : ( total $ 250.1 million ) · dividends to shareholders in the amount of $ 50.0 million . · repayment of mortgage notes payable in the amount of $ 12.9 million . · repayment of revolving credit line borrowings in the amount of $ 97.6 million . · repayment of the unsecured term loan in the amount of $ 25 million . · redemption of preferred stock in the amount of $ 61.3 million . · repurchase of class a common stock in the amount of $ 3.4 million . fiscal 2014 : ( total $ 125.0 million ) · dividends to shareholders in the amount of $ 45.9 million . · repayments of mortgage notes payable in the amount of $ 20.3 million . · repayments of revolving credit line borrowings in the amount of $ 58.8 million . 20 results of operations fiscal 2016 vs. fiscal 2015 the following information summarizes our results of operations for the years ended october 31 , 2016 and 2015 ( amounts in thousands ) : replace_table_token_8_th note 1 – properties held in both periods includes only properties owned for the entire periods of 2016 and 2015 including the company 's white plains property ( see executive summary above ) . all other properties are included in the property acquisition/sales column . there are no properties excluded from the analysis .

in august 2015 , we completed the redesign and upgrade of the existing monarch casino black hawk , bringing to the facility 's interior the same quality , ambiance and finishes of the ongoing master planned expansion that will transform monarch casino black hawk into a full-scale casino resort . in november 2016 , we opened for guest use our elegant nine-story parking facility with about 1,350 spaces . construction of a new hotel tower and casino expansion on the site where the old parking structure was sitting is under way . ( see capital spending and development – monarch black hawk expansion plan ) . once completed , the monarch black hawk expansion plan will nearly double the casino space and will add a 23-story hotel tower with approximately 500 guest rooms and suites , an upscale spa and pool facility , three additional restaurants ( increasing the total to four ) , additional bars and associated support facilities . we currently expect the new expanded casino , hotel tower , restaurants and retail areas to be completed in the third quarter of 2019 and the upgraded amenities in the existing casino to be completed in the fourth quarter of 2019 . 32 results of operations comparison of operating results for the years ended december 31 , 2018 and 2017 for the year ended december 31 , 2018 , our net income totaled $ 34.1 million , or $ 1.83 per diluted share , compared to net income of $ 25.5 million , or $ 1.39 per diluted share for the same period of 2017 , reflecting a 33.5 % increase in net income and 31.7 % in diluted earnings per share . net revenue for the years ended december 31 , 2018 and 2017 was $ 240.3 million and $ 230.7 million , respectively , reflecting an increase of $ 9.6 million , or 4.2 % . income from operations for the year ended december 31 , 2018 totaled $ 42.8 million compared to $ 40.7 million for the same period in 2017 , representing an increase of $ 2.2 million , or 5.3 % . casino revenue decreased 29.5 % in the year ended december 31 , 2018 compared to the same period of 2017 due to the adoption of the new revenue standard , which resulted in a reduction of $ 59.5 million in casino revenues due to certain reclassifications . under the prior revenue standard , casino revenue increased 3.8 % . casino revenue growth was suppressed by a low table games hold in the second and third quarters of 2018. casino operating expense as a percentage of casino revenue decreased to 34.8 % for the year ended december 31 , 2018 , compared to 40.9 % in 2017 due to the new revenue standard , partially offset by the low table games revenue and an increase in small equipment expense . food and beverage revenue increased 12.3 % in the year ended december 31 , 2018 over the same period in 2017 , due to an 11.0 % increase in average revenue per cover and a 1.2 % increase in covers served . food and beverage revenue per covers was affected by the changes in the comp beverage prices as a result of the new revenue standard . food and beverage operating expense as a percentage of food and beverage revenue in the year ended december 31 , 2018 was 75.8 % compared to 40.6 % over the same period in 2017. the increase in expense margin was a result of the adoption of the new revenue standard . calculated based on the prior revenue standards , food and beverage operating expense as a percentage of food and beverage revenue decreased as a result of product cost efficiency , partially offset by a labor cost increase . hotel revenue increased 23.1 % due to a higher adr of $ 104.61 for the year ended december 31 , 2018 compared to $ 81.46 in 2017. the increase in adr is primarily due to changing the complimentaries adr from a discounted value in 2017 to the retail value in 2018. hotel occupancy of 89.3 % in 2018 was slightly lower compared to 89.4 % in 2017. revpar was $ 101.40 and $ 82.40 for the years ended december 31 , 2018 and 2017 , respectively . hotel operating expense as a percent of hotel revenue for the year ended december 31 , 2018 was 42.8 % compared to 37.6 % for the same period in 2017. the increase in the hotel expense margin was due to the adoption of the new revenue standard , as well as increase in labor cost . other revenue increased 2.4 % in 2018 compared to 2017 driven primarily by increased atlantis arcade revenue , retail revenue and spa and salon revenues . as a result of the adoption of the new revenue standard ( see note 2. revenue recognition ) , $ 50.8 million was eliminated from promotional allowances and reclassified to revenue categories in the year ended december 31 , 2018. promotional allowances as a percentage of gross revenues under the prior revenue standard increased slightly to 17.5 % for the year ended december 31 , 2018 compared to 17.4 % for the year ended december 31 , 2017. this increase was due to higher promotional expenses at monarch casino black hawk during a slot system switch in the fourth quarter of 2018. selling , general and administrative expense ( “ sg & a expense ” ) increased to $ 65.8 million in the year ended december 31 , 2018 from $ 62.7 million in the same period of 2017 due to : i ) a $ 2.0 million increase in salaries , wages and related employee benefits expense ; ii ) a $ 0.6 million increase in utility expense ; iii ) a $ 0.4 million increase in professional legal fees ; and iv ) a $ 0.1 story_separator_special_tag 38 ( 3 ) purchase obligations represent approximately $ 21.4 million of commitments related to capital projects and approximately $ 8.2 million of materials and supplies used in the normal operation of our business . of the total purchase order and construction commitments , approximately $ 29.6 million are cancelable by us upon providing a 30-day notice . ( 4 ) the amount represents outstanding draws against the amended credit facility as of december 31 , 2018. as described in the “ capital spending and development ” section above , we have commenced a substantial expansion of our monarch casino black hawk facility starting in 2014. while we have disclosed the estimated cost of that expansion , we have not entered into contracts for substantial portions of the work . for this reason , we have included in the table above only the amounts for which we have contractual commitments . at december 31 , 2018 , we estimate that the remaining cost to complete the monarch black hawk expansion is between $ 129 million and $ 136 million . critical accounting policies and estimates we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) . certain of our policies , including the estimated useful lives assigned to our assets , the determination of the allowance for doubtful accounts and allowance for unredeemed gift certificates , self-insurance reserves , the calculation of income tax liabilities and the calculation of stock-based compensation , require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . our judgments are based on historical experience , terms of existing contracts , observation of trends in the industry , information provided by customers and information available from other outside sources , as appropriate . there can be no assurance that actual results will not differ from our estimates . to provide an understanding of the methodologies applied , our significant accounting policies are discussed where appropriate in this discussion and analysis and in the notes to consolidated financial statements . the consolidated financial statements include the accounts of monarch and its subsidiaries . intercompany balances and transactions are eliminated . allowance for doubtful accounts we extend short-term credit to our gaming customers . such credit is non-interest bearing and is due on demand . in addition , we also have receivables due from hotel guests which are primarily secured with a credit card at the time a customer makes reservation or checks in . an allowance for doubtful accounts is established for all of our receivables based upon our historical collection and write-off experience , unless situations warrant a specific identification of a necessary reserve related to certain receivables . we write off our uncollectible receivables once all efforts have been made to collect such receivables . the book value of receivables approximates fair value due to the short-term nature of the receivables . self-insurance reserves we are currently self-insured up to certain stop loss amounts for atlantis workers ' compensation and certain medical benefit costs provided to all of our employees . as required by the state of colorado , we are fully insured for monarch casino black hawk workers ' compensation costs . we review self-insurance reserves at least quarterly . the reserve is determined by reviewing the actual expenditures for the previous twelve-month period and reports prepared by the third party plan administrator for any significant unpaid claims . we engage third party actuaries at least once per year for a more precise reserves review and calculation . the reserve is an amount estimated to pay both reported and unreported claims as of the balance sheet date . we believe changes in medical costs , trends in claims of our employee base , accident frequency and severity and other factors could materially affect the estimate for this reserve . unforeseen developments in existing claims , or the possibility that our estimate of unreported claims differs materially from the actual amount of unreported claims , could result in the over or under estimation of our self-insurance reserve . 39 capitalized interest we capitalize interest costs associated with debt incurred in connection with major construction projects . when no debt is specifically identified as being incurred in connection with a construction project , we capitalize interest on amounts expended on the project at our average borrowing cost . interest capitalization is ceased when the project is substantially complete . we capitalized interest in the amount of $ 2.3 million during the year ended december 31 , 2018 and $ 0.5 million during each of the years ended december 31 , 2017 and 2016. casino revenues casino revenues represent the net win from gaming activity , which is the difference between the amounts won and lost , which represents the transaction price . jackpots , other than the incremental amount of progressive jackpots , are recognized at the time they are won by customers . funds deposited by customers in advance and outstanding chips and slot tickets in the customers ' possession are recognized as a liability until such amounts are redeemed or used in gaming play by the customer . additionally , net win is reduced by the performance obligations for the players ' club program , progressive jackpots and any pre-arranged marker discounts . progressive jackpot provisions are recognized in two components : 1 ) as wagers are made for the share of players ' wagers that are contributed to the progressive jackpot award , and 2 ) as jackpots are won for the portion of the progressive jackpot award contributed by us . cash discounts and other cash incentives to guests related to gaming play are recorded as a reduction to gaming revenue . income taxes income taxes are recorded in accordance with the liability method pursuant to authoritative guidance .

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liquidity and capital resources our principal sources of liquidity are cash provided by operations and , for capital expansion projects , borrowings available under our amended credit facility . operating activities for the year ended december 31 , 2018 , net cash provided by operating activities totaled $ 58.8 million , an increase of approximately $ 9.3 million , or 18.8 % , compared to the same period of the prior year . this increase was primarily due to : i ) a $ 8.6 million increase in net income ; and ii ) a $ 7.1 million decrease in working capital , all offset by the effect of the changes in stock-based compensation expense and in deferred income taxes and a $ 0.5 million decrease in depreciation and amortization . investing activities net cash used in investing activities totaled $ 125.7 million and $ 46.7 million in the years ended december 31 , 2018 and 2017 , respectively . net cash used in investing activities during the year ended december 31 , 2018 consisted primarily of cash used for the new hotel tower and casino expansion at monarch casino black hawk and for the acquisition of gaming and other equipment at both properties . net cash used in investing activities during the year ended december 31 , 2017 consisted primarily of cash used for the new hotel tower and casino expansion at monarch casino black hawk , the purchase of a parcel of land with an industrial warehouse in proximity to the monarch casino black hawk , the re-carpeting of the casino floor and hotel rooms and upgrading the fountains at atlantis , and for the acquisition of gaming and other equipment at both properties .

million in 2013 and 2012 , respectively . in 2014 , we used our operating cash flow , $ 75.0 million in proceeds received from our revolving credit facility and existing cash to repay $ 212.0 million of debt , acquire dst global solutions ltd. and dst global solutions llc , together dstgs , subsidiaries of dst systems , inc. , invest in capital expenditures in our business and buy back $ 11.2 million in shares of common stock for treasury and pay $ 10.5 million in dividends . in february 2015 , we entered into a definitive agreement with advent software , inc. , or advent , wherein ss & c will acquire advent for an enterprise value of approximately $ 2.7 billion in cash , equating to $ 44.25 per share plus assumption of debt . the closing , which is expected to occur in the second quarter of 2015 , remains subject to advent stockholder approval , clearances by relevant regulatory authorities and satisfaction of customary closing conditions ( as discussed in liquidity and capital resources and note 16 to our consolidated financial statements ) . acquisitions . to supplement our growth , we evaluate and execute acquisitions that provide complementary products or services , add proven technology and an established client base , expand our intellectual property portfolio or address a highly specialized problem or a market niche . since the beginning of 2012 , we have spent approximately $ 1,058 million to acquire six businesses in the financial services industry , using a combination of cash and debt financing ( as discussed in notes 6 and 12 to our consolidated financial statements ) . the following table lists the businesses we have acquired since january 1 , 2012 : acquired business acquisition date acquired capabilities , products and services dst global solutions november 2014 added investment management software and services prime management limited october 2013 expanded fund administration services in the insurance linked securities market hedgemetrix llc october 2012 expanded fund administration services in southwest usa gravity september 2012 expanded fund administration services in northeast usa globeop june 2012 expanded fund administration services in hedge fund and other asset management sectors the portia business may 2012 added portfolio management software and outsourcing services for institutional managers the discussion in this part ii , item 7 of this annual report on form 10-k includes the operations of the business listed in the table above for the respective time periods each was owned by ss & c . results of operations revenues our revenues consist primarily of software-enabled services and maintenance revenues , and , to a lesser degree , software license and professional services revenues . as a general matter , fluctuations in our software-enabled services revenues are attributable to the number of new software-enabled services clients as well as total assets under management in our clients ' portfolios and the number of outsourced transactions provided to our existing clients , while our software license and professional services revenues tend to fluctuate based on the number of new licensing clients . maintenance revenues vary based on the rate by which we add or lose maintenance clients over time and , to a lesser extent , on the annual increases in maintenance fees , which are generally tied to the consumer price index . 39 the following table sets forth the percentage of our total revenues represented by each of the following sources of revenues for the periods indicated : replace_table_token_4_th the following table sets forth revenues ( dollars in thousands ) and percent change in revenues for the periods indicated : replace_table_token_5_th fiscal 2014 versus fiscal 2013. our revenues increased in 2014 as compared to 2013 primarily due to a continued increase in demand for our fund administration services from alternative investment managers as well as revenues related to our acquisitions of dstgs and prime , for which revenues increased $ 13.8 million . these increases were partially offset by the unfavorable impact from foreign currency translation of $ 3.2 million , which resulted from the strength of the u.s. dollar relative to currencies such as the canadian dollar and the australian dollar . our software licenses revenues increased primarily due to the impact of a significant perpetual license in the period and increased demand for our institutional software products . additionally , professional services revenues increased due to a rise in the number of product implementation projects in 2014. fiscal 2013 versus fiscal 2012. our revenues increased in 2013 as compared to 2012 primarily due to revenues related to our 2012 acquisitions of globeop and the portia business , for which revenues increased $ 119.2 million , reflecting a full year of activity , as well as a continued increase in demand for our hedge fund and private equity services from alternative investment managers . these increases were partially offset by the unfavorable impact from foreign currency translation of $ 2.0 million , which resulted from the strength of the u.s. dollar relative to currencies such as the canadian dollar and the australian dollar . our software licenses revenues increased due to increased demand for our portia , camra , and pages software products . additionally , revenues associated with term licenses increased . maintenance revenues experienced a substantial increase due to revenues related to the portia business , which contributed $ 9.6 million in 2013 , reflecting a full year of activity . cost of revenues cost of software-enabled services revenues consists primarily of the cost related to personnel utilized in servicing our software-enabled services clients and amortization of intangible assets . cost of software license 40 revenues consists primarily of amortization of completed technology , royalties , third-party software , and the costs of product media , packaging and documentation . cost of maintenance revenues consists primarily of technical client support , costs associated with the distribution of products and regulatory updates and amortization of intangible assets . story_separator_special_tag consolidated ebitda has other limitations as an analytical tool , when compared to the use of net income , which is the most directly comparable gaap financial measure , including : consolidated ebitda does not reflect the provision of income tax expense in our various jurisdictions ; consolidated ebitda does not reflect the significant interest expense we incur as a result of our debt leverage ; consolidated ebitda does not reflect any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges ; consolidated ebitda does not reflect the cost of compensation we provide to our employees in the form of stock option awards ; and consolidated ebitda excludes expenses that we believe are unusual or non-recurring , but which others may believe are normal expenses for the operation of a business . 47 the following is a reconciliation of net income to consolidated ebitda as defined in our senior credit facility . replace_table_token_12_th ( 1 ) interest expense includes loss from extinguishment of debt shown as a separate line item on our consolidated statements of comprehensive income ( 2 ) purchase accounting adjustments include ( a ) an adjustment to increase rent expense by the amount that would have been recognized if lease obligations were not adjusted to fair value at the date of acquisitions and ( b ) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions . ( 3 ) unusual or non-recurring charges include foreign currency gains and losses , proceeds from legal and other settlements , severance expenses , transaction costs , losses on currency contracts and other one-time expenses , such as expenses associated with the facilities consolidations , bond redemptions , acquisitions and the sale of fixed assets . ( 4 ) acquired ebitda reflects the ebitda impact of significant businesses that were acquired during the period as if the acquisition occurred at the beginning of the period . ( 5 ) other includes the non-cash portion of straight-line rent expense . our covenant requirement for net senior secured leverage ratio and the actual ratio for the year ended december 31 , 2014 are as follows : covenant requirement actual ratio maximum consolidated net senior secured leverage to consolidated ebitda ratio ( 1 ) 4.75x 1.62x ( 1 ) calculated as the ratio of consolidated senior secured funded debt , net of cash and cash equivalents , to consolidated ebitda , as defined by the credit agreement , for the period of four consecutive fiscal quarters ended on the measurement date . consolidated senior secured funded debt is comprised of indebtedness for borrowed money , notes , bonds or similar instruments , letters of credit , deferred purchase price obligations and capital lease obligations . this covenant is applied at the end of each quarter . critical accounting estimates a number of our accounting policies require the application of significant judgment by our management , and such judgments are reflected in the amounts reported in our consolidated financial statements . in applying these policies , our management uses its judgment to determine the appropriate assumptions to be used in the 48 determination of estimates . those estimates are based on our historical experience , terms of existing contracts , management 's observation of trends in the industry , information provided by our clients and information available from other outside sources , as appropriate . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , goodwill and other intangible assets and other contingent liabilities . actual results may differ significantly from the estimates contained in our consolidated financial statements . we believe that the following are our critical accounting policies . revenue recognition our revenues consist primarily of software-enabled services and maintenance revenues , and , to a lesser degree , software license and professional services revenues . software-enabled services revenues , which are based on a monthly fee or are transaction-based , are recognized as the services are performed . software-enabled services are generally provided under non-cancelable contracts with initial terms of one to five years that require monthly or quarterly payments , and are subject to automatic annual renewal at the end of the initial term unless terminated by either party . we recognize software-enabled services revenues on a monthly basis as the software-enabled services are provided and when persuasive evidence of an arrangement exists , the price is fixed or determinable and collectability is reasonably assured . we do not recognize any revenues before services are performed . certain contracts contain additional fees for increases in market value , pricing and trading activity . revenues related to these additional fees are recognized in the month in which the activity occurs based upon our summarization of account information and trading volume . we recognize revenues from the sale of software licenses when persuasive evidence of an arrangement exists , the product has been delivered , the fee is fixed or determinable and collection of the resulting receivable is reasonably assured . our products generally do not require significant modification or customization of the underlying software and , accordingly , the implementation services we provide are not considered essential to the functionality of the software . we use a signed license agreement as evidence of an arrangement for the majority of our transactions . delivery generally occurs when the product is delivered to a common carrier f.o.b . shipping point , or if delivered electronically , when the client has been provided with access codes that allow for immediate possession via a download . although our arrangements generally do not have acceptance provisions , if such provisions are included in the arrangement , then delivery occurs at acceptance , unless such acceptance is deemed perfunctory . at the time of the transaction , we assess whether the fee

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liquidity and capital resources our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables , to fund payments with respect to our indebtedness , to invest in research and development and to acquire complementary businesses or assets . we expect our cash on hand and cash flows from operations to provide sufficient liquidity to fund our current obligations , projected working capital requirements and capital spending for at least the next twelve months . 43 in february 2015 , we entered into a definitive agreement with advent wherein ss & c will acquire advent for an enterprise value of approximately $ 2.7 billion in cash , equating to $ 44.25 per share plus assumption of debt . the closing , which is expected to occur in the second quarter of 2015 , remains subject to advent stockholder approval , clearances by relevant regulatory authorities and satisfaction of customary closing conditions . ss & c plans to fund the acquisition and refinancing of existing debt with $ 3.0 billion of debt financing , cash on hand and approximately $ 400 million of equity ( as discussed in note 16 to our consolidated financial statements ) . also in february 2015 , our board of directors declared a quarterly cash dividend of $ 0.125 per share of common stock payable on march 16 , 2015 to stockholders of record as of the close of business on march 2 , 2015. our cash and cash equivalents at december 31 , 2014 were $ 109.6 million , an increase of $ 25.1 million from $ 84.5 million at december 31 , 2013. the increase in cash is primarily due to cash provided by operations as well as cash received from our revolving credit facility and proceeds from stock option exercises and the related income tax benefits . these increases were partially offset by cash used for repayments of debt , business acquisitions , capital expenditures , repurchases of our common stock and dividends . see notes 4 , 6 and 12 to our consolidated financial statements for further discussion of equity , debt and acquisitions , respectively .

in a consolidating industry , we believe our focus on innovation and a robust product pipeline of meaningful new technologies will help us continue to be a preferred partner , sustain our successes , and build long-term value for our shareholders . the following is a summary of important developments during 2015 : final five-year clinical data for high-risk patients treated with the first-generation sapien transcatheter aortic valve in the partner trial demonstrated equivalent outcomes to traditional open-heart surgery , and no structural valve deterioration requiring intervention ; 30-day outcomes for intermediate-risk patients treated transfemorally with the sapien 3 transcatheter aortic valve at centers in europe and canada demonstrated very low mortality and stroke rates ; high-risk patients who received the advanced edwards sapien 3 transcatheter aortic valve via transfemoral delivery had high one-year survival rates , as well as low rates of stroke and paravalvular leak ; we received fda approval of the edwards sapien 3 valve with the commander delivery system for the treatment of high-risk patients suffering from severe , symptomatic aortic stenosis ; we acquired cardiaq , a privately-held company and developer of a transcatheter mitral valve replacement system ; and we received fda approval for aortic valve-in-valve procedures using the edwards sapien xt transcatheter heart valve . we are dedicated to generating robust clinical and economic evidence increasingly expected by patients , clinicians , and payors in the current healthcare environment , with the goal of encouraging the adoption of innovative new medical therapies that demonstrate superior outcomes . 22 results of operations net sales by major regions ( dollars in millions ) replace_table_token_6_th international net sales include the impact of foreign currency exchange rate fluctuations . the impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs and our hedging activities . for more information see `` quantitative and qualitative disclosures about market risk . `` net sales by product group ( dollars in millions ) replace_table_token_7_th transcatheter heart valve therapy 2015 compared with 2014 the increase in net sales of thv products in the united states was due primarily to : the edwards sapien 3 valve , driven by its launch in july 2015 ; and 23 the edwards sapien xt valve , driven by its launch in june 2014 ; partially offset by : lower sales of the edwards sapien valve as customers converted to edwards sapien xt . the increase in international net sales of thv products was due primarily to : the edwards sapien 3 valve , driven primarily by its launch in europe in january 2014 ; and the edwards sapien xt valve in japan , driven by its launch in october 2013 ; partially offset by : lower sales of the edwards sapien xt valve in europe , as customers converted to edwards sapien 3 ; and foreign currency exchange rate fluctuations , which decreased net sales by $ 71.2 million , due primarily to the weakening of the euro against the united states dollar . 2014 compared with 2013 the increase in net sales of thv products in the united states was due primarily to : the edwards sapien xt valve , driven primarily by its launch in june 2014 ; clinical sales of the edwards sapien 3 valve ; and royalties received under a license agreement with medtronic ( see note 3 to the `` consolidated financial statements `` ) . sales of the edwards sapien transcatheter heart valve decreased as customers converted to edwards sapien xt . the increase in international net sales of thv products was due primarily to : the edwards sapien 3 valve , driven primarily by its launch in europe in january 2014 ; and the edwards sapien xt valve in japan , driven by its launch in october 2013 ; partially offset by : lower sales of the edwards sapien xt valve in europe , as customers converted to edwards sapien 3 . in june 2015 , we received approval from the fda for the edwards sapien 3 valve with the commander delivery system for the treatment of high-risk patients . in january 2016 , we received fda approval for an expanded indication study of the edwards sapien 3 valve . the investigational device exemption study will enroll elderly patients with severe , symptomatic aortic stenosis who have been determined by a heart team to be at low risk for mortality if they were to undergo surgical aortic valve replacement . the trial will also include a 400-patient sub-study using advanced imaging to evaluate leaflet motion in tissue heart valves . 24 surgical heart valve therapy 2015 compared with 2014 the decrease in net sales of surgical heart valve therapy products was due primarily to : foreign currency exchange rate fluctuations , which decreased net sales by $ 59.7 million , due primarily to the weakening of the euro and the japanese yen against the united states dollar ; partially offset by : higher sales of ( 1 ) surgical heart valve products , driven by pericardial aortic tissue valves , primarily in europe , japan , and the united states , and ( 2 ) edwards intuity elite valves , primarily in europe . 2014 compared with 2013 the increase in net sales of surgical heart valve therapy products was due primarily to : higher sales of ( 1 ) surgical heart valve products , driven by pericardial aortic tissue valves , primarily in the united states and europe , and ( 2 ) edwards intuity elite valves , primarily in europe ; partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 10.5 million , due story_separator_special_tag we consider several factors in determining when to execute share repurchases , including , among other things , expected dilution from stock plans , cash capacity , and the market price of our common stock . during 2015 , we repurchased under the board authorized repurchase program a total of 2.5 million shares at an aggregate cost of $ 275.0 million , and as of december 31 , 2015 , had remaining authority to purchase $ 677.5 million of our common stock . in february 2016 , edwards entered into accelerated share repurchase agreements to repurchase $ 325.0 million of the company 's common stock . for further information , see note 13 and note 21 to the `` consolidated financial statements . `` story_separator_special_tag launch strategies , product recalls , and variation in product utilization all affect the estimates related to sales returns and could cause actual returns to differ from these estimates . our sales adjustment related to distributor rebates given to our united states distributors represents the difference between our sales price to the distributor ( at our distributor `` list price `` ) and the negotiated price to be paid by the end-customer . we validate the distributor rebate accrual quarterly through either a review of the inventory reports obtained from our distributors or an estimate of the distributor 's inventory . this distributor inventory information is used to verify the estimated liability for future distributor rebate claims based on historical rebates and contract rates . we periodically monitor current pricing trends and distributor inventory levels to ensure the credit for future distributor rebates is fairly stated . excess and obsolete inventory the valuation of our inventory requires us to estimate excess , obsolete , and expired inventory . we base our provisions for excess , obsolete , and expired inventory on our estimates of forecasted net sales . a significant change in the timing or level of demand for our products as compared to forecasted amounts may result in recording additional allowances for excess , obsolete , and expired inventory in the future . in addition , our industry is characterized by rapid product development and frequent new product introductions . uncertain timing of next-generation product approvals , variability in product launch strategies , product recalls , increasing levels of consigned inventory , and variation in product utilization all affect our estimates related to excess , obsolete , and expired inventory . intangible assets and long-lived assets we acquire intangible assets in connection with business combinations and asset purchases . the acquired intangible assets are recorded at fair value , which is determined based on a discounted cash flow analysis . the determination of fair value requires significant estimates , including , but not limited to , the amount and timing of projected future cash flows , the discount rate used to discount those cash flows , the assessment of the asset 's life cycle , including the timing and expected costs to complete in-process projects , and the consideration of legal , technical , regulatory , economic , and competitive risks . ipr & d acquired in business combinations is reviewed for impairment annually , or whenever an event occurs or circumstances change that would indicate the carrying amount may be impaired . additionally , management reviews the carrying amounts of other intangible and long-lived assets whenever events or circumstances indicate that the carrying amounts of an asset may not be recoverable . the impairment reviews require significant estimates about fair value , including estimation of future cash flows , selection of an appropriate discount rate , and estimates of long-term growth rates . contingent consideration we record contingent consideration resulting from a business combination at its fair value on the acquisition date . we determine the fair value of the contingent consideration based primarily on the following factors : timing and probability of success of clinical events or regulatory approvals ; timing and probability of success of meeting commercial milestones ; and discount rates . 33 on a quarterly basis , we revalue these obligations and record changes in their fair value as an adjustment to operating earnings . changes to contingent consideration obligations can result from adjustments to discount rates , accretion of the discount rates due to the passage of time , changes in our estimates of the likelihood or timing of achieving development or commercial milestones , changes in the probability of certain clinical events or changes in the assumed probability associated with regulatory approval . the assumptions related to determining the value of contingent consideration include a significant amount of judgment , and any changes in the underlying estimates could have a material impact on the amount of contingent consideration expense recorded in any given period . income taxes the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . realization of certain deferred tax assets , primarily net operating loss and other carryforwards , is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods . failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in our effective tax rate on future earnings . we are subject to income taxes in the united states and numerous foreign jurisdictions . our income tax returns are periodically audited by domestic and foreign tax authorities . these audits include questions regarding our tax filing positions , including the timing and amount of deductions and the allocation of income amongst various tax jurisdictions . we evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes . significant judgment is required in evaluating our uncertain tax positions , including estimating the ultimate resolution to intercompany pricing controversies between countries when there are numerous

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net cash flows provided by operating activities of $ 549.7 million for 2015 decreased $ 472.6 million from 2014 due primarily to ( 1 ) the $ 750.0 million upfront payment received in 2014 from medtronic under a litigation settlement agreement and ( 2 ) a higher bonus payout in 2015 associated with 2014 performance . these decreases were partially offset by ( 1 ) income tax payments of $ 224.5 million made in 2014 related to the medtronic settlement , ( 2 ) improved operating performance in 2015 , and ( 3 ) the $ 50.0 million charitable contribution made in 2014 to the edwards lifesciences foundation . net cash flows provided by operating activities of $ 1,022.3 million for 2014 increased $ 549.6 million from 2013 due primarily to ( 1 ) the $ 750.0 million upfront payment received from medtronic under a litigation settlement agreement , ( 2 ) a lower bonus payout in 2014 associated with 2013 performance , and ( 3 ) improved operating performance . these increases were partially offset by ( 1 ) income tax payments of $ 224.5 million related to the medtronic settlement , ( 2 ) the prior year receipt of $ 83.6 million from medtronic in satisfaction of the initial april 2010 jury award of damages for infringement of the united states andersen transcatheter heart valve patent , and ( 3 ) the $ 50.0 million charitable contribution made in 2014 to the edwards lifesciences foundation . net cash used in investing activities of $ 316.1 million in 2015 consisted primarily of a $ 320.1 million net payment associated with the acquisition of cardiaq and capital expenditures of $ 102.7 million , partially offset by net proceeds from investments of $ 119.6 million . net cash used in investing activities of $ 633.0 million in 2014 consisted primarily of net purchases of investments of $ 527.4 million and capital expenditures of $ 82.9 million .

the increase in international net sales of thvt products was due primarily to : the edwards sapien 3 valve , primarily increased sales in japan , driven by its launch in march 2016 , and europe , driven by strong therapy adoption ; partially offset by : lower sales of the edwards sapien xt valve as customers converted to edwards sapien 3 . 2016 compared with 2015 the increase in net sales of thvt products in the united states was due primarily to : increased sales of the edwards sapien 3 valve , driven by its launch in july 2015 ; partially offset by : lower sales of the edwards sapien xt valve as customers converted to edwards sapien 3. the increase in international net sales of thvt products was due primarily to increased sales of the edwards sapien 3 valve , driven primarily by its launch in europe in january 2014 and in japan in march 2016. in june 2017 , we received fda approval for aortic and mitral valve-in-valve procedures using the edwards sapien 3 transcatheter heart valve for patients at high risk for a subsequent open-heart surgery to replace their bioprosthetic valve . in february 2018 , we received ce mark for our self-expanding centera valve for severe , symptomatic aortic stenosis patients at high risk of open-heart surgery . surgical heart valve therapy 25 2017 compared with 2016 the increase in net sales of shvt products was due primarily to : surgical aortic tissue valves in europe and the united states , primarily increased sales of the edwards intuity elite valve system , and growth in our core products , partially offset by the continuing shift from our surgical aortic tissue valves to transcatheter aortic valves ; and mitral tissue valves , due to increased sales in rest of world , primarily china . 2016 compared with 2015 the decrease in net sales of shvt products was due primarily to : lower sales of aortic tissue valves in the united states , as sales of edwards sapien 3 increased ; and lower international sales of mitral tissue valves , primarily in europe and rest of world , primarily due to supply constraints ; partially offset by : higher sales of aortic tissue valves in europe , japan , and rest of world ; and foreign currency exchange rate fluctuations , which increased net sales by $ 2.2 million , due primarily to the strengthening of the japanese yen against the united states dollar , partially offset by the weakening of various currencies against the united states dollar . in july 2017 , we received fda approval for our inspiris resilia aortic valve , the first in a new class of resilient heart valves . in december 2017 , we received ce mark for harpoon , our newly acquired beating heart mitral valve repair system . critical care 2017 compared with 2016 the increase in net sales of critical care products was due primarily to enhanced surgical recovery products and core hemodynamic products , primarily in the united states and rest of world . 26 2016 compared with 2015 the increase in net sales of critical care products was due primarily to : higher sales of enhanced surgical recovery products in the united states , europe , and rest of world ; higher sales of core hemodynamic products , primarily in rest of world ; higher sales of hardware in the united states ; and foreign currency exchange rate fluctuations , which increased net sales by $ 5.0 million due primarily to the strengthening of the japanese yen against the united states dollar , partially offset by the weakening of various currencies against the united states dollar . in april 2017 , we received fda clearance for our hemosphere advanced monitoring platform . this technology provides clinicians with clarity on a patient 's hemodynamics , or the factors that manage blood flow , to help them make proactive , timely clinical decisions . gross profit the increase in gross profit as a percentage of net sales in 2017 compared to 2016 was driven by : a 1.3 percentage point increase in the united states and a 0.3 percentage point increase in international markets due to an improved product mix , driven by thvt products ; partially offset by : expenses associated with flooding from hurricane maria in puerto rico and the planned closure of our manufacturing plant in switzerland . the decrease in gross profit as a percentage of net sales in 2016 compared to 2015 was driven by : a 4.3 percentage point decrease due to the impact of foreign currency exchange rate fluctuations , including the settlement of foreign currency hedging contracts ; and investments in manufacturing capacity ; 27 partially offset by : a 1.6 percentage point increase in the united states , and a 0.5 percentage point increase in international markets , due to an improved product mix , driven by thvt products . selling , general , and administrative ( `` sg & a `` ) expenses the increase in sg & a expenses in 2017 compared to 2016 was due primarily to higher sales and marketing expenses in the united states and europe , mainly to support the thvt program , and higher personnel-related costs . the decrease in sg & a expenses as a percentage of net sales in 2017 was due primarily to leverage from our higher thvt sales in the united states and japan . the increase in sg & a expenses in 2016 compared to 2015 resulted primarily from higher sales and marketing expenses in the united states and europe , mainly to support our thvt program , and higher personnel-related costs . story_separator_special_tag on december 1 , 2017 , we acquired all the outstanding shares of harpoon medical , inc. for an aggregate cash purchase price of $ 119.5 million . in addition , we agreed to pay up to an additional $ 150.0 million in pre-specified milestone-driven payments over the next 10 years . for further information , see note 7 to the `` consolidated financial statements . `` on november 26 , 2016 , we entered into an agreement and plan of merger to acquire valtech for approximately $ 340.0 million , subject to certain adjustments , in stock and cash to be paid at closing , with the potential for up to $ 350.0 million in additional pre-specified milestone-driven payments over the next 10 years . our acquisition of valtech closed on january 23 , 2017 , and we issued an aggregate of approximately 2.8 million shares of our common stock , and paid approximately $ 86.2 million in cash to holders of valtech securities . prior to the close of the transaction , valtech spun off its early-stage transseptal mitral valve replacement technology program . we have an option to acquire that program and its associated intellectual property for approximately $ 200.0 million , subject to certain adjustments , plus an additional $ 50.0 million if a certain european regulatory approval is obtained within 10 years of the acquisition closing date . for further information , see note 7 to the `` consolidated financial statements . `` on july 3 , 2015 , we entered into an agreement and plan of merger to acquire cardiaq for an aggregate cash purchase price of $ 350.0 million , subject to certain adjustments , plus an additional $ 50.0 million if a certain european regulatory approval is obtained within 48 months of the acquisition closing date . for further information , see note 7 to the `` consolidated financial statements . `` we have a five-year credit agreement ( `` credit agreement `` ) which provides up to an aggregate of $ 750.0 million in borrowings in multiple currencies . we may increase the amount available under the credit agreement , subject to agreement of the lenders , by up to an additional $ 250.0 million in the aggregate . as of december 31 , 2017 , borrowings of $ 438.4 million were outstanding under the credit agreement , and have been classified as long-term obligations in accordance with the terms of the credit agreement . in october 2013 , we issued $ 600.0 million of 2.875 % fixed-rate unsecured senior notes due october 15 , 2018. we plan to issue new notes in 2018 to partially replace the maturing senior notes . we expect that we will be able to pay the remaining principal and any accrued interest on the senior notes by one or a combination of the following : refinancing such indebtedness , using available cash resources , or using amounts available under our credit agreement . as of december 31 , 2017 , the total carrying value of our unsecured senior notes was $ 598.0 million , which has been classified as short-term debt . for further information on our debt , see note 9 to the `` consolidated financial statements . `` we periodically repurchase shares of our common stock under share repurchase programs authorized by the board of directors . we consider several factors in determining when to execute share repurchases , including , among other things , expected dilution from stock plans , cash capacity , and the market price of our common stock . during 2017 , under the board authorized repurchase programs , we repurchased a total of 7.6 million shares at an aggregate cost of $ 752.1 million , including 33 amounts purchased under accelerated share repurchase agreements . as of december 31 , 2017 , we had remaining authority to purchase $ 1.3 billion of our common stock . for further information , see note 13 to the `` consolidated financial statements . `` consolidated cash flows - for the twelve months ended december 31 , 2017 , 2016 , and 2015 story_separator_special_tag subject to judgments and estimation are inherently uncertain , and different amounts could be reported using different assumptions and estimates . management uses its best estimates and judgments in determining the appropriate amount to reflect in the consolidated financial statements , using historical experience and all available information . we also use outside experts where appropriate . we apply estimation methodologies consistently from year to year . we believe the following are the critical accounting policies which could have the most significant effect on our reported results and require subjective or complex judgments by management . revenue recognition when we recognize revenue from the sale of our products , we record an estimate of various sales returns and allowances which reduces product sales and accounts receivable . these adjustments include estimates for rebates , returns , and other sales allowances . these provisions are estimated based upon historical payment experience , historical relationship to revenues , estimated customer inventory levels , and current contract sales terms with direct and indirect customers . product returns are not significant because returns are generally not allowed unless the product is damaged at time of receipt . if the historical data and inventory estimates used to calculate these provisions do not approximate future activity , our financial position , results of operations , and cash flows could be impacted . in addition , we may allow customers to return previously purchased products for next-generation product offerings . for these transactions , we defer recognition of revenue on the sale of the earlier generation product based upon an estimate of the amount to be returned when the next-generation products are shipped to the customer . uncertain timing of next-generation product approvals , variability in product launch strategies , product recalls , and variation in product utilization all affect the estimates related to sales

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net cash flows provided by operating activities of $ 1.0 billion for 2017 increased $ 296.3 million from 2016 due primarily to improved operating performance and receipt of a litigation payment , partially offset by higher working capital needs associated with growth in the business and the timing of tax payments . net cash flows provided by operating activities of $ 704.4 million for 2016 increased $ 154.7 million from 2015 due primarily to ( 1 ) improved operating performance and ( 2 ) lower supplier payments in 2016 compared to 2015 , partially offset by ( 1 ) the impact of excess tax benefits from stock plans , primarily due to our increased stock price , and ( 2 ) an increase in accounts receivable due to increased sales , primarily in the united states . net cash used in investing activities of $ 647.2 million in 2017 consisted primarily of net purchases of investments of $ 235.7 million , capital expenditures of $ 168.1 million , a $ 100.0 million net cash payment associated with the acquisition of harpoon medical , inc. , and an $ 81.9 million net cash payment associated with the acquisition of valtech . net cash used in investing activities of $ 211.7 million in 2016 consisted primarily of capital expenditures of $ 176.1 million and $ 41.3 million for the acquisition of intangible assets . net cash used in investing activities of $ 316.1 million in 2015 consisted primarily of a $ 320.1 million net payment associated with the acquisition of cardiaq , and capital expenditures of $ 102.7 million , partially offset by net proceeds from investments of $ 119.6 million . net cash used in financing activities of $ 473.2 million in 2017 consisted primarily of purchases of treasury stock of $ 763.3 million , partially offset by ( 1 ) net proceeds from the issuance of debt of $ 176.3 million and ( 2 ) proceeds from stock plans of $ 113.8 million .

end-use applications for our materials in the consumer electronics market include cell phones , tablets , gaming systems and other hand-held devices , and the market 's demand for increased power and miniaturization in these applications favors the use of our high-performance materials . as a material supplier , we sell to stamping houses and sub-assembly shops so we are several steps removed from the final consumer . our sales to this market in a given period , therefore , are affected by downstream inventory levels and production schedules and changes in market share of the intermediaries within the supply chain and not necessarily by changes in sales of the final product or in consumer demand in that period . while our marketing staff works closely with various demand generators to develop new applications , technologies can be closely guarded for competitive reasons and we do lose applications from time to time due to rapid changes in technologies and applications that have short life spans . underlying volumes sold to the industrial components and commercial aerospace market continued to grow in both 2012 and 2011. the growth in both years was driven by higher sales of materials for heavy equipment , as a result of product development and market penetration efforts , and improved aerospace market conditions . sales of x-ray windows for industrial applications also contributed to the sales growth in 2011 over 2010 but sales of these products softened in 2012. sales to the industrial components and aerospace market were approximately 12 % of our total sales in 2012. defense and science market sales , which were approximately 10 % of our total sales in 2012 , declined at a double-digit rate in 2012 from 2011 primarily as a result of government delays and spending cuts . the majority of the decline was in optics and precious metal applications as our traditional beryllium-based defense and science sales showed a more minor decline . defense and science sales in 2011 were relatively unchanged from 2010. sales to the medical market grew in 2012 and 2011 over the respective prior year largely due to increased sales for blood glucose test strip applications . medical sales , which also include x-ray window applications , accounted for approximately 8 % of our total sales in 2012. energy market sales softened in 2012 from 2011 after growing significantly in 2011 over 2010. sales for oil and gas applications , which were a main driver for the growth in 2011 , declined in 2012 due to a reduction in the rig count . sales of materials for solar energy , fuel cells and other alternative energy applications contributed to the growth in 2011 but declined in 2012 due to weaker market conditions . energy market sales were 8 % of our total sales in 2012. automotive electronics sales declined slightly in 2012 from 2011 after growing at a double-digit rate in 2011 over 2010. the growth in beryllium copper strip sales , primarily in the u.s. , was partially offset by softer demand in europe and weaker sales of optics . the growth in 2011 was largely due to solid demand in the domestic and european markets . automotive electronics sales were approximately 6 % of total sales in 2012. the order entry rate strengthened in the first half of 2012 over a weak fourth quarter 2011 , but then softened in the second half of the year . total order entry was 2 % higher than sales in 2012. similar to 2012 , order entry rates started 2011 off fairly strong , but weakened in the second half of the year and in the fourth quarter in particular . the total order entry level in 2011 , while higher than the order entry level in 2010 , was approximately 3 % lower than sales in 2011 . 22 our sales are affected by metal prices , as changes in the prices we pay for precious metals and various base metals , primarily copper , are passed on to our customers . the average prices for the metals we purchased in 2012 were lower than they were in 2011 when the prices for various metals reached all-time or near-term record highs . the net change in metal prices resulted in an estimated $ 5.3 million decrease in sales in 2012 from 2011 and an estimated $ 195.6 million increase in sales in 2011 over 2010. we manufacture precious metal products using our metal that we sell to the customer or on a toll basis using metal that the customer supplies to us . shifts in the relationship between the use of owned versus customer-supplied metal can affect the sales comparisons between periods , and in 2012 , customer-supplied metal increased as a percent of the total metal shipped . this shift in the source of metal reduced our sales of precious metal by an estimated $ 73.0 million in 2012 compared to 2011. since the cost of the precious metal is a pass-through , a change in the metal 's source does not have a corresponding impact on gross margin . as part of our product rationalization efforts , we exited the silver investment bar business in 2012. this non-strategic product line generated extremely low margins that could not support the associated level of working capital and overhead . this action resulted in a reduction of sales of approximately $ 44.6 million in 2012 from 2011 with an immaterial impact on profitability . the acquisition of amc in the first quarter 2012 had a minor impact on sales as did having a full year of eis in 2012 after it was acquired in the fourth quarter 2011. domestic sales declined 23 % in 2012 from 2011 after growing 23 % in 2011 over 2010. domestic sales include the majority of the impact of the differences in metal price pass-through between periods . story_separator_special_tag the all other column shows an operating loss of $ 6.6 million in 2012 compared to $ 10.1 million in 2011 and $ 8.3 million in 2010. the reduction in the loss in 2012 from 2011 was due to the costs associated with the company name change incurred in 2011 and an increase in costs charged to the business units offset in part by an increase in various corporate costs and other factors . the primary difference between the 2011 and 2010 results was due to the costs associated with the company name change , due diligence and acquisition costs , various corporate initiatives and other factors offset in part by lower incentive compensation and an increase in costs charged out to the business units . advanced material technologies replace_table_token_7_th advanced material technologies manufactures precious , non-precious and specialty metal products , including vapor deposition targets , frame lid assemblies , clad and precious metal preforms , high temperature braze materials , ultra-fine wire , advanced chemicals , optics , performance coatings and microelectronic packages . these products are used in wireless , semiconductor , photonic , hybrid and other microelectronic applications within the consumer electronics and telecommunications infrastructure markets . other key markets for these products include medical , defense and science , energy and industrial components . advanced material technologies also has metal cleaning operations and in-house refineries that allow for the reclaim of precious metals from internally generated or customers ' scrap . this segment has domestic facilities in new york , connecticut , wisconsin , new mexico , massachusetts and california and international facilities in asia and europe . sales from advanced material technologies were $ 847.8 million , a decline of $ 204.0 million , or 19 % , from sales of $ 1.1 billion in 2011. sales in 2011 were an improvement of $ 172.8 million , or 20 % , over sales of $ 879.0 million in 2010. the previously discussed impact of changes in the amount of customer-supplied metal flowed through this segment 's sales as did the discontinuation of investment bar sales . we adjust our selling prices to reflect the price we pay for the precious and various non-precious metals sold . while a change in the cost of the metal is generally a pass-through to the customer , we generate a margin on our fabrication efforts irrespective of the type of metal used in a given application . on average , the applicable metal prices were higher in each of 2012 and 2011 26 than the respective prior years , although the increase in prices in 2012 was not substantial . we estimate that the higher metal price pass-through increased advanced material technologies ' sales an estimated $ 3.2 million in 2012 from 2011 and $ 180.5 million in 2011 over 2010. while the metal price impact was greater than the total sales increase in 2011 , underlying volumes processed grew in 2011 due to differences in product mix , customer-supplied metal and other factors . after adjusting for differences in the metal price pass-through and the use of customer-supplied metal , advanced material technologies ' sales to the consumer electronics and medical markets increased in 2012 over 2011 while sales to its other major markets were flat to down . the majority of the sales into the consumer electronics market from this segment are vapor deposition targets , lids , wire and other related precious and non-precious metal products for semiconductors and other microelectronic applications . these materials are used in wireless , led , handheld devices and other applications as well as in a number of applications within the defense and science market . the growth in consumer electronics sales in 2012 was largely due to the acquisition of eis , which produces optical coatings and related products for projection display , gaming and other applications . consumer electronic sales in 2011 were flat with 2010 as strong sales in the first half of that year were offset by a weaker second half of the year due to stagnant demand . sales of precious metal products for led applications into the consumer electronics market declined in 2012 due to the slower than anticipated growth in end-use consumer demand for led products driven by the high price to the final customer . as a result , manufacturers of led products have been designing ways to reduce costs , including reducing the consumption of high cost materials . these new designs use less of our materials and therefore negatively impact the level of our shipments for these applications . this change also resulted in excess downstream inventories during 2012 that needed to be worked down , further depressing our sales in the short term . since we are an up-front material supplier , changes in our consumer electronics sales levels do not necessarily correspond to changes in the end-use consumer demand in the same period due to downstream inventory positions , the time to develop and deploy new products and manufacturing lead times and scheduling . while our product and market development efforts allow us to capture new applications , we do lose existing applications and customers from time to time due to the rapid change in technologies and other factors . sales of large area coatings products , primarily precision precious metal coated polymer films , grew approximately 35 % in 2012 over 2011 and 50 % in 2011 over 2010 after adjusting for the estimated metal price difference . the growth in 2012 was predominately due to application development efforts and geographic expansion of our sales of blood glucose test strip materials into the medical market as well as share gains within the existing customer base . lower manufacturing yields and the inability to hold tolerances resulted in missed sales to a key customer and the loss of a portion of the business to our competitor in 2010. new processes were developed and qualified with the customer

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cash totaled $ 16.1 million as of december 31 , 2012 , an increase of $ 3.8 million from the cash balance of $ 12.3 million as of year-end 2011. cash declined $ 3.8 million in 2011 as excess cash , coupled with the cash provided from operations , were used to finance the acquisition of eis , capital expenditures , a reduction in debt and the repurchase of shares . 34 accounts receivable totaled $ 126.5 million as of year-end 2012 , an increase of $ 8.7 million , or 7 % , from the year-end 2011 balance of $ 117.8 million . the growth was primarily due to a slowdown in the days sales outstanding ( dso ) , a measure of how fast receivables are collected , from approximately 32 days at year-end 2011 to approximately 37 days at year-end 2012. the dso of 37 days is within our normal operating range . the year-end 2011 accounts receivable balance was $ 21.6 million , or 16 % , lower than the accounts receivable balance of $ 139.4 million as of year-end 2010. this decrease was due to a combination of changes in the sales volume , as sales in the fourth quarter 2011 were 6 % lower than sales in the fourth quarter 2010 , and a 4 day improvement in the dso . the expense for accounts written off to bad debts and changes in the allowance for doubtful accounts remained low at $ 0.4 million in 2012 and $ 0.1 million in 2011. we have procedures in place to closely monitor our accounts receivable aging and to follow-up on past due accounts . we evaluate the credit position of new customers in advance of the initial sale and we evaluate our existing customers ' credit positions on an ongoing basis . we will revise credit terms offered to our customers as conditions warrant in order to minimize our exposures . credit terms may vary by country based upon local customary practice and competition .

other than that , the company paid $ 1,500 to bfb for the review of interim financial statements during 2018 and $ 4,000 for the previous audit for the period starting on june 1 , 2017 ( inception ) and ending on december 31 , 2017. audit-related fees during the year ended december 31 , 2018 , our principal accountant did not render audit-related services to us . tax fees during the year ended december 31 , 2018 , our principal accountant did not render services to us for tax compliance , tax advice or tax planning . all other fees during the year ended december 31 , 2018 , there were no fees billed for products and services provided by the principal accountant other than those set forth above . currently , we have no independent audit committee . our full board of directors functions as our audit committee and is comprised of one director who is not considered to be `` independent `` in accordance with the requirements of rule 10a-3 under the exchange act . our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . 17 part iv item 15 exhibits , financial statement schedules ( a ) the following documents are filed as a part of this report : 1. financial statements . the following financial statements of new leap , inc. are included in item 8 : reports of independent registered public accounting firms balance sheets at december 31 , 2018 and december 31 , 2017 statements of operations for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 statements of stockholders ' deficit as of inception december 31 , 2018 and as of december 31 , 2017 statements of cash flows for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 notes to the financial statements 2. financial statement schedule ( s ) : all schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable . 3. exhibits : replace_table_token_7_th _ * filed herewith . ( 1 ) incorporated herein by reference from the company 's form s-1 filed with the securities and exchange commission on august 8 , 2017 . 18 signatures in accordance with section 13 or 15 ( d ) of the securities exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : march 27 , 2019 by : itzhak ostashinsky itzhak ostashinsky chief executive officer 19 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal year ended december 31 , 2018. the discussion and analysis that follows should be read together with the section entitled “ forward looking statements ” and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. 7 except for historical information , the matters discussed in this section are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . company overview new leap plans to match up potential investors from all over the world , except for u.s. residents with private u.s. companies and companies which are publicly traded in the u.s. ( both u.s. and foreign incorporated ) . the goal is to use the crowdfunding trend in order to make private investments in such companies more accessible to non-u.s. investors on one hand and allow easier access to capital for these companies on the other . we will not allow u.s. persons access to the materials presented by the companies offering their securities on our website . anyone trying to gain access to the offering materials posted on our website will first need to fill out a questionnaire which will include a question about the country of residence . anyone answering “ u.s.a ” or any of its states will be prohibited from gaining access to the page showing the offering materials of the presenting companies . we intend to start developing a website following completion of this offering . for this purpose our intention is to use a third party vendor which can provide both design and programming services . all securities will bear a legend indicating that the securities are `` restricted securities `` and may not be sold in the u.s. absent an effective registration statement under the securities act covering the resale of such securities or an available exemption from such registration requirement . new leap will keep a complete audit trail of investments in the companies presenting on its website . funds committed for an investment will be kept in an escrow account until the company 's funding goal is reached . upon reaching such goal , funds will be transferred from the escrow account to the company 's bank account while simultaneously stock certificates will be delivered to the investors . should the funding goal not be reached until the deadline of the offering , funds would immediately be returned to the investors . results of operations inception ( june 1 , 2017 ) to december story_separator_special_tag other than that , the company paid $ 1,500 to bfb for the review of interim financial statements during 2018 and $ 4,000 for the previous audit for the period starting on june 1 , 2017 ( inception ) and ending on december 31 , 2017. audit-related fees during the year ended december 31 , 2018 , our principal accountant did not render audit-related services to us . tax fees during the year ended december 31 , 2018 , our principal accountant did not render services to us for tax compliance , tax advice or tax planning . all other fees during the year ended december 31 , 2018 , there were no fees billed for products and services provided by the principal accountant other than those set forth above . currently , we have no independent audit committee . our full board of directors functions as our audit committee and is comprised of one director who is not considered to be `` independent `` in accordance with the requirements of rule 10a-3 under the exchange act . our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . 17 part iv item 15 exhibits , financial statement schedules ( a ) the following documents are filed as a part of this report : 1. financial statements . the following financial statements of new leap , inc. are included in item 8 : reports of independent registered public accounting firms balance sheets at december 31 , 2018 and december 31 , 2017 statements of operations for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 statements of stockholders ' deficit as of inception december 31 , 2018 and as of december 31 , 2017 statements of cash flows for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 notes to the financial statements 2. financial statement schedule ( s ) : all schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable . 3. exhibits : replace_table_token_7_th _ * filed herewith . ( 1 ) incorporated herein by reference from the company 's form s-1 filed with the securities and exchange commission on august 8 , 2017 . 18 signatures in accordance with section 13 or 15 ( d ) of the securities exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : march 27 , 2019 by : itzhak ostashinsky itzhak ostashinsky chief executive officer 19 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal year ended december 31 , 2018. the discussion and analysis that follows should be read together with the section entitled “ forward looking statements ” and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. 7 except for historical information , the matters discussed in this section are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . company overview new leap plans to match up potential investors from all over the world , except for u.s. residents with private u.s. companies and companies which are publicly traded in the u.s. ( both u.s. and foreign incorporated ) . the goal is to use the crowdfunding trend in order to make private investments in such companies more accessible to non-u.s. investors on one hand and allow easier access to capital for these companies on the other . we will not allow u.s. persons access to the materials presented by the companies offering their securities on our website . anyone trying to gain access to the offering materials posted on our website will first need to fill out a questionnaire which will include a question about the country of residence . anyone answering “ u.s.a ” or any of its states will be prohibited from gaining access to the page showing the offering materials of the presenting companies . we intend to start developing a website following completion of this offering . for this purpose our intention is to use a third party vendor which can provide both design and programming services . all securities will bear a legend indicating that the securities are `` restricted securities `` and may not be sold in the u.s. absent an effective registration statement under the securities act covering the resale of such securities or an available exemption from such registration requirement . new leap will keep a complete audit trail of investments in the companies presenting on its website . funds committed for an investment will be kept in an escrow account until the company 's funding goal is reached . upon reaching such goal , funds will be transferred from the escrow account to the company 's bank account while simultaneously stock certificates will be delivered to the investors . should the funding goal not be reached until the deadline of the offering , funds would immediately be returned to the investors . results of operations inception ( june 1 , 2017 ) to december

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liquidity and capital resources the following is a summary of the company 's cash flows provided by ( used in ) operating , investing , and financing activities for the period from inception ( june 1 , 2017 ) to december 31 , 2017 and the year ended december 31 , 2018 : replace_table_token_1_th 8 to date , most of our resources and work have been devoted to planning our business , completing our registration statement and building our website . private capital , if sought , we believe will be sought from former business associates of our president and chief executive officer or through private investors referred to us by those same business associates . if a market for our shares ever develops , of which there can be no assurances , we may use restricted shares of our common stock to compensate employees/consultants and independent contractors wherever possible . we can not predict the likelihood or source of raising capital or funds that may be needed to complete the development of our business plan . we are a public company and as such we have incurred and will continue to incur significant expenses for legal , accounting and related services . as a public entity , subject to the reporting requirements of the exchange act of 1934 , we incur ongoing expenses associated with professional fees for accounting , legal and a host of other expenses including annual reports and proxy statements , if required . we estimate that these costs will range up to $ 50,000 per year over the next few years and may be significantly higher if our business volume and transactional activity increases but should be lower during our first year of being public because our overall business volume ( and financial transactions ) will be lower , and we will not yet be subject to the requirements of section 404 of the sarbanes-oxley act of 2002 until we exceed $ 250 million in market capitalization ( if ever ) . these obligations will certainly reduce our ability and resources to expand our business plan and activities .

our federal revenue declined from 2016 to 2017 primarily as a result of an amendment to the inter-governmental service agreement , or igsa , associated with our south texas family residential center , which became effective in the fourth quarter of 2016 , as further described hereafter . in addition , populations in federal facilities , particularly within the federal bureau of prisons , or the bop , system nationwide , have declined over the past three years . inmate populations in the bop system declined due , in part , to the retroactive application of changes to sentencing guidelines applicable to certain federal drug trafficking offenses . despite this decline , we continue to believe utilization of private sector bed capacity and management services provides our federal partners with flexible and cost-effective solutions essential to their missions . for example , in november 2016 , we announced that the bop exercised a two-year renewal option at our 1,978-bed mcrae 51 correctional facility . the amended agreement commenced on december 1 , 2016 , and provides for caring for up to 1,724 federal inmates with a fixed monthly payment for 1,633 beds , compared to our previous contract which contained a fixed payment for 1,780 beds . in addition , in july 2017 , the bop exercised a two-year renewal option at our 2,232-bed adams county correctional center . for the year ended december 31 , 2017 , we generated 5 % of our total revenue through the remaining contracts with the bop at these two correctional facilities . further , we believe our ability to provide flexible solutions and fulfill emergent needs of the u.s immigration and enforcement , or ice , would be very difficult and costly to replicate in the public sector , demonstrated by the contract with ice at our 2,400-bed south texas family residential center , which was amended and extended in october 2016. the october 2016 amendment extended the term of the contract through september 2021 and can be further extended by bi-lateral modification . in addition , in december 2016 , we announced a new award to provide detention capacity to ice at our 2,016-bed northeast ohio correctional center , and in april 2017 , we announced a new contract award to provide up to 996 beds to the state of ohio at this same facility . we previously housed inmates from the bop at the northeast ohio facility under a contract that expired in may 2015. we believe these contracts provide further examples of the marketability of our real estate assets across multiple government customers . several of our state partners are projecting improvements in their budgets which has helped us secure recent per diem increases at certain facilities . further , several of our existing state partners , as well as prospective state partners , are experiencing growth in inmate populations and overcrowded conditions . although we can provide no assurance that we will enter into any new contracts , we believe we are well positioned to provide them with needed bed capacity , as well as the programming and reentry services they are seeking . we believe the long-term growth opportunities of our business remain attractive as governments consider their emergent needs , as well as the efficiency and offender programming opportunities we provide , as flexible solutions to satisfy our partners ' needs . further , we expect our partners to continue to face challenges in maintaining old facilities , developing new facilities , and expanding current facilities for additional capacity , which could result in future demand for the solutions we provide . governments continue to experience many significant spending demands which have constrained correctional budgets limiting their ability to expand existing facilities or construct new facilities . we believe the outsourcing of corrections and detention management services to private operators allows governments to manage increasing inmate populations while simultaneously controlling costs . we believe our customers discover that partnering with private operators to provide residential services to their offenders introduces competition to their correctional system , resulting in improvements to the quality and cost of services throughout their correctional system . further , the use of facilities owned and managed by private operators allows governments to expand correctional capacity without incurring large capital commitments and allows them to avoid long-term pension obligations for their employees . we also believe that having beds immediately available to our partners provides us with a distinct competitive advantage when bidding on new contracts . we believe the most significant opportunities for growth are in providing our government partners with available beds within facilities we currently own or that we will develop . we also believe that owning the facilities in which we provide management services enables us to more rapidly replace business lost compared with managed-only facilities , since we can offer the same beds to new and existing customers and , with customer consent , may have more flexibility in moving our existing inmate populations to facilities with available capacity . our management contracts generally provide our customers with the right to terminate our management contracts at any time without cause . we are actively engaged in marketing our available capacity to existing and prospective customers . historically , we have been successful in substantially filling our inventory of available beds and the beds that we have constructed . filling these available beds could provide substantial growth in revenues , cash flow , and earnings per share . however , we can provide no assurance that we will be able to fill our available beds . we expect the commonwealth of kentucky to utilize a previously idled facility containing 816 beds beginning in the second quarter of 2018 pursuant to a new management contract we executed in november 2017 . 52 the demand for prison capacity in the short-term has been affected by the budget challenges many of our government partners currently face . story_separator_special_tag our financial results were impacted by several non-routine transactions , including the renegotiation of a contract at the south texas family residential center in the fourth quarter of 2016 that resulted in a decrease in revenue of $ 96.7 million at this facility in 2017 compared with 2016 , income tax charges of $ 4.5 million resulting from the tax cuts and jobs act , or the tcja , enacted in the fourth quarter of 2017 , and restructuring charges of $ 4.0 million in the third quarter of 2016. each of these factors is described more fully hereafter . facility operations a key performance indicator we use to measure the revenue and expenses associated with the operation of the facilities we own or manage is expressed in terms of a compensated man-day , which represents the revenue we generate and expenses we incur for one offender for one calendar day . revenue and expenses per compensated man-day are computed by dividing facility revenue and expenses by the total number of compensated man-days during the period . a compensated man-day represents a calendar day for which we are paid for the occupancy of an offender . we believe the measurement is useful because we are compensated for operating and managing facilities at an offender per-diem rate based upon actual or minimum guaranteed occupancy levels . we also measure our ability to contain costs on a per-compensated man-day basis , which is largely dependent upon the number of offenders we accommodate . further , per compensated man-day measurements are also used to estimate our potential profitability based on certain occupancy levels relative to design capacity . revenue and expenses per compensated man-day for all of the operating facilities that we owned or managed , exclusive of those held for lease by third parties , were as follows for the years ended december 31 , 2017 and 2016 : replace_table_token_9_th fixed expenses per compensated man-day for the year ended december 31 , 2017 include depreciation expense of $ 16.5 million and interest expense of $ 6.4 million in order to more properly reflect the cash flows associated with the lease at the south texas family residential center . fixed expenses per compensated man-day for the year ended december 31 , 2016 include depreciation expense of $ 38.7 million and interest expense of $ 10.0 million associated with the lease at the south texas family residential center . 58 revenue total revenue consists of revenue we generate in the operation and management of correctional , detention , and residential reentry facilities , as well as rental revenue generated from facilities we lease to third parties , and from our inmate transportation subsidiary , transcor america , llc , or transcor . the following table reflects the components of revenue for the years ended december 31 , 2017 and 2016 ( in millions ) : replace_table_token_10_th the $ 88.9 million , or 4.9 % , decrease in total management revenue was a result of a decrease in revenue of approximately $ 38.3 million driven by a decrease of 2.2 % in average revenue per compensated man-day . the decrease in management revenue was also a result of a decrease in revenue of approximately $ 50.6 million caused by a decrease in the average daily compensated population , as well as the revenue generated by one fewer day of operations due to leap year in 2016. the decrease in average revenue per compensated man-day from 2016 to 2017 was primarily a result of the amended igsa associated with the south texas family residential center , which became effective in the fourth quarter of 2016 , as further described hereafter . the decrease in average revenue per compensated man-day was partially offset by the effect of per diem increases at several of our other facilities . average daily compensated population decreased 1,673 , or 2.5 % , to 64,439 in 2017 compared to 66,112 in 2016. there were several notable factors that affected the average daily compensated population when comparing 2017 to 2016. average daily compensated population during 2017 increased due to the activation in the third quarter of 2016 of the new contract to care for up to an additional 1,000 inmates at our newly expanded red rock correctional center , and the full activation of the newly constructed trousdale turner correctional center during 2016 , both as further described hereafter . average daily compensated population in 2017 also increased due to two new contracts at our northeast ohio correctional center . in december 2016 , we announced a new contract award from ice at the northeast ohio facility in order to assist ice with their detention needs and , in the third quarter of 2017 , we began receiving offender populations at the northeast ohio facility under a new contract with the state of ohio , as further described hereafter . such average daily compensated population increases were offset by the decline in california inmates held in our out-of-state facilities , the expiration of our contract with the district of columbia , or the district , at the d.c. correctional treatment facility in the first quarter of 2017 , the expiration of our contract with the bop at our eden detention center on april 30 , 2017 , and the expirations in the second and third quarters of 2017 of our contracts at four facilities that we managed for the state of texas , all as further described hereafter . the expiration of our contract with the bop at our cibola county corrections center in october 2016 also resulted in a decrease in average daily compensated population in 2017. while we signed a new contract in october 2016 to provide detention space and services at our cibola facility to ice for up to 1,116 detainees , the transition period from the bop contract to the ice contract and lower utilization by ice resulted in a reduction in average daily compensated population at our cibola

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liquidity and capital resources our principal capital requirements are for working capital , stockholder distributions , capital expenditures , and debt service payments . capital requirements may also include cash expenditures associated with our outstanding commitments and contingencies , as further discussed in the notes to our financial statements . additionally , our capital expenditures may include m & a activities that will enable us to further expand our network of residential reentry centers , grow our portfolio of government-leased properties , and acquire other businesses that provide complementary services . we will continue to pursue opportunities to help our government partners meet their infrastructure needs , primarily through the development and redevelopment of criminal justice sector assets , but also by acquiring other real estate assets with a bias toward those used to provide mission-critical governmental services , that we believe have favorable investment returns , diversify our cash flows , and increase value to our stockholders . we will also respond to customer demand and may develop or expand correctional and detention facilities when we believe potential long-term returns justify the capital deployment . to maintain our qualification as a reit , we generally are required to distribute annually to our stockholders at least 90 % of our reit taxable income ( determined without regard to the dividends paid deduction and excluding net capital gains ) . our reit taxable income will not typically include income earned by our trss except to the extent our trss pay dividends to the reit . our board of directors declared a quarterly dividend of $ 0.42 for each quarter of 2017 totaling $ 199.8 million .

accordingly , we account for gift card breakage and changes in the deferred revenue account at the total company level only . therefore , when we refer to net retail sales by location , such as comparable stores or new stores , these amounts do not include gift card breakage or any changes in deferred revenue . 18 we use net retail sales per square foot and comparable sales as performance measures for our business . the following table details net retail sales per square foot for stores open throughout the fiscal year for the periods presented : replace_table_token_3_th ( 1 ) net retail sales per square foot in north america represents net retail sales from stores open throughout the entire period in north america , excluding e-commerce sales , divided by the total leased square footage of such stores . ( 2 ) net retail sales per square foot in the united kingdom represents net retail sales from stores open throughout the entire period in the united kingdom , excluding e-commerce sales , divided by the total selling square footage of such stores . the percentage increase ( or decrease ) in comparable sales for the periods presented below is as follows : replace_table_token_4_th ( 1 ) consolidated comparable sales percentage changes are based on net retail sales , including e-commerce , and exclude the impact of foreign exchange . store locations are considered comparable beginning in their thirteenth full month of operation . the decrease in consolidated comparable sales in 2017 was primarily attributable to the continued decline in traditional mall traffic throughout the year and during the peak selling month of december , as well as an unusually bad hurricane season in north america . offsetting these impacts , our stores had increased conversion , or customers ' in-store acquisition rates , and higher dollars per transaction as compared to the prior year period as well as the benefit from e-commerce sales . the decrease in consolidated comparable sales in 2016 was primarily attributable to a double-digit decline in north america in the fourth quarter . in addition to the impact of the overall reported declines in north american mall traffic in december , other significant drivers of the decrease included changes in media and marketing tactics , shifts in licensed product sales and the execution of unplanned promotional activities , a decrease in gift card redemptions and missed e-commerce sales in the fourth quarter due to the inability of our e-commerce systems to process the increased traffic to our site . commercial revenue : commercial revenue includes the company 's transactions with other businesses , mainly through wholesale and licensing transactions . revenue from wholesale product sales includes revenue from sales of merchandise to third parties that operate stores under licensing agreements . in addition , we have historically entered into a number of outbound licensing arrangements whereby third parties manufacture merchandise carrying the build-a-bear trademark and sell it to other retailers . revenue from outbound licensing activities is generally based on a percentage of sales made by licensees to third parties and is recognized at the time of sale by the licensee . franchise fees : typically , we receive an initial , one-time franchise fee for each master franchise agreement which is amortized to revenue over the initial term of the respective franchise agreement , which may extend for periods up to 25 years and include a renewal option if certain conditions are met . master franchise rights are typically granted to a franchisee for an entire country or countries . continuing franchise fees are based on a percentage of sales made by the franchisees ' stores and are recognized as revenue at the time of those sales as well as fees for sale of fixtures and equipment required to open and operate stores . 19 costs and expenses cost of merchandise sold - retail and retail gross margin : cost of merchandise sold – retail includes the cost of the merchandise , including royalties paid to licensors of third party branded merchandise ; store occupancy cost , including store depreciation and store asset impairment charges ; cost of warehousing and distribution ; packaging ; stuffing ; damages and shortages ; and shipping and handling costs incurred in shipment to customers . retail gross margin is defined as net retail sales less the cost of merchandise sold - retail . selling , general and administrative expense : these expenses include store payroll and benefits , advertising , credit card fees , store supplies and normal store closing expenses as well as central office general and administrative expenses , including costs for management payroll , benefits , incentive compensation , travel , information systems , accounting , insurance , legal and public relations . these expenses also include depreciation of central office assets as well as the amortization of intellectual property and other assets . certain store expenses such as credit card fees historically have increased or decreased proportionately with net retail sales . preopening : these expenses include costs incurred prior to store openings , remodels and relocations including certain store set-up , labor and hiring costs , rental charges , payroll , marketing , travel and relocation costs . they are expensed as incurred . s tores co rporately-managed locations : the number of build-a-bear workshop stores in the uni ted states , canada , puerto rico ( collectively , north america ) , the united kingdom , ireland and denmark ( collectively , europe ) and china for the last three fiscal years are summarized as follows : replace_table_token_5_th during 2017 , we continued to make improvements to an aged store portfolio by leveraging new discovery formats including the concourse shops in conjunction with select natural lease events as well as to focus on places where families go for entertainment , including tourist locations . story_separator_special_tag store preopening expenses were $ 3.5 million in fiscal 2016 as compared to $ 1.9 million in fiscal 2015. the increase was attributable to the increase in the number of new and remodeled discovery format stores opened in fiscal 2016 as compared to the prior year . interest expense ( income ) , net . interest expense , net of interest income , was $ 5,000 for fiscal 2016. in fiscal 2015 , interest income , net of interest expense , was $ 0.1 million . provision for income taxes . income tax expense in fiscal 2016 was $ 3.9 million compared to an income tax benefit of $ 9.4 million in fiscal 2015. the 2016 effective rate of 74.1 % differed from the statutory rate of 34 % primarily due to the effect of establishing a full valuation allowance in certain foreign jurisdictions and other discrete tax adjustments . the 2015 effective tax rate of negative 52.8 % differed from the statutory rate of 34 % primarily due to the reversal of all of the valuation allowance on u.s. deferred tax assets at january 2 , 2016. non-gaap financial measures we use the term “ store contribution ” throughout this annual report on form 10-k. store contribution consists of income before income tax expense , interest , general and administrative expense , excluding income from franchise and commercial activities and contribution from our e-commerce sites , locations not open for the full fiscal year and adjustments to deferred revenue related to our loyalty program and gift card breakage . this term , as we define it , may not be comparable to similarly titled measures used by other companies and is not a measure of performance presented in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . we use store contribution as a measure of our stores ' operating performance . store contribution should not be considered a substitute for net income , net income per store , cash flows provided by operating activities , cash flows provided by operating activities per store , or other income or cash flow data prepared in accordance with u.s. gaap . additionally , store-level performance measures are inherently limited in that they exclude certain expenses that are recurring in nature and are necessary to support the operation and development of our stores . we believe store contribution is useful to investors in evaluating our operating performance because it , along with the number of stores in operation , directly impacts our profitability . the following table sets forth a reconciliation of store contribution to net income for our corporately-managed stores , open throughout the entire period , located in the united states , canada and puerto rico ( “ north america ” ) ; stores located in the united kingdom , ireland and denmark ( “ europe ” ) and ; beginning in 2017 , china , for our consolidated store base ( dollars in thousands ) . replace_table_token_11_th 24 replace_table_token_12_th ( 1 ) general and administrative expenses consist of non-store , central office general and administrative functions such as management payroll and related benefits , travel , information systems , accounting , purchasing and legal costs , depreciation of central office assets as well as the amortization of intellectual property and other assets , store closing and pre-opening expenses . certain intercompany charges are included in general and administrative expenses in europe . general and administrative expenses also include a central office marketing department , primarily payroll and related benefits expense , but exclude advertising expenses , which are included in store contribution . ( 2 ) other retail activities are comprised primarily of our e-commerce sites , stores not open for the full year and adjustments to deferred revenue related to our loyalty program and gift card breakage . ( 3 ) other contribution includes franchising , commercial revenues and intercompany revenues and all expenses attributable to the international franchising and commercial segments , excluding interest expense ( income ) and income tax expense ( benefit ) . interest expense ( income ) and income tax expense ( benefit ) related to franchising and commercial activities are included in their respective captions . ( 4 ) other revenues from external customers are comprised of international franchising and commercial revenues . seasonality and quarterly results the following is a summary of certain unaudited quarterly results of operations data for each of the last two fiscal years . replace_table_token_13_th ( 1 ) retail g ross margin represents net retail sales less cost of retail merchandise sold . 25 our operating results for one period may not be indicative of results for other periods , and may fluctuate significantly because of a variety of factors , including , but not limited to : ( 1 ) fluctuations in the profitability of our stores ; ( 2 ) increases or decreases in comparable sales and total revenues ; ( 3 ) changes in general economic conditions and consumer spending patterns ; ( 4 ) the timing and frequency of our marketing initiatives including national media appearances and other public relations events ; ( 5 ) changes in foreign currency exchange rates ; ( 6 ) seasonal shopping patterns and holiday and vacation schedules ; ( 7 ) the timing of store closures , relocations and openings and related expenses ; ( 8 ) the effectiveness of our inventory management ; ( 9 ) changes in consumer preferences ; ( 10 ) the continued introduction and expansion of merchandise offerings ; ( 11 ) actions of competitors or mall anchors and co-tenants ; ( 12 ) weather conditions ; and ( 13 ) the impact of a 53rd week in our fiscal year , which occurs approximately every six years . the timing of store openings , closures and remodels may cause fluctuations in quarterly results due to the changes in revenues and expenses associated with each store location . we

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liquidity and capital resources our cash requirements are primarily for the opening of new stores , installation and upgrades of information systems and working capital . over the past several years , we have met these requirements through cash generated from operations . we have access to additional cash through a revolving line of credit that has been in place since 2000. operating activities . cash flows provided by operating activities were $ 21.1 million in fiscal 2017 , $ 16.0 million in fiscal 2016 and $ 32.0 million in fiscal 2015. cash flows from operating activities increased in fiscal 2017 as compared to 2016 primarily due to an increase in net income and the timing of inventory payments , partially offset by the reduction in balances of gift cards and deposits . cash flows from operating activities decreased in fiscal 2016 as compared to 2015 primarily due to decreased store contribution and the timing of inventory receipts and payments . investing activities . cash flows used in investing activities were $ 17.8 million in fiscal 2017 , $ 26.7 million in fiscal 2016 and $ 25.1 million in fiscal 2015. cash used in investing activities in 2017 related primarily to the opening of 41 new locations , the remodeling or relocation of 23 stores , and the continued installation and upgrades of central office information technology systems including the relaunched web platform . cash used in investing activities in 2016 related primarily to the opening of 35 new locations , the remodeling or relocation of 24 stores , and the continued installation and upgrades of central office information technology systems , partially offset by the maturity of short-term investments . cash used in investing activities in 2015 related primarily to the continued installation and upgrades of central office information technology systems , the opening of 25 new stores , the remodeling or relocation of eight stores and the net purchases of short-term investments . financing activities . financing activities used cash of $ 4.8 million , $ 1.9 million and $ 26.4 million in fiscal years 2017 , 2016 and 2015 , respectively . borrowings under our credit facility and subsequent repayments totaled $ 4.0

the impacts of covid-19 on our business , financial condition , and results of operations include but are not limited to , the following : ● we temporarily closed our chinese and u.s. offices and implemented work-from-home policy beginning from late january to march 2020 for our china offices and from march to june 2020 for our u.s. offices , as required by relevant prc and u.s. regulatory authorities , respectively . our office closure and limited activity had caused business interruption which led to a slower growth for our operations . 12 ● our customers have been negatively impacted by the outbreak , which reduced demand for the shipping agency and management as well as freight logistics services in 2020. as a result , our revenue , gross profit and net income has been negatively impacted in 2020. our revenue and gross profit for the year ended june 30 , 2020 were down by approximately 35.2 million or 84.4 % and 2.9 million or 50.4 % , respectively , and net loss increased by approximately 5.9 million or 84.0 % from the same period last year . ● our customers required additional time to pay us or failed to pay us , which required us to record additional allowances . we are currently working with customers to resolve the delinquency issues and made $ 4,996,006 of allowance for doubtful accounts in the year ended june 30 , 2020. we wrote off $ 8,220,754 of accounts receivable in the year ended june 30 , 2020. we will monitor our collections closely throughout the rest of calendar year 2020 . ● we prepaid the costs of commodities and recognized as advance payments on behalf of our customers . as our customers were negatively impacted by the pandemic and required additional time to execute existing contracts , they required additional time to pay us . due to significant uncertainty on whether the delayed contracts will be executed timely . as such , we provided an allowance due to contract delay and recorded allowances of approximately $ 10.0 million . we are currently working with customers to resolve the repayment issues and will monitor collection closely . ● our suppliers have been and could continue to be negatively impacted by the covid-19 outbreak , which may negatively impact our cost of freight , or result in higher cost of revenue , which may in turn materially adversely affect our financial condition and operating results in coming months . on april 6 , 2020 , the company entered into a share purchase agreement ( the “ original spa ” ) with mr. kelin wu , a prc investor ( the “ seller ” ) and mandarine ocean ltd ( “ hanyang shipping ” ) , a shipping company registered in the marshall islands , pursuant to which the company agreed to purchase 75 % of the equity of hanyang shipping from the seller for a purchase price of up to $ 3,750,000 , payable in cash equivalent and or restricted shares of common stock of the company , subject to completion of a third-party valuation of hanyang shipping . on june 17 , 2020 , the company entered into an amended share purchase agreement ( the “ amendment ” ) with the seller to acquire 75 % of the capital stock of hanyang shipping held by the seller for an aggregate consideration of up to $ 1.5 million to be paid in cash and the company 's restricted shares . on september 3 , 2020 , the company and the seller signed a termination agreement to terminate the amendment mutually . neither party will owe the other party any termination penalty in connection with the termination agreement . recent developments after the close of the stock market on july 7 , 2020 , we effected a l-for-5 reverse stock split of our common stock in order to satisfy continued listing requirements of our common stock on the nasdaq capital market . the reverse stock split was approved by our board of directors and stockholders and was intended to allow the company to meet the minimum share price requirement of $ 1.00 per share for continued listing on the nasdaq capital market . as a result all common stock share amounts included in this filing have been retroactively reduced by a factor of five , and all common stock per share amounts have been increased by a factor of five . amounts affected include common stock outstanding , including those that have resulted from the stock options , and warrants that convert to common stock . on september 17 , 2020 , the company entered into certain securities purchase agreement ( the “ spa ” ) with certain “ non-u.s. persons ” ( the “ purchasers ” ) as defined in regulation s of the securities act of 1933 , as amended , pursuant to which the company agreed to sell an aggregate of 720,000 shares ( the “ shares ” ) of the company 's common stock , no par value ( “ common stock ” ) , and warrants ( the “ warrants ” ) to purchase 720,000 shares at a per share purchase price of $ 1.46 ( the “ offering ” ) . the net proceeds to the company from such offering will be approximately $ 1.05 million . the warrants will be exercisable six ( 6 ) months following the date of issuance at an exercise price of $ 1.825 for cash ( the “ warrant shares ” ) . the warrants may also be exercised cashlessly if at any time after the six-month anniversary of the issuance date , there is no effective registration statement registering , or no current prospectus available for , the resale of the warrant shares . the warrants will expire five and a half ( 5.5 ) years from its date of issuance . story_separator_special_tag the inputs into our judgments and estimates consider the economic implications of covid-19 on our critical and significant accounting estimates . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . revenue recognition we recognize revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which we expect to be entitled in such exchange . we identified contractual performance obligations and determine whether revenue should be recognized at a point in time or over time , based on when control of goods and services transfers to a customer . our revenue streams are recognized at a point in time . we use a five-step model to recognize revenue from customer contracts . the five-step model requires that we ( i ) identify the contract with the customer , ( ii ) identify the performance obligations in the contract , ( iii ) determine the transaction price , including variable consideration to the extent that it is probable that a significant future reversal will not occur , ( iv ) allocate the transaction price to the respective performance obligations in the contract , and ( v ) recognize revenue when ( or as ) we satisfy the performance obligation . we continue to derive revenues from sales contracts with customers with revenues being recognized upon performance of services . persuasive evidence of an arrangement is demonstrated via sales contract and invoice ; and the sales price to the customer is fixed upon acceptance of the sales contract and there is no separate sales rebate , discount , or other incentive . our revenues are recognized at a point in time after all performance obligations are satisfied . contract balances we record receivables related to revenue when we have an unconditional right to invoice and receive payment . deferred revenue consists primarily of customer billings made in advance of performance obligations being satisfied and revenue being recognized . taxation because we and our subsidiaries and sino-china were incorporated in different jurisdictions , they file separate income tax returns . we use the asset and liability method of accounting for income taxes in accordance with u.s. gaap . deferred taxes , if any , are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements . a valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will not be utilized in the future . we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . we recognize interest and penalties , if any , related to unrecognized tax benefits as income tax expense . we had no uncertain tax positions as of june 30 , 2020 and 2019. income tax returns for the years prior to 2016 are no longer subject to examination by u.s. tax authorities . 21 prc enterprise income tax prc enterprise income tax is calculated based on taxable income determined under the prc generally accepted accounting principles ( “ prc gaap ” ) at 25 % . sino-china and trans pacific are registered in prc and governed by the enterprise income tax laws of the prc . prc value added taxes and surcharges we are subject to value added tax ( “ vat ” ) . revenue from services provided by the our prc subsidiaries and affiliates , including sino-china and trans pacific are subject to vat at rates ranging from 9 % to 13 % . entities that are vat general taxpayers are allowed to offset qualified vat paid to suppliers against their vat liability . net vat liability is recorded in taxes payable on the consolidated balance sheets . in addition , under the prc regulations , our prc subsidiaries and affiliates are required to pay the city construction tax ( 7 % ) and education surcharges ( 3 % ) based on the net vat payments . we prepare our consolidated financial statements in accordance with u.s. gaap . these accounting principles require us to make judgments , estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period , and the reported amounts of revenues and expenses during each fiscal period . we continually evaluate these judgments and estimates based on our own historical experience , knowledge and assessment of current business and other conditions , our expectations regarding the future based on available information and assumptions that we believe to be reasonable . recent accounting pronouncements pronouncements adopted effective july 1 , 2019 , we adopted asu 2016-02 , “ leases ” ( topic 842 ) , and elected the practical expedients that does not require us to reassess : ( 1 ) whether any expired or existing contracts are , or contain , leases , ( 2 ) lease classification for any expired or existing leases and ( 3 ) initial direct costs for any expired or existing leases . for lease terms of twelve months or fewer , a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities . we also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component . we recognized lease liabilities of approximately $ 0.3 million , with corresponding rou assets of approximately the same amount based on the present value of the future minimum rental payments of leases , using a weighted average discount rate of 8.98 % . on july 1 , 2019 , we adopted asu 2018-07 where awards to nonemployees are measured by estimating the fair value of the equity

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liquidity and capital resources cash flows and working capital as of june 30 , 2020 , we had $ 131,182 in cash ( cash on hand and cash in bank ) . we held approximately 22.8 % of our cash in banks located in us , australia and hong kong and held approximately 77.2 % of our cash in banks located in the prc . as of june 30 , 2020 , we had the following loans outstanding : loans maturities interest rate june 30 , 2020 small business administration loan may 2050 3.75 % $ 155,900 paycheck protection program loan - - $ 124,570 the following table sets forth a summary of our cash flows for the periods as indicated : replace_table_token_7_th the following table sets forth a summary of our working capital : replace_table_token_8_th in assessing the liquidity , we monitor and analyze our cash on-hand and our operating and capital expenditure commitments . our liquidity needs are to meet our working capital requirements , operating expenses and capital expenditure obligations . as of june 30 , 2020 , our working capital deficit was approximately $ 3.9 million and we had cash of approximately $ 0.1 million . we plan to fund continuing operations through identifying new prospective joint venture partners and strategic alliance opportunities for new revenue sources , and by reducing costs to improve profitability and replenish working capital . we believe our ability to repay our current obligations will depend on the future realization of our current assets and the future operating revenues generated from our operations . we expect to realize the balance of our current assets within the normal operating cycle of a twelve month period . if we are unable to realize our current assets within the normal operating cycle of a twelve month period , we may have to consider supplementing our available sources of funds through the following sources : ● we will continuously seek equity financing to support our working capital .

diluted earnings per common share from continuing operations were $ 0.05 , $ 0.38 and $ 0.63 for the years ended december 31 , 2019 , 2018 and 2017 . the decrease in net income from continuing operations for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 was mainly due to lower net interest income and noninterest income , and a higher provision for loan losses , partially offset by lower noninterest expense . total assets were $ 7.83 billion at december 31 , 2019 , a decrease of $ 2.80 billion , or 26 % , from $ 10.63 billion at december 31 , 2018 . the decrease was mainly due to our continued progress towards transitioning to become a relationship-focused business bank . as part of this transition , we continue to de-emphasize the production of lower margin commoditized loan products and we opportunistically reduced holdings of certain investment securities . significant financial highlights include : securities available-for-sale were $ 912.6 million at december 31 , 2019 , a decrease of $ 1.08 billion , or 54.2 % , from $ 1.99 billion at december 31 , 2018 . the decrease was primarily the result of call and net sale activities between periods . we lowered the amount of collateralized loan obligations in the investment securities portfolio and repositioned our securities available-for-sale portfolio to navigate a volatile rate environment by reducing the overall duration of the portfolio by selling longer-duration residential mortgage-backed securities and commercial mortgage-backed-securities . the sales of securities helped remix overall earning assets as the proceeds were primarily used to fund loan originations and reduce borrowings . loans receivable , net of all , totaled $ 5.89 billion at december 31 , 2019 , a decrease of $ 1.74 billion , or 22.84 % , from $ 7.64 billion at december 31 , 2018 . the decrease was mainly due to sales of approximately $ 1.13 billion in sfr mortgage and multifamily loans , coupled with net paydowns and payoffs within the portfolio . total deposits were $ 5.43 billion at december 31 , 2019 , a decrease of $ 2.49 billion , or 31.45 % , from $ 7.92 billion at december 31 , 2018 . the decrease was mainly due to our strategic reduction of high-rate and high-volatility deposits , partially offset by our continuous efforts to build core deposits across our business units , including strong growth from the community banking and private banking channel . total stockholders ' equity was $ 907.2 million at december 31 , 2019 , a decrease of $ 38.3 million , or 4.05 % , from $ 945.5 million at december 31 , 2018 . the decrease was primarily the result of the partial redemption of our series d and series e preferred stock for an aggregate amount of $ 46.0 million and cash dividends on common stock and preferred stock of $ 15.6 million , partially offset by $ 12.2 million of other comprehensive income on securities available-for-sale primarily due to decreases in market interest rates and net income of $ 23.8 million during the year ended december 31 , 2019 . for the quarters ended december 31 , 2019 , 2018 and 2017 , net income from continuing operations was $ 14.3 million , $ 10.8 million , and $ 10.9 million . diluted earnings from continuing operations per total common share were $ 0.20 , $ 0.12 , and $ 0.11 for the quarters ended december 31 , 2019 , 2018 and 2017 . refer to the 2018 form 10-k filed on march 2 , 2019 for discussion related to 2018 activity compared to 2017 activity . 39 results of operations the following table presents condensed statements of operations for the periods indicated : replace_table_token_6_th 40 net interest income the following table presents interest income , average interest-earning assets , interest expense , average interest-bearing liabilities , and their related yields and costs expressed both in dollars and rates for the years indicated : replace_table_token_7_th ( 1 ) total loans are net of deferred fees , related direct costs and discounts , but exclude the allowance for loan losses . non-accrual loans are included in the average balance . interest income includes net accretion of deferred loan ( fees ) and costs of $ ( 916 ) thousand , $ 612 thousand and $ 1.3 million and net discount accretion on purchased loans of $ 364 thousand , $ 637 thousand and $ 4.8 million for the years ended december 31 , 2019 , 2018 and 2017 . total loans includes income from discontinued operations for the years ended december 31 , 2018 and 2017 . ( 2 ) includes average balance of fhlb and federal reserve bank stock at cost and average time deposits with other financial institutions . ( 3 ) includes average balance of boli of $ 108.1 million , $ 105.8 million and $ 103.6 million for the years ended december 31 , 2019 , 2018 and 2017 . ( 4 ) net interest income divided by average interest-earning assets . 41 rate/volume analysis the following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities . information is provided on changes attributable to ( i ) changes in volume multiplied by the prior rate and ( ii ) changes in rate multiplied by the prior volume . changes attributable to both rate and volume which can not be segregated have been allocated proportionately to the change due to volume and the change due to rate . story_separator_special_tag the decrease was mainly due to the aforementioned sale of mortgage servicing rights on $ 3.55 billion in unpaid principal balances of conventional mortgage loans and reduced loan repurchase settlement activities . 45 restructuring expense was $ 4.3 million for the year ended december 31 , 2019 and consisted of severance and retention costs associated with the exit from our third-party mortgage origination and brokered single family lending business and ceo and cfo transitions during 2019. for the year ended december 31 , 2018 , restructuring expense was $ 4.4 million and consisted of severance-related costs as a result of the reduction in workforce that was previously implemented in 2018 to reduce our workforce by approximately 9 % of total staff . all other expenses were $ 14.7 million for the year ended december 31 , 2019 , a decrease of $ 621 thousand , or 4.0 % , from $ 15.4 million for the year ended december 31 , 2018 . the decrease was mainly due to lower provision for unfunded loan commitments and overall expense reductions . loss on investments in alternative energy partnerships was $ 1.7 million for the year ended december 31 , 2019 , a decrease of $ 3.4 million from $ 5.0 million for the year ended december 31 , 2018 . the decrease in loss was mainly due to decreased loss sharing allocations resulting in lower hypothetical liquidation at book value ( hlbv ) losses . income tax expense for the years ended december 31 , 2019 , 2018 and 2017 , income tax expense ( benefit ) from continuing operations was $ 4.2 million , $ 4.8 million and $ ( 26.6 ) million , respectively , and the effective tax rate was 15.1 percent , 10.3 percent and ( 98.8 ) percent , respectively . our effective tax rate of continuing operations for the year ended december 31 , 2019 was higher than the effective tax rate of continuing operations for the year ended december 31 , 2018 mainly due to the reduction in the recognition of tax credits on investments in alternative energy partnerships , which were $ 3.4 million for the year ended december 31 , 2019 , compared to $ 9.6 million for the year ended december 31 , 2018 . the reduction in tax credits received by the bank is due to fewer investments in alternative energy partnerships . we use the flow-through income statement method to account for the tax credits earned on investments in alternative energy partnerships . under this method , the tax credits are recognized as a reduction to income tax expense and the initial book-tax difference in the basis of the investments is recognized as additional tax expense in the year they are earned . for additional information , see note 14 to consolidated financial statements included in `` item 8. financial statements and supplementary data `` of this annual report on form 10-k. 46 financial condition investment securities investment securities that we have the ability and the intent to hold to maturity are classified as held-to-maturity . all other securities are classified as available-for-sale . investment securities classified as available-for-sale are carried at their estimated fair values with the changes in fair values recorded in accumulated other comprehensive income , net of tax , as a component of stockholders ' equity . at december 31 , 2019 , 2018 and 2017 , all of our investment securities were classified as available-for-sale . the primary goal of our investment securities portfolio is to provide a relatively stable source of interest income while satisfactorily managing risk , including credit risk , reinvestment risk , liquidity risk and interest rate risk . certain investment securities provide a source of liquidity as collateral for fhlb advances , federal reserve discount window capacity , repurchase agreements and for certain public deposits . the following table presents the amortized cost and fair value of the investment securities portfolio and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income ( loss ) as of the dates indicated : replace_table_token_11_th securities available-for-sale were $ 912.6 million at december 31 , 2019 , a decrease of $ 1.08 billion , or 54.2 % , from $ 1.99 billion at december 31 , 2018 . the decrease was mainly due to sales of $ 1.20 billion , principal payments of $ 36.5 million , and calls and pay-offs of $ 53.1 million , partially offset by purchases of $ 195.3 million during the year ended december 31 , 2019 . securities available-for-sale had a net unrealized loss of $ 16.9 million and $ 34.2 million at december 31 , 2019 and 2018 . 47 during the year ended december 31 , 2019 , in response to a changing interest rate environment we repositioned our securities available-for-sale portfolio by reducing the overall duration through sales of certain longer-duration and fixed-rate mortgage-backed securities . additionally , we continued to strategically reduce our collateralized loan obligations exposure . a portion of the funds from sales of investment securities during 2019 and other available cash balances were reinvested into a mix of security classes , resulting in an overall shorter duration for the securities portfolio . as of december 31 , 2019 , our securities portfolio included $ 718.4 million of clos , $ 91.3 million of agency collateralized mortgage obligations , $ 36.5 million of agency mortgage-backed securities , $ 52.7 million of municipal securities , and $ 13.6 million of corporate debt securities . clos totaled $ 718.4 million and $ 1.42 billion at december 31 , 2019 and 2018 . the $ 703.2 million decrease between periods was due primarily to call and sale activities . clos are floating rate debt securities backed by pools of senior secured commercial loans to a diverse group of companies across a broad spectrum of industries . underlying loans are generally secured by a company 's assets such as inventory

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liquidity management we are required to maintain sufficient liquidity to ensure a safe and sound operation . liquidity may increase or decrease depending upon availability of funds and comparative yields on investments in relation to the return on loans . historically , we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations , including potential deposit outflows , and dividend payments . cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained . banc of california , n.a . the bank 's liquidity , represented by cash and cash equivalents and securities available-for-sale , is a product of its operating , investing , and financing activities . the bank 's primary sources of funds are deposits ; payments ( including interest and principal ) on outstanding loans and investment securities ; sales of loans , investment securities and other short-term investments ; and funds provided from operations . while scheduled payments from the amortization of loans and investment securities , and maturing investment securities and short-term investments are relatively predictable sources of funds , deposit flows and loan prepayments are greatly influenced by general interest rates , economic conditions , and competition . in addition , the bank invests excess funds in short-term interest-earning assets , which provide liquidity to meet lending requirements . the bank also generates cash through borrowings . the bank mainly utilizes fhlb advances and securities sold under repurchase agreements to leverage its capital base , to provide funds for its lending activities , as a source of liquidity , and to enhance its interest rate risk management . the bank also has the ability to obtain brokered deposits and collect deposits through its wholesale and treasury operations . liquidity management is both a daily and long-term function of business management . any excess liquidity is typically invested in federal funds or investment securities .

this earnings volatility generally is not indicative of the underlying economics of our business , as the derivative forward fair value gains or losses recorded each period may or may not be realized over time , depending on the terms of our derivative instruments and future changes in market conditions that impact the periodic cash settlement amounts of our interest rate swaps . as such , management uses our adjusted non-gaap results to evaluate our operating performance . our adjusted results include realized net periodic interest rate swap settlement amounts but exclude the impact of unrealized forward fair value gains and losses . our financial debt covenants are also based on our non-gaap adjusted results , as the forward fair value gains and losses related to our interest rate swaps do not affect our cash flows , liquidity or ability to service our debt . 23 financial performance reported results we reported net income of $ 457 million and a tier of 1.58 for fiscal year ended may 31 , 2018 ( “ fiscal year 2018 ” ) , compared with a net income of $ 312 million and a tier of 1.42 for fiscal year 2017 , and a net loss of $ 52 million and a tier of 0.92 for fiscal year 2016 . our debt-to-equity ratio decreased to 16.72 as of may 31 , 2018 , from 21.94 as of may 31 , 2017 , primarily due to an increase in equity resulting from our reported net income of $ 457 million for fiscal year 2018 , which was partially offset by patronage capital retirement of $ 45 million in september 2017. the variance of $ 145 million between our reported net income of $ 457 million for fiscal year 2018 and net income of $ 312 million for fiscal year 2017 was driven by an increase in derivative gains of $ 137 million and a favorable shift in the provision for loan losses of $ 24 million , partially offset by a decrease in net interest income of $ 10 million and an increase in operating expenses of $ 5 million . we recognized derivative gains of $ 232 million in fiscal year 2018 , compared with derivative gains of $ 95 million in the prior fiscal year , both of which were attributable to a net increase in the fair value of our pay-fixed swaps as interest rates increased across the swap curve during each period . the increase in interest rates , however , was more pronounced during fiscal year 2018 , which resulted in significantly higher derivative gains relative to fiscal year 2017 . we recorded a benefit for loan losses of $ 18 million in fiscal year 2018 , compared with a provision of $ 6 million in fiscal year 2017 . the benefit for loan losses was attributable to a reduction in our allowance for loan losses due to changes in the loss severity , or recovery rate , assumptions used in determining the collective allowance for our electric distribution and power supply loan portfolios to reflect management 's current assessment of expected losses in the event of default on a loan in these portfolios . the decrease in net interest income resulted from compression in the net interest yield , which was partially offset by an increase of 3 % in average interest-earning assets . the net interest yield declined by 8 basis points to 1.12 % , reflecting the impact of an overall increase in our average cost of funds due to the increase in interest rates during fiscal year 2018 , which resulted in a higher average cost for our short-term and variable-rate borrowings . the variance of $ 364 million between our reported net income of $ 312 million for fiscal year 2017 and net loss of $ 52 million for fiscal year 2016 was driven by mark-to-market changes in the fair value of our derivatives . we recognized derivative gains of $ 95 million in fiscal year 2017 , largely due to an overall increase in interest rates during the year . in contrast , we recognized derivative losses of $ 310 million in fiscal year 2016 , attributable to a decline in longer-term interest rates and a flattening of the swap curve . the favorable impact of the shift of $ 405 million to derivative gains in fiscal year 2017 was partially offset by a reduction in net interest income of $ 36 million , resulting from a decrease in the net interest yield of 23 basis points to 1.20 % , which was partially offset by an increase in average interest-earning assets . adjusted non-gaap results our adjusted net income totaled $ 151 million and our adjusted tier was 1.17 for fiscal year 2018 , compared with adjusted net income of $ 133 million and adjusted tier of 1.16 for fiscal year 2017 , and adjusted net income of $ 170 million and adjusted tier of 1.22 for fiscal year 2016 . our adjusted debt-to-equity ratio increased to 6.18 as of may 31 , 2018 , from 5.95 as of may 31 , 2017 , predominately due to an increase in debt outstanding to fund loan growth . the increase in adjusted net income of $ 18 million in fiscal year 2018 from fiscal year 2017 was primarily driven by the favorable shift in the provision for loan losses of $ 24 million , partially offset by the increase in operating expenses of $ 5 million . while our adjusted net interest yield decreased by 3 basis points to 0.83 % , largely due to an increase in our adjusted average cost of borrowings , adjusted net interest income of $ 210 million was flat because of the increase in average interest-earning assets of 3 % . story_separator_special_tag fair value measurement is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety . the three levels of the fair value hierarchy are summarized below : level 1 : quoted prices ( unadjusted ) in active markets for identical assets or liabilities level 2 : observable market-based inputs , other than quoted prices in active markets for identical assets or liabilities level 3 : unobservable inputs the degree of management judgment involved in determining fair value is dependent upon the availability of quoted prices in active markets or observable market parameters . when quoted prices and observable data in active markets are not fully available , management 's judgment is necessary to estimate fair value . changes in market conditions , such as reduced liquidity in the capital markets or changes in secondary market activities , may reduce the availability and reliability of quoted prices or observable data used to determine fair value . significant judgment may be required to determine whether certain assets and liabilities measured at fair value are classified as level 2 or level 3. in making this determination , we consider all available information that market participants use to measure fair value , including observable market data , indications of market liquidity and orderliness , and our understanding of the valuation techniques and significant inputs used . based upon the specific facts and circumstances , judgments are made regarding the significance of level 3 inputs used in determining the fair value of the asset or liability in its entirety . if level 3 inputs are considered significant , the valuation technique is classified as level 3. the process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions . financial instruments recorded at fair value on a recurring basis , which consisted primarily of financial instruments , including available-for-sale investment securities , deferred compensation investments and derivatives , represented 1 % of our total assets as of both may 31 , 2018 and 2017 , and 1 % and 2 % , respectively , of total liabilities as of may 31 , 2018 and 2017 . the fair value of these financial instruments was determined using either level 1 or 2 inputs . we did not have any financial instruments recorded at fair value on a recurring basis for which the fair value was determined using level 3 inputs as of may 31 , 2018 and 2017 . we discuss the valuation inputs and assumptions used in determining the fair value , including the extent to which we have relied on significant unobservable inputs to estimate fair value , in “ note 13—fair value measurement . ” 28 recent accounting changes and other developments see “ note 1—summary of significant accounting policies ” for information on recently issued accounting standards and the expected impact of the adoption of these accounting standards . to the extent we believe the adoption of new accounting standards has had or will have a material impact on our consolidated results of operations , financial condition or liquidity , we also discuss the impact in the applicable section ( s ) of this md & a . consolidated results of operations the section below provides a comparative discussion of our consolidated results of operations between fiscal year 2018 and 2017 and between fiscal year 2017 and 2016 . following this section , we provide a comparative analysis of our consolidated balance sheets as of may 31 , 2018 and 2017 . you should read these sections together with our “ executive summary—outlook for the next 12 months ” where we discuss trends and other factors that we expect will affect our future results of operations . net interest income net interest income represents the difference between the interest income earned on our interest-earning assets , which includes loans and investment securities , and the interest expense on our interest-bearing liabilities . our net interest yield represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities plus the impact from non-interest bearing funding . we expect net interest income and our net interest yield to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities . we do not fund each individual loan with specific debt . rather , we attempt to minimize costs and maximize efficiency by proportionately funding large aggregated amounts of loans . table 1 presents our average balance sheets for fiscal years 2018 , 2017 and 2016 , and for each major category of our interest-earning assets and interest-bearing liabilities , the interest income earned or interest expense incurred , and the average yield or cost . table 1 also presents non-gaap adjusted interest expense , adjusted net interest income and adjusted net interest yield , which reflect the inclusion of net accrued periodic derivative cash settlements in interest expense . we provide reconciliations of our non-gaap adjusted measures to the most comparable gaap measures under “ non-gaap financial measures . ” 29 table 1 : average balances , interest income/interest expense and average yield/cost replace_table_token_7_th 30 ( 1 ) interest income on long-term , fixed-rate loans includes loan conversion fees , which are generally deferred and recognized as interest income using the effective interest method . ( 2 ) troubled debt restructuring ( “ tdr ” ) loans . ( 3 ) consists of late payment fees and net amortization of deferred loan fees and loan origination costs . ( 4 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . adjusted net interest spread represents the difference between the average yield on total interest-earning assets and the adjusted average cost of total interest-bearing liabilities . ( 5 ) includes other liabilities and equity

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debt outstanding table 11 displays the composition , by product type , of our outstanding debt and the weighted average interest rate as of may 31 , 2018 , 2017 and 2016 . table 11 also displays the composition of our debt based on several additional selected attributes . 40 table 11 : total debt outstanding and weighted-average interest rates replace_table_token_16_th 41 ( 1 ) includes variable-rate debt that has been swapped to a fixed rate , net of any fixed-rate debt that has been swapped to a variable rate . ( 2 ) includes fixed-rate debt that has been swapped to a variable rate , net of any variable-rate debt that has been swapped to a fixed rate . also includes commercial paper notes , which generally have maturities of less than 90 days . the interest rate on commercial paper notes does not change once the note has been issued ; however , the interest rate for new commercial paper issuances changes daily . ( 3 ) borrowings with an original contractual maturity of one year or less are classified as short-term borrowings . borrowings with an original contractual maturity of greater than one year are classified as long-term debt . ( 4 ) consists of long-term debt , subordinated deferrable debt and total members ' subordinated debt reported on the consolidated balance sheets . maturity classification is based on the original contractual maturity as of the date of issuance of the debt . our outstanding debt volume generally increases and decreases in response to member loan demand . as outstanding loan balances increased during the year ended may 31 , 2018 , our debt volume also increased . total debt outstanding of $ 24,633 million as of may 31 , 2018 , increased by $ 1,173 million , or 5 % , from may 31 , 2017 .

updated digital flight information displays and a connector between terminal c and international flights at terminal e are also expected to be completed by april 2016. network as part of our ongoing network initiatives and route optimization efforts we continued to make schedule and frequency adjustments throughout 2015 . we added six new bluecities to our network : cleveland , oh ; reno-tahoe , nv ; st. george 's , grenada ; mexico city , mexico ; antigua and barbuda ; and albany , ny . we also added new routes between existing bluecities . outlook for 2016 we believe we will improve our return for shareholders in 2016 as we implement more of the revenue initiatives first outlined publicly at our investor day in november 2014. specifically , in 2016 we expect to derive additional value from fare options , a new credit card agreement , and our a321 cabin restyling program . we plan to add new destinations and route pairings based upon market demand , having previously announced four new bluecities for the first half of 2016 . we are continuously looking to expand our other ancillary revenue opportunities , improve our trueblue ® loyalty program and deepen our portfolio of commercial partnerships . as in the past , we intend to invest in infrastructure and product enhancements which we believe will enable us to reap future benefits . we also remain committed to strengthening the balance sheet . for the full year 2016 , we estimate our operating capacity will increase by approximately 8.5 % to 10.5 % over 2015 with the addition of 10 airbus a321 aircraft to our operating fleet . we are expecting our cost per available seat mile , excluding fuel , profit sharing and related taxes , for 2016 to increase by between approximately 0.0 % to 2.0 % over the level in 2015 . 32 results of operations year 2015 compared to year 2014 overview we reported net income of $ 677 million , an operating income of $ 1,216 million and an operating margin of 19.0 % for the year ended december 31 , 2015 . this compares to net income of $ 401 million , an operating income of $ 515 million and an operating margin of 8.9 % for the year ended december 31 , 2014 . diluted earnings per share were $ 1.98 for 2015 compared to $ 1.19 for the same period in 2014 . net income for the year ended december 31 , 2014 included the after tax gain on the sale of livetv of approximately $ 169 million , or $ 0.49 per diluted share . approximately 80 % of our operations are centered in and around the heavily populated northeast corridor of the u.s. , which includes the new york and boston metropolitan areas . during the first three months of 2014 , this area experienced one of the most severe winters in 20 years , with new york and boston each experiencing over 57 inches of snow . these weather conditions led to the cancellation of approximately 4,100 flights . these cancellations resulted in a negative impact on our first quarter 2014 seat revenue as well as ancillary revenue such as change fees due to our policy of waiving these fees during severe weather events . during the first quarter of 2015 , a series of winter storms again impacted the new york and boston metropolitan areas , with boston 's logan airport experiencing record breaking snowfall totals . despite the adverse weather conditions , our operational performance improved over the same period in 2014 , resulting in approximately 37 % fewer flight cancellations . we estimate that winter storms reduced our operating income by approximately $ 10 million in the first quarter of 2015 and $ 35 million in the first quarter of 2014. operating revenues replace_table_token_10_th passenger revenue accounted for 91.8 % of our total operating revenue for the year ended december 31 , 2015 . as well as seat revenue , passenger revenue includes revenue from our ancillary product offerings such as evenmore space . revenue generated from international routes , including puerto rico , accounted for 30 % of our passenger revenues in 2015 . revenue is recognized either when transportation is provided or after the ticket or customer credit expires . we measure capacity in terms of available seat miles , which represents the number of seats available for passengers multiplied by the number of miles the seats are flown . yield , or the average amount one passenger pays to fly one mile , is calculated by dividing passenger revenue by revenue passenger miles . we attempt to increase passenger revenue primarily by increasing our yield per flight which produces higher revenue per available seat mile . our objective is to optimize our fare mix to increase our overall average fare while continuing to provide our customers with competitive fares . in 2015 , the increase in passenger revenue was mainly attributable to a 9.4 % increase in revenue passengers and a 0.8 % increase in average fare . our largest ancillary product remains the evenmore space seats , generating approximately $ 228 million in revenue , an increase of over 14 % compared to 2014 . 33 the primary component of other revenue is the fees from reservation changes and excess baggage charged to customers in accordance with our published policies . we also include the marketing component of trueblue ® point sales , on-board product sales , charters , ground handling fees of other airlines and rental income . we sold our subsidiary , livetv , in june 2014 and any third party revenues earned for the sale of in-flight entertainment systems and on-going services provided for these systems before this date were included in other revenue of approximately $ 30 million . also included in other revenue is transportation of cargo which was discontinued during the fourth quarter of 2015 . story_separator_special_tag as a result of these 2015 highlights , our net debt to earnings before interest , taxes , depreciation , amortization and rent ( ebitdar ) ratio improved from 2.5x in 2014 to 1.1x in 2015. analysis of cash flows we had cash and cash equivalents of $ 318 million as of december 31 , 2015. this compares to $ 341 million and $ 225 million as of december 31 , 2014 and 2013 , respectively . we held both short and long term investments in 2015 , 2014 and 2013. our short-term investments totaled $ 558 million as of december 31 , 2015 compared to $ 367 million and $ 402 million as of december 31 , 2014 and 2013 , respectively . our long-term investments totaled $ 49 million as of december 31 , 2015 compared to $ 60 million and $ 114 million as of december 31 , 2014 and 2013 , respectively . operating activities cash flows provided by operating activities totaled $ 1,598 million in 2015 compared to $ 912 million in 2014 and $ 758 million in 2013. there was a $ 686 million increase in cash flows from operating activities in 2015 compared to 2014. during 2015 we saw a 9.5 % increase in capacity , a 0.8 % increase in average fares and a 35.7 % decrease in the price of fuel which all helped to improve operating cash flows . the $ 154 million increase in cash flows from operations in 2014 compared to 2013 was primarily a result of a 2 % increase in average fares , a 5 % increase in capacity and a decrease of 5 % in fuel prices . we additionally recognized a gain on sale of our subsidiary , livetv , of $ 241 million during 2014. as of december 31 , 2015 , our unrestricted cash , cash equivalents and short-term investments as a percentage of trailing twelve months revenue was approximately 14 % . we rely primarily on cash flows from operations to provide working capital for current and future operations . 40 investing activities during 2015 , capital expenditures related to our purchase of flight equipment included $ 104 million for flight equipment deposits , $ 450 million for the purchase of 12 new airbus a321 aircraft and $ 110 million for the buyout of six aircraft leases , $ 120 million for spare part purchases , and $ 29 million for flight equipment work-in-progress . other property and equipment capital expenditures also included ground equipment purchases and facilities improvements for $ 128 million . investing activities also included the net purchase of $ 187 million in investment securities . during 2014 , capital expenditures related to our purchase of flight equipment included $ 127 million for flight equipment deposits , $ 298 million for the purchase of seven new airbus a321 aircraft , $ 33 million for spare part purchases , $ 79 million for flight equipment work-in-progress , and $ 1 million relating to other activities . capital expenditures also included the purchase of the slots at reagan national for $ 75 million , other property and equipment including ground equipment purchases and facilities improvements for $ 224 million and livetv in-flight entertainment equipment inventory for $ 20 million . investing activities also included the proceeds from the sale of livetv for $ 393 million and the net proceeds of $ 81 million from the sale of investment securities . during 2013 , the capital expenditure for seven new embraer e190 aircraft , three new airbus a320 aircraft and four new airbus a321 aircraft was $ 365 million . we additionally paid $ 22 million for flight equipment deposits and $ 54 million for spare parts . capital expenditures for other property and equipment , including ground equipment purchases , facilities improvements and livetv in-flight entertainment equipment inventory were $ 196 million . livetv sold its investment in the airfone business with proceeds of $ 8 million . investing activities also include the net sale of $ 161 million in investment securities . we currently anticipate 2016 capital expenditures to be between $ 820 million and $ 920 million , including approximately $ 670 million to $ 720 million for aircraft and predelivery deposits . the remaining capital expenditures of approximately $ 150 million to $ 200 million relate to non-aircraft projects such as the customer technology refresh , the expansion of our facilities at boston and updates to our it infrastructure . financing activities financing activities during 2015 consisted of the scheduled repayment of $ 196 million relating to debt and capital lease obligations . we prepaid $ 100 million of outstanding principal relating to 10 airbus a320 aircraft . as a result , four aircraft became unencumbered and six have lower principal balances . we also prepaid the outstanding balance of $ 32 million on a special facility revenue bond for jfk that was issued by the new york city industrial development agency in december 2006. in addition , we acquired $ 241 million in treasury shares of which $ 150 million related to our accelerated share repurchase in june 2015. during the period , we realized $ 84 million in proceeds from the issuance of stock related to employee share-based compensation . in the future we may issue , in one or more offerings , debt securities , pass-through certificates , common stock , preferred stock and or other securities . during 2015 , $ 68 million of series b 5.5 % convertible debentures were converted by holders , as a result , we issued approximately 15 million shares of our common stock . financing activities during 2014 consisted of the scheduled repayment of $ 394 million relating to debt and capital lease obligations and $ 308 million of debt prepayment . we issued $ 342 million in fixed rate equipment notes secured by 18 aircraft , acquired $ 82 million in treasury shares , including $

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capital resources we have been able to generate sufficient funds from operations to meet our working capital requirements and we have historically financed our aircraft through either secured debt or lease financing . as of december 31 , 2015 , we operated a fleet of 215 aircraft which included 17 airbus a321 aircraft and 44 airbus a320 aircraft that were unencumbered . of our remaining aircraft , 54 were financed under operating leases , six were financed under capital leases and 94 were financed by private and public secured debt . additionally we have 33 unencumbered spare engines . approximately 44 % of our property and equipment is pledged as security under various loan arrangements . dependent on market conditions , we anticipate paying cash for the 10 airbus a321 aircraft scheduled for delivery in 2016. to the extent we can not secure financing on terms we deem attractive , we may be required to pay in cash , further modify our aircraft acquisition plans or incur higher than anticipated financing costs . although we believe debt and or lease financing should be available to us if needed , we can not give assurance we will be able to secure financing on terms attractive to us , if at all . working capital we had a working capital deficit of $ 902 million as of december 31 , 2015 compared to a deficit of $ 736 million as of december 31 , 2014 and a deficit of $ 818 million as of december 31 , 2013. working capital deficits can be customary in the airline industry since air traffic liability is classified as a current liability . our working capital deficit increased $ 166 million in 2015 mainly due to several factors including an increase in the balances of current debt maturities , air traffic liabilities and record profit sharing partially offset by an overall increase in our cash and short term investment balances .

pursuant to the merger agreement , the company formed the related party transaction committee which is required to include at least two “ independent directors ” ( defined as any individuals who do not beneficially own more than 5 % of the outstanding voting shares of the company , are not employed by , or officers of the company or any entity related to mr. cowart , are not directors or managers of any such company , are not family members of mr. cowart , and would qualify as “ independent directors ” as defined in the rules and regulations of the new york stock exchange ) . the related party transaction committee is charged with the review and pre-approval of any and all related party transactions , including between vertex and vertex lp , mr. cowart , or any other company or individual which may be affiliated with mr. cowart . the previously formed sub-committee of the related party transaction committee including dave phillips , dan borgen and john pimentel , will review and advise the related party transaction committee and the board of directors in connection with the potential exercise by the company of the right of first refusal . -35- the company has not entered into any definitive agreements or understandings to acquire any assets or securities of the vertex lp entities or to exercise its right of first refusal to date , but may enter into such agreements or understandings in the future . such transaction may include the company assuming and or acquiring substantial amounts of debt or liabilities ; the payment of substantial cash consideration ; and or the issuance of significant non-cash consideration consisting of preferred stock , shares of our common stock or warrants to purchase shares of our common stock , which may result in substantial dilution of the ownership interests of existing shareholders and may significantly dilute the company 's common stock book value . such issuances may also serve to enhance existing management 's ability to maintain control of the company because the shares may be issued to parties or entities committed to supporting existing management . any agreements or understandings would be subject to the approval of the management and owners of the vertex lp entities which may be acquired , the company 's related party transaction committee , and where applicable , the approval of the company 's shareholders . results of operations description of material financial line items : revenues we generate revenues from two existing operating divisions as follows : black oil - revenues for our black oil division are comprised primarily of feedstock sales ( used motor oil ) which are purchased from a network of local and regional suppliers . volumes are consolidated for efficient delivery and then sold to third-party re-refiners and fuel oil blenders for the export market . refining and marketing - the refining and marketing division generates revenues relating to the sales of finished products . the refining and marketing division gathers hydrocarbon streams in the form of petroleum distillates , transmix and other chemical products that have become off-specification during the transportation or refining process . these feedstock streams are purchased from pipeline operators , refineries , chemical processing facilities and third-party providers , and then processed at a third-party facility under our direction . the end products are typically three distillate petroleum streams ( gasoline blendstock , pygas and fuel oil cutterstock ) , which are sold to major oil companies or to large petroleum trading and blending companies . the end products are delivered by barge and truck to customers . in addition , the refining and marketing division purchases black oil which is then re-refined through tcep . the finished product is then sold by barge as a fuel oil cutterstock and a feedstock component for major refineries . our revenues are affected by changes in various commodity prices including crude oil , natural gas and # 6 oil . cost of revenues black oil - cost of revenues for our black oil division are comprised primarily of feedstock purchases from a network of providers . other cost of revenues include transportation costs incurred by third parties , purchasing and receiving costs , analytical assessments , brokerage fees and commissions , surveying and storage costs . refining and marketing - the refining and marketing division incurs cost of revenues relating to the purchase of feedstock , purchasing and receiving costs , and inspection and processing of the feedstock into gasoline blendstock , pygas and fuel oil cutter by a third party . cost of revenues also includes broker 's fees , inspection and transportation costs . our cost of revenues are affected by changes in various commodity indices , including crude oil , natural gas and # 6 oil . for example , if the price for crude oil increases , the cost of solvent additives used in the production of blended oil products , and fuel cost for transportation cost from third party providers will generally increase . similarly , if the price of crude oil falls , these costs may also decline . -36- general and administrative expenses our general and administrative expenses consist primarily of salaries and other employee-related benefits for executive , administrative , legal , financial and information technology personnel , as well as outsourced and professional services , rent , utilities , and related expenses at our headquarters , as well as certain taxes . story_separator_special_tag , up to that number of shares equal to 5 % of the total number of shares then beneficially owned by such holder . -42- additionally , the company has approximately 4.4 million shares of series a convertible preferred stock ( “ series a preferred stock ” ) issued and outstanding as of the date of this report . among the other rights of the series a preferred stock , each share of series a preferred stock can be converted into one ( 1 ) share of common stock , provided that prior to april 16 , 2012 , no holder may , in any given three-month period , convert more than that number of shares of series a preferred stock that equals 5 % of the total number of shares of series a preferred stock then beneficially owned by such holder ( the “ conversion limitation ” ) . additionally , holders may convert only up to that number of shares of series a preferred stock , such that upon conversion , the aggregate beneficial ownership of the company 's common stock held by any such holder does not exceed 4.99 % of the company 's common stock then outstanding ( the “ beneficial limitation ” ) . consequently , in april 2012 , we will have an additional approximately 11 million shares of common stock available for immediate resale , which were previously locked-up and or restricted from conversion . the sale of such common stock previously subject to lock-up agreements may cause the price of our common stock to decline in value and the conversion and sale of shares of series a preferred stock may cause the price of our common stock to decline in value and or may cause immediate and substantial dilution to our common stock shareholders . additionally , the sale of such previously locked-up and or converted series a preferred stock shares may cause continued downward pressure on the price of our common stock . such sales and downward pressure may be exacerbated by the limited volume of our shares which trade . we believe that our stock prices ( bid , ask and closing prices ) are entirely arbitrary , are not related to the actual value of the company , and may not reflect the actual value of our common stock ( and may reflect a lower value ) . shareholders and potential investors in our common stock should exercise caution before making an investment in the company , and should not rely on the publicly quoted or traded stock prices in determining our common stock value , but should instead determine the value of our common stock based on the information contained in the company 's public reports , industry information , and those business valuation methods commonly used to value private companies . we may seek the listing of our common stock on nasdaq , nyse , or amex or another national securities exchange in the future . we believe that the listing of our securities on a national exchange will facilitate the company 's access to capital , from which certain acquisitions and capital investments might be financed . however , we can provide no assurances that we will be able to meet the initial listing standards of any stock exchange in the future , or that we will be able to maintain a listing of our common stock on any stock exchange in the future , assuming we are initially approved for quotation on an exchange of which there can be no assurance . until meeting the listing requirements of a national securities exchange , we expect that our common stock will continue to be eligible to trade on the otc bulletin board , another over-the-counter quotation system , or on the `` pink sheets , `` where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock . cash flows for the fiscal year ended december 31 , 2011 compared to the fiscal year ended december 31 , 2010 were : replace_table_token_5_th -43- operating activities used cash of $ 70,866 for the twelve months ended december 31 , 2011 as compared to providing $ 774,978 of cash during the corresponding period in 2010. our primary sources of liquidity are cash flows from our operations and the availability to borrow funds under our line of credit with bank of america , described above . the primary reasons for the decrease in cash provided by operating activities are related to the increase of $ 3,953,496 in accounts receivable , along with a $ 2,506,999 increase in inventory and $ 1,930,000 of deferred federal income tax , offset by a $ 1,870,994 increase in accounts payable for the year ended december 31 , 2011 and $ 5,753,515 of net income . additionally , non-cash items increasing net income related to stock compensation provided $ 138,859 of liquidity and depreciation and amortization contributed $ 161,048 of net cash . investing activities used cash of $ 304,509 for the twelve months ended december 31 , 2011 as compared to having used $ 305,229 during the corresponding period in 2010. investing activities in 2011 were comprised of $ 241,454 in cash payments related to the license of the tcep and $ 63,055 for the purchase of fixed assets . financing activities provided $ 306,250 of cash during the twelve months ended december 31 , 2011 , as compared to using $ 239,572 during the corresponding period in 2010. financing activities in 2011 included $ 306,250 of proceeds from the exercise of common stock warrants and options . in january 2010 , the company began a private placement offering to accredited investors only of up to 2,000,000 units ( the “ offering ” ) , each consisting of ( a ) one share of series b preferred stock ; and ( b ) one three year warrant to purchase

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liquidity and capital resources the success of our current business operations is not dependent on extensive capital expenditures , but rather on relationships with feedstock suppliers and end-product customers , and on efficient management of overhead costs . through these relationships , we are able to achieve volume discounts in the procurement of our feedstock , thereby increasing the margins of our segments ' operations . the resulting operating cash flow is crucial to the viability and growth of our existing business lines . -40- we had total assets of $ 16,733,971 as of december 31 , 2011 compared to $ 8,139,345 at december 31 , 2010. this increase was partially due to the improvement in net income during the twelve months ended december 31 , 2011 which increased by $ 4,525,089 to net income of $ 5,753,515 for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 , as well as the $ 2,506,999 increase in inventory along with an increase in accounts receivable of $ 3,953,496 as of december 31 , 2011 , compared to december 31 , 2010. this increase in inventory is partly due to increased commodity pricing which increases the carrying cost of our inventory as well as timing of our sales .

if we continue to experience decreases in unit prices and are unable to offset such reductions with increased traffic , enhanced efficiencies in our network , lower co-location and bandwidth expenses , or increased sales of incremental services to existing customers , our revenues and profit margins would decrease . during 2012 , we experienced an increase in the rate of traffic growth in our video and software download solutions as compared to 2011 . if this trend does not continue , our ability to generate revenue growth could be adversely impacted . we have historically experienced seasonal variations of higher revenues in the fourth quarter of the year and lower revenues during the summer months . we primarily attribute such variations to patterns of usage of e-commerce services by our retail customers . we expect this trend to continue , which could impact our ability to generate quarterly revenue growth on a sequential basis . during 2012 , revenues derived from customers outside the united states accounted for 28 % of our total revenues . for 2013 , we anticipate revenues from such customers as a percentage of our total revenues to be consistent with 2012 . costs and expenses during 2012 , we continued to reduce our network bandwidth costs per unit and to invest in internal-use software development to improve the performance and efficiency of our network . our total bandwidth costs increased during 2012 as compared to 2011 due to traffic growth on our network . we believe that our overall bandwidth costs will continue to increase as a result of expected higher traffic levels , partially offset by anticipated continued reductions in bandwidth costs per unit . if we do not experience lower per unit bandwidth pricing or we are unsuccessful at effectively routing traffic over our network through lower cost providers , total network bandwidth costs could increase more than expected in 2013. co-location costs are a significant percentage of total cost of revenues . by improving our internal-use software and managing our hardware deployments to enable us to use servers more efficiently , we believe we can manage the growth of co-location costs by deploying fewer servers . if we are unable to achieve such cost reductions , our profitability will be negatively impacted . depreciation and amortization expense related to our network equipment and internal-use software development costs increased by $ 29.4 million during 2012 as compared to 2011. due to the software and hardware initiatives we have undertaken to manage our global network more efficiently , we expect the useful lives of our network assets to be extended by approximately one year . this change is expected to decrease depreciation expense related to our network equipment during 2013 , as compared to 2012. we also expect to continue to enhance and add functionality to our service offerings , which would increase our internal-use software development costs attributable to employees working on such projects . as a result , we believe that the amortization of internal-use software development costs , which we include in cost of revenues , will be higher in 2013 as compared to 2012. any of these increased costs could negatively affect our profitability . we expect to continue to grant restricted stock units , or rsus , to employees in the future ; therefore , we anticipate that stock-based compensation expense will increase compared to 2012 levels . as of december 31 , 2012 , our total unrecognized compensation costs for stock-based awards were $ 134.7 million , which we expect to recognize as expense over a weighted average period of 1.2 years . we expect to recognize this expense through 2016 . for fiscal 2012 , our effective income tax rate was 36.6 % . we expect our annual effective income tax rate in 2013 to decrease slightly as compared to 2012 due to the reinstatement of the federal research and development credit in the beginning of 2013 , which is retroactive to 2012 ; however , this expectation does not take into consideration the effect of discrete items recorded as a result of our compliance with the accounting guidance for stock-based compensation , any tax planning strategies or the effect of changes in tax laws and regulations . 21 during 2012 we increased our headcount from 2,380 to 3,074 employees in support of product development initiatives and our global go-to-market strategy . this resulted in an increase in our operating expenses , as compared to 2011. we expect to continue to invest in these areas , as well as related administrative costs , to support our growth in 2013. if our operating costs grow faster than our revenue growth , our profitability will be negatively impacted . based on our analysis of , among other things , the aforementioned trends and events , as of the date of this annual report on form 10-k , we expect to continue to generate net income on a quarterly and annual basis during 2013 ; however , our future results are likely to be affected by many factors identified in the section captioned “ risk factors ” and elsewhere in this annual report on form 10-k , including our ability to : increase our revenue by adding customers through recurring revenue contracts and limiting customer cancellations and terminations ; offset unit price declines for our services with higher volumes of traffic delivered on our network as well as increased sales of our value-added solutions ; prevent disruptions to our services and network due to accidents or intentional attacks ; and maintain our network bandwidth costs and other operating expenses consistent with our revenues . as a result , there is no assurance that we will achieve our expected financial objectives in any future period . story_separator_special_tag we have selected the black-scholes option pricing model to determine the fair value of stock option awards . determining the fair value of stock-based awards at the grant date requires judgment , including estimating the expected life of the stock awards and the volatility of the underlying common stock . our assumptions may differ from those used in prior periods . changes to the assumptions may have a significant impact on the fair value of stock-based awards , which could have a material impact on our financial statements . judgment is also required in estimating the amount of stock options that are expected to be forfeited . should our actual forfeiture rates differ significantly from our estimates , our stock-based compensation expense and results of operations could be materially impacted . in addition , for awards that vest and become exercisable only upon achievement of specified performance conditions , we make judgments and estimates each quarter about the probability that such performance conditions will be met or achieved . changes to the estimates we make from time to time may have a significant impact on our stock-based compensation expense recorded and could materially impact our result of operations . for stock options , rsus and deferred stock units that contain only a service-based vesting feature , we recognize compensation cost on a straight-line basis over the award 's vesting period . for awards with a performance condition-based vesting feature , we recognize compensation cost on a graded-vesting basis over the awards ' expected vesting period , commencing when achievement of the performance condition is deemed probable . capitalized internal-use software costs : we capitalize the salaries and payroll-related costs , as well as stock-based compensation expense , of employees and consultants who devote time to the development of internal-use software projects . if a project constitutes an enhancement to previously-developed software , we assess whether the enhancement is significant and creates additional functionality to the software , thus qualifying the work incurred for capitalization . once the project is complete , we estimate the useful life of the internal-use software , and we periodically assess whether the software is impaired . changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period . results of operations revenues . total revenues increased 19 % , or $ 215.4 million , to $ 1,373.9 million for the year ended december 31 , 2012 as compared to $ 1,158.5 million for the year ended december 31 , 2011 . total revenues increased 13 % , or $ 135.0 million , to $ 1,158.5 million for the year ended december 31 , 2011 as compared to $ 1,023.6 million for the year ended december 31 , 2010 . the following table quantifies the increase in revenues attributable to the different industry verticals in which we sell our services ( in millions ) : 25 replace_table_token_5_th we believe that the continued growth in use of the internet by businesses and consumers was the principal factor driving increased purchases of our services during each of the last several years . we expect this trend to continue in 2013 , but our revenue may increase at a lower rate due to competitive factors , general economic conditions and the impact of the sale of our advertising decisions solutions , or ads , business in early 2013. our growth rate in 2012 benefited from revenues from acquisitions ; we may not experience such benefits in 2013. revenues from our media and entertainment vertical increased due to traffic growth stemming from increased online media consumption . revenues from our commerce and enterprise verticals for 2012 as compared to 2011 , as well as 2011 as compared to 2010 , increased due to growth in application and cloud performance solutions , particularly security-related solutions , sold to customers in these verticals . revenues from our high tech vertical increased in 2012 as compared to 2011 due to increased demand for cloud performance solutions and higher software download volumes . revenues from the public sector increased in 2012 as compared to 2011 due to the timing of completion of certain elements of government agency contracts . our 2011 revenues from the public sector and high tech verticals did not materially change as compared to 2010 . for 2012 , 2011 and 2010 , 28 % , 29 % and 28 % , respectively , of our total revenues were derived from our operations located outside of the united states . revenue from our operations in europe represented 17 % , 18 % and 17 % of total revenues for 2012 , 2011 and 2010 , respectively . other than the united states , no single country accounted for 10 % or more of our total revenues during these periods . we expect international sales as a percentage of our total sales in 2013 to remain consistent as compared to 2012. resellers accounted for 22 % of total revenues in 2012 , 19 % in 2011 and 18 % in 2010 . approximately 1 % of the increase in 2012 was attributable to a change in classification of certain direct customers to resellers . for 2012 , 2011 and 2010 , no single customer accounted for 10 % or more of total revenues . cost of revenues . cost of revenues includes fees paid to network providers for bandwidth and co-location of our network equipment . cost of revenues also includes payroll and related costs and stock-based compensation expense for network operations personnel , cost of software licenses , depreciation of network equipment used to deliver our services and amortization of internal-use software . cost of revenues was comprised of the following ( in millions ) : replace_table_token_6_th cost of revenues increased 15 % , or $ 57.4 million , to $ 431.9 million for the year ended december 31 , 2012 as compared to $ 374.5 million for the year ended december

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. cash used in investing activities for 2010 reflects purchases of short- and long-term marketable securities of $ 1,146.5 million , purchases of property and equipment of $ 192.0 million , including the capitalization of internal-use software development costs , cash paid for the acquisition of substantially all of the assets of velocitude of $ 12.7 million , and an increase in other investments of $ 0.5 million . amounts attributable to these purchases and investments were offset , in part , by proceeds from sales and maturities of short- and long-term marketable securities of $ 1,015.8 million . for 2013 , we expect total capital expenditures , a component of cash used in investing activities , to remain consistent with 2012 as a percentage of total revenue for the year . we expect to fund such capital expenditures through cash generated from operations . cash used in financing activities decreased $ 185.6 million to $ 108.5 million for the year ended december 31 , 2012 as compared to $ 294.1 million used in financing activities for the year ended december 31 , 2011 . cash used in financing activities was $ 17.7 million for the year ended december 31 , 2010 . cash used in financing activities for the year-ended december 31 , 2012 consisted of $ 141.5 million related to our 2012 common stock repurchase programs , as well as $ 34.7 million used to pay taxes related to net share settlements of employee equity awards . this amount was offset by cash provided by financing activities for the year ended december 31 , 2012 , which included proceeds of $ 44.7 million from the issuance of common stock upon exercises of stock options and sales of shares under our employee stock purchase plan and $ 23.0 million related to excess tax benefits from stock-based compensation . cash used in financing activities for the year ended december 31 , 2011 consisted of $ 324.1 million related to our 2011 common stock repurchase programs , as well as $ 8.4 million used to pay taxes related to the net share settlement of employee equity awards .

the value of the common stock is measured at the earlier of : ( i ) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or ( ii ) the date at which the counterparty 's performance is complete . lightlake issues options and warrants to consultants , directors , and officers as compensation for services . these options and warrants are valued using the black-scholes model , which focuses on the current stock price and the volatility of moves to predict the likelihood of future stock moves . this method of valuation is typically used to accurately price stock options and warrants based on the price of the underlying stock . 21 long-lived assets such as property , equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable . when required impairment losses on assets to be held and used are recognized based on the fair value of the asset . the fair value is determined based on estimates of future cash flows , market value of similar assets , if available , or independent appraisals , if required . if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows , an impairment loss is recognized for the difference between the carrying amount and fair value of the asset . when fair values are not available , lightlake estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets . the company did not recognize any impairment losses for any periods presented . fair value estimates used in preparation of the consolidated financial statements are based upon certain market assumptions and pertinent information available to management . the respective carrying value of certain on-balance-sheet financial instruments approximated their fair values . these financial instruments include cash , accounts payable and due to related parties . fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand . revenue recognition we recognize revenues from nonrefundable , up-front license fees related to collaboration agreements , on a straight-line basis over the contracted or estimated period of performance . the period of performance over which the revenues are recognized is typically the period over which the research and or development is expected to occur or manufacturing services are expected to be provided . when the period of performance is based on the period over which research and or development is expected to occur , we are required to make estimates regarding drug development and commercialization timelines . because of the many risks and uncertainties associated with the development of drug candidates , these estimates regarding the period of performance may change . in addition , we evaluate each arrangement to determine whether or not it qualifies as a multiple-deliverable revenue arrangement under asc 605-25. if one or more of the deliverables have a standalone value , then the arrangement would be separated into multiple units of accounting . this normally occurs when the r & d services could contractually and feasibly be provided by other vendors or if the customer could perform the remaining r & d itself , and when the company has no further obligations and the right has been conveyed . when the deliverables can not be separated , any initial payment received is treated like an advance payment for the services and recognized over the performance period , as determined based on all of the items in the arrangement . this period is usually the expected research and development period . licensing agreements on december 15 , 2014 , lightlake entered into the adapt agreement with adapt pharma operations limited . pursuant to the adapt agreement the company provided a global license to develop and commercialize the company 's intranasal naloxone opioid overdose reversal treatment . in exchange for licensing its treatment , the company received a nonrefundable , upfront license fee of $ 500,000 in december 2014. the company is also to receive a monthly fee for up to one year , for participation in joint development committee calls and the production and submission of an initial development plan . the initial development plan was completed and submitted in may 2015. management evaluated the deliverables of this arrangement and determined that the licensing deliverable has a standalone value and therefore , the payment was recognized as revenue . lightlake could also receive additional payments upon reaching various sales and regulatory milestones . in addition , pursuant to the adapt agreement , the company is required to contribute $ 2,500,000 of development , regulatory , and commercialization costs , some of which was credited for costs incurred by the company prior to the execution of the adapt agreement . at july 31 , 2015 , the company had contributed $ 2,341,419 of which $ 204,908 is unpaid and reported in accounts payable and accrued liabilities in the balance sheets . lightlake recognizes revenue for fees related to participation in the initial development plan and joint development committee calls as revenue once the fee is received and the company has performed the required services for the period . treatment investments with respect to investments in interests in lightlake 's treatments , if an agreement provides an option that allows the investor in the treatment to convert an interest in a treatment into shares of common stock of the company , then revenue is deferred until such time that the option expires or milestones are achieved that eliminate the investor 's right to exercise the option . upon expiration of the exercise option , the deliverables of the arrangement are reviewed and evaluated under asc 605.in the event the investor chooses to convert interests into shares of common story_separator_special_tag the value of the common stock is measured at the earlier of : ( i ) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or ( ii ) the date at which the counterparty 's performance is complete . lightlake issues options and warrants to consultants , directors , and officers as compensation for services . these options and warrants are valued using the black-scholes model , which focuses on the current stock price and the volatility of moves to predict the likelihood of future stock moves . this method of valuation is typically used to accurately price stock options and warrants based on the price of the underlying stock . 21 long-lived assets such as property , equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable . when required impairment losses on assets to be held and used are recognized based on the fair value of the asset . the fair value is determined based on estimates of future cash flows , market value of similar assets , if available , or independent appraisals , if required . if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows , an impairment loss is recognized for the difference between the carrying amount and fair value of the asset . when fair values are not available , lightlake estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets . the company did not recognize any impairment losses for any periods presented . fair value estimates used in preparation of the consolidated financial statements are based upon certain market assumptions and pertinent information available to management . the respective carrying value of certain on-balance-sheet financial instruments approximated their fair values . these financial instruments include cash , accounts payable and due to related parties . fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand . revenue recognition we recognize revenues from nonrefundable , up-front license fees related to collaboration agreements , on a straight-line basis over the contracted or estimated period of performance . the period of performance over which the revenues are recognized is typically the period over which the research and or development is expected to occur or manufacturing services are expected to be provided . when the period of performance is based on the period over which research and or development is expected to occur , we are required to make estimates regarding drug development and commercialization timelines . because of the many risks and uncertainties associated with the development of drug candidates , these estimates regarding the period of performance may change . in addition , we evaluate each arrangement to determine whether or not it qualifies as a multiple-deliverable revenue arrangement under asc 605-25. if one or more of the deliverables have a standalone value , then the arrangement would be separated into multiple units of accounting . this normally occurs when the r & d services could contractually and feasibly be provided by other vendors or if the customer could perform the remaining r & d itself , and when the company has no further obligations and the right has been conveyed . when the deliverables can not be separated , any initial payment received is treated like an advance payment for the services and recognized over the performance period , as determined based on all of the items in the arrangement . this period is usually the expected research and development period . licensing agreements on december 15 , 2014 , lightlake entered into the adapt agreement with adapt pharma operations limited . pursuant to the adapt agreement the company provided a global license to develop and commercialize the company 's intranasal naloxone opioid overdose reversal treatment . in exchange for licensing its treatment , the company received a nonrefundable , upfront license fee of $ 500,000 in december 2014. the company is also to receive a monthly fee for up to one year , for participation in joint development committee calls and the production and submission of an initial development plan . the initial development plan was completed and submitted in may 2015. management evaluated the deliverables of this arrangement and determined that the licensing deliverable has a standalone value and therefore , the payment was recognized as revenue . lightlake could also receive additional payments upon reaching various sales and regulatory milestones . in addition , pursuant to the adapt agreement , the company is required to contribute $ 2,500,000 of development , regulatory , and commercialization costs , some of which was credited for costs incurred by the company prior to the execution of the adapt agreement . at july 31 , 2015 , the company had contributed $ 2,341,419 of which $ 204,908 is unpaid and reported in accounts payable and accrued liabilities in the balance sheets . lightlake recognizes revenue for fees related to participation in the initial development plan and joint development committee calls as revenue once the fee is received and the company has performed the required services for the period . treatment investments with respect to investments in interests in lightlake 's treatments , if an agreement provides an option that allows the investor in the treatment to convert an interest in a treatment into shares of common stock of the company , then revenue is deferred until such time that the option expires or milestones are achieved that eliminate the investor 's right to exercise the option . upon expiration of the exercise option , the deliverables of the arrangement are reviewed and evaluated under asc 605.in the event the investor chooses to convert interests into shares of common

Write a concise summary of the following text delimited by triple quote marks. Return your response as a narrative which covers the key points highlighting the location, dates, entity names and account holder and financial information (when available) in chronological order of the text.

liquidity and capital resources lightlake 's cash balance at july 31 , 2015 , was $ 434,217 together with $ 8,874,520 of outstanding liabilities . the company 's management believes that the company 's current cash balance will not be sufficient to fund the company 's operations for the next twelve months . as a result , the company will need to generate sufficient revenues and or seek additional funding in the near future . the company currently does not have a specific plan of how it will obtain such funding ; however , the company anticipates that additional funding will be in the form of debt financing and or equity financing from the sale of the company 's common stock and or in the form of financing from the sale of interests in the company 's prospective products . such funds may also be derived pursuant to the terms of the adapt agreement . during the year ended july 31 , 2015 , lightlake received $ 4,638,530 in funding in exchange for interests in the company 's opioid overdose reversal treatment and binge eating disorder treatments . this investment increased the cash position of the company . as stated above , the company expects to continue to issue debt and or equity and or sell interests in the company 's prospective products to sustain the implementation of the company 's business plan unless sufficient revenues are generated . during the year ended july 31 , 2014 , the company received funding amounting to $ 661,470. additionally , during the year ended july 31 , 2014 , the company received a commitment for $ 3,000,000 of investment . at this time , lightlake can not provide investors with any assurance that it will be able to generate sufficient revenues and or obtain sufficient funding from debt financing and or the sale of its common stock and or the sale of interests in the company 's prospective products to meet its obligations over the next twelve months . the company does not have any arrangements in place for any future financing .

dealer manager fees that are not re-allowed are classified as wholesaling revenue . wholesaling revenue earned is generally offset by underwriting costs incurred in connection with the offerings . w. p. carey 2012 10-k — 27 financial highlights our results for the years ended december 31 , 2012 and 2011 included the following significant unusual items : · increased lease revenue of $ 61.9 million for the year ended december 31 , 2012 as compared to 2011 primarily due to income generated from properties acquired in the merger ; · costs incurred in connection with the merger of $ 31.7 million in 2012 ; and · non-recurring revenues of $ 52.5 million earned in 2011 in connection with providing a liquidity event for cpa ® :14 stockholders , through the cpa ® :14/16 merger , in may 2011 . · share dilution created by the issuance of 28,170,643 shares on september 28 , 2012 to stockholders of cpa ® : 15 in connection with the merger . ( in thousands ) replace_table_token_7_th we consider the performance measures listed above , including funds from operations — as adjusted ( “affo” ) , a supplemental measure that is not defined by gaap ( “non-gaap” ) , to be important measures in the evaluation of our results of operations and capital resources . we evaluate our results of operations with a primary focus on increasing and enhancing the value , quality and amount of assets under management by our investment management segment and the ability to generate the cash flow necessary to meet our objectives in our real estate ownership segment . results of operations by reportable segment are described below in results of operations . see supplemental financial measures below for our definition of affo and a reconciliation to its most directly comparable gaap measure . total revenues increased in 2012 as compared to 2011. the increase in revenues from our real estate ownership segment was primarily due to revenues from the properties we acquired in the merger in september 2012 and , to a lesser extent , from properties we purchased in may 2011 from cpa ® :14 in connection with the cpa ® :14/16 merger . revenues from our investment management segment decreased during the year primarily due to the incentive , termination and subordinated disposition revenue recognized in connection with providing a liquidity event for cpa ® :14 stockholders through the cpa ® :14/16 merger in may 2011 , while in 2012 we waived the subordinated disposition and termination fees we would have been entitled to receive from cpa ® :15 upon its liquidation through the merger pursuant to the terms of our advisory agreement with cpa ® :15. net income attributable to w. p. carey decreased in 2012 as compared to 2011. results from operations in our real estate ownership segment were lower during the current year as compared to 2011 , primarily due to costs incurred in connection with the merger . results from operations in our investment management segment decreased during the current year primarily due to the incentive , termination and subordinated disposition revenue recognized in connection with the cpa ® :14/16 merger in 2011 that we did not receive in connection with the merger in 2012. cash flow from operating activities increased slightly during 2012 as compared to 2011. operating cash flows generated by the properties acquired in the merger was substantially offset by the subordinated disposition revenue received from cpa ® :14 upon completion of the cpa ® :14/16 merger in may 2011 that we did not receive in connection with the merger in 2012. w. p. carey 2012 10-k — 28 our annualized cash distribution increased to $ 2.64 per share for the year ended december 31 , 2012 , from $ 2.25 per share in 2011. the increase primarily reflects earnings generated from growth in our owned real estate portfolio and our increased ownership in , and our participation in the cash flows of , cpa ® :16 — global as a result of the cpa ® :14/16 merger , as well as the additional income anticipated to result from the merger . our affo supplemental measure decreased in 2012 as compared to 2011 , primarily due to the incentive , termination and subordinated disposition income recognized in connection with the cpa ® :14/16 merger in 2011 that we did not receive in connection with the merger in 2012. asset management revenue decreased in 2012 because performance fees were no longer received from cpa ® :14 after the cpa ® :14/16 merger , or from cpa ® :16 — global after the cpa ® :16 — global upreit reorganization , both of which occurred in may 2011 ( note 4 ) , and because asset management fees and performance fees are no longer being received from cpa ® :15 after the merger in september 2012. these decreases were partially offset by an increase in affo in our real estate ownership segment in 2012 primarily as a result of income earned from the properties we purchased from cpa ® :14 in 2011 in connection with the cpa ® :14/16 merger and those we acquired from cpa ® :15 in the merger as well as income generated from our equity interests in the managed reits , including our $ 121.0 million incremental investment in cpa ® :16 — global in connection with the cpa ® :14/16 merger . how we evaluate results of operations we evaluate our results of operations with a primary focus on increasing and enhancing the value , quality and amount of assets under management by our investment management segment and seeking to increase value in our real estate ownership segment . we focus our efforts on improving underperforming assets through re-leasing efforts , including negotiation of lease renewals , or selectively selling assets in order to increase value in our real estate portfolio . story_separator_special_tag general and administrative 2012 vs. 2011 — for the year ended december 31 , 2012 as compared to 2011 , general and administrative expenses increased by $ 35.3 million primarily due to costs incurred in connection with the merger of $ 31.7 million . other real estate expenses other real estate expenses generally consist of operating expenses related to carey storage and livho as described in “other real estate income” above . 2012 vs. 2011 — for the year ended december 31 , 2012 as compared to 2011 , other real estate expenses decreased by $ 0.9 million , due to a $ 0.9 million overall decrease in general operating expenses in livho and our self-storage properties . 2011 vs. 2010 — for the year ended december 31 , 2011 as compared to 2010 , other real estate expenses increased by $ 2.7 million , primarily due to an increase of $ 1.8 million in operating expenses as a result of the acquisition of eight self-storage properties during 2010. in addition , operating expenses from livho increased by $ 0.9 million in 2011 as compared to 2010. impairment charges our impairment charges are more fully described in note 11. impairment charges related to our continuing real estate ownership operations were as follows ( in thousands ) : replace_table_token_13_th see income from equity investments in real estate and the managed reits and loss from discontinued operations below for additional impairment charges incurred . w. p. carey 2012 10-k — 35 income from equity investments in real estate and the managed reits income from equity investments in real estate and the managed reits represents our proportionate share of net income or loss ( revenue less expenses ) from our interests in unconsolidated real estate investments and our investments in the managed reits . in addition , we are entitled to receive distributions of available cash from the operating partnerships of cpa ® :17 – global , cwi and , subsequent to the cpa ® :14/16 merger and related cpa ® :16 – global upreit reorganization ( note 4 ) , cpa ® :16 – global . subsequent to the cpa ® : 16 – global upreit reorganization , we also recognize amortization of deferred revenue related to our special member interest in cpa ® :16 – global 's operating partnership . the net income of the managed reits fluctuates based on the timing of transactions , such as new leases and property sales , as well as the level of impairment charges . 2012 vs. 2011 — for the year ended december 31 , 2012 as compared to 2011 , income from equity investments in real estate increased by $ 11.2 million , primarily due to ( i ) a $ 14.5 million increase in distributions of available cash received and earned and a $ 2.8 million increase in deferred revenue earned , from the operating partnership of cpa ® :17 – global as a result of new investments cpa ® :17 – global entered into during 2012 and 2011 , and the operating partnership of cpa ® :16 – global due to the new fee arrangement with cpa ® :16 – global resulting from the cpa ® :16 – global upreit reorganization in may 2011 ( note 4 ) ; ( ii ) our $ 15.1 million share of the net gain recognized by a jointly-owned entity upon selling its equity shares in the médica investment in the second quarter of 2012 ; and ( iii ) a $ 1.2 million increase in equity income as a result of new equity investments we acquired from cpa ® :15 through the merger . these increases were partially offset by ( i ) other-than-temporary impairment charges of $ 9.9 million recorded during 2012 on our special membership interest in cpa ® :16 – global 's operating partnership to reduce the carrying value of our interest in the operating partnership to its estimated fair value ( note 7 ) , ( ii ) our $ 7.4 million share of the net gains recognized in the second quarter of 2011 by cpa ® :14 related to the sale of certain of its assets to us , cpa ® :17 – global and third parties in connection with the cpa ® :14/16 merger ( note 4 ) ; and ( iii ) our $ 5.0 million share of a bargain purchase gain recognized by cpa ® :16 – global during the 2011 period because the fair value of cpa ® :14 exceeded the consideration paid in the cpa ® :14/16 merger ; . 2011 vs. 2010 — for the year ended december 31 , 2011 as compared to 2010 , income from equity investments in real estate increased by $ 20.2 million , primarily due to a $ 11.1 million increase in distributions of available cash received and earned and a $ 5.7 million increase in deferred revenue earned , from the operating partnership cpa ® :17 – global as a result of new investments cpa ® :17 – global entered into during 2011 and the operating partnership of cpa ® :16 – global due to the new fee arrangement with cpa ® :16 – global resulting from the cpa ® :16 – global upreit reorganization in may 2011 ( note 4 ) ; and an increase in equity income from the managed reits totaling $ 6.4 million . results of operations from the managed reits during 2011 included the following gains and expenses : net gains of $ 78.8 million from the cpa ® :14/16 merger , of which our share was approximately $ 7.4 million ; a bargain purchase gain for cpa ® :16 – global of $ 28.7 million because the fair value of cpa ® :14 exceeded the cpa ® :14/16 merger consideration , of which our share was approximately $ 5.0 million ; a net gain of $ 33.5 million on the sales of several properties and the extinguishment of several

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cash resources at december 31 , 2012 , our cash resources consisted of the following : · cash and cash equivalents totaling $ 123.9 million . of this amount , $ 61.8 million , at then-current exchange rates , was held by foreign subsidiaries , but we could be subject to restrictions or significant costs should we decide to repatriate these amounts ; · our revolver , with unused capacity of $ 365.2 million , excluding amounts reserved for outstanding letters of credit . our lender has issued letters of credit totaling $ 5.4 million on our behalf in connection with certain contractual obligations , which reduce amounts that may be drawn under the facility ; and · we also had unleveraged properties that had an aggregate carrying value of $ 55.4 million at december 31 , 2012 , although there can be no assurance that we would be able to obtain financing for these properties . our cash resources can be used for working capital needs and other commitments and may be used for future investments . we continue to evaluate fixed-rate financing options , such as obtaining non-recourse financing on our unleveraged properties . any financing obtained may be used for working capital objectives and or may be used to pay down existing debt balances . w. p. carey 2012 10-k — 44 senior credit facility our senior credit facility is more fully described in note 12. a summary of our senior credit facility is provided below ( in thousands ) : replace_table_token_18_th in february 2012 , we amended and restated our existing credit agreement to increase the maximum aggregate principal amount from $ 450.0 million to $ 625.0 million , which is comprised of a $ 450.0 million revolver and a $ 175.0 million term loan facility and , together with the revolver , the senior credit facility . the term loan facility was available in a single draw for use solely to finance a portion of the merger consideration and related transaction costs and expenses . we drew down the full amount of the term loan facility on september 28 , 2012 in connection with the closing of the merger .

while commodity prices have recently increased to pre-covid-19 levels , there is no assurance of how long they will remain at these levels . 2020 highlights operational our total production in 2020 increased by 147 % to 37.2 mmboe ( 63 % oil ) as compared to 2019 primarily as a result of the carrizo acquisition in late 2019 and wells placed on production during 2020 as a result of our horizontal drilling program . 47 although our actual 2020 operational capital expenditures were approximately 50 % or our original operational capital budget as a result of covid-19 and the macro-economic environment , we drilled 91 gross ( 86.0 net ) horizontal well and completed 90 gross ( 81.4 net ) horizontal wells for the year ended december 31 , 2020 and had , as of december 31 , 2020 , 65 gross ( 62.1 net ) horizontal wells awaiting completion . estimated proved reserves as of december 31 , 2020 were 475.9 mmboe ( 61 % oil ) , with 45 % classified as proved developed . financing on november 13 , 2020 , we exchanged $ 389.0 million of aggregate principal amount of our existing senior unsecured notes for $ 216.7 million aggregate principal amount of november 2020 second lien notes and 1.75 million november 2020 warrants . this exchange resulted in the removal of approximately $ 172.3 million from the long-term debt balance in our consolidated balance sheets . on september 30 , 2020 , we issued $ 300.0 million of aggregate principal amount of september 2020 second lien notes and 7.3 million september 2020 warrants for proceeds , net of issuance costs , of approximately $ 288.6 million . as of december 31 , 2020 , our credit facility had a borrowing base and elected commitment amount of $ 1.6 billion and $ 985.0 million of borrowings outstanding as compared to borrowings outstanding as of december 31 , 2019 of $ 1.3 billion . divestitures on september 30 , 2020 , we sold an undivided 2.0 % ( on an 8/8ths basis ) overriding royalty interest , proportionately reduced to our net revenue interest , in and to our operated leases , excluding certain interests ( “ orri transaction ” ) for net proceeds of $ 135.8 million , which were used to repay borrowings outstanding under the credit facility . on november 2 , 2020 , we sold substantially all of our non-operated assets for net proceeds of $ 29.6 million , subject to post-closing adjustments , which were used to r epay borrowings outstanding under the credit facility . 48 results of operations the following table sets forth certain operating information with respect to the company 's oil and natural gas operations for the periods indicated : replace_table_token_16_th 49 replace_table_token_17_th ( 1 ) includes activity on properties acquired in the carrizo acquisition subsequent to the december 20 , 2019 closing date . ( 2 ) effective january 1 , 2020 , certain of our natural gas processing agreements were modified to allow us to take title to ngls resulting from the processing of our natural gas . as a result , reserve volumes for ngls and natural gas are presented separately for periods subsequent to january 1 , 2020. for periods prior to january 1 , 2020 , except for reserve volumes specifically associated with carrizo , we presented our reserve volumes for ngls with natural gas . ( 3 ) reflects calendar average daily spot market prices . 50 revenues the following table reconciles the changes in oil , natural gas , ngls , and total revenue for the period presented by reflecting the effect of changes in volume and in the underlying commodity prices . replace_table_token_18_th ( 1 ) includes activity on properties acquired in the carrizo acquisition subsequent to the december 20 , 2019 closing date . ( 2 ) effective january 1 , 2020 , certain of our natural gas processing agreements were modified to allow us to take title to ngls resulting from the processing of our natural gas . as a result , reserve volumes for ngls and natural gas are presented separately for periods subsequent to january 1 , 2020. for periods prior to january 1 , 2020 , except for reserve volumes specifically associated with carrizo , we presented our reserve volumes for ngls with natural gas . ( 3 ) excludes sales of oil and gas purchased from third parties and sold to our customers . commodity prices the prices for oil , natural gas , and ngls remain extremely volatile primarily due to the underlying supply and demand concerns as a result of covid-19 as well as the actions taken by opec and other countries as described above . this volatility was shown in the price of oil which ranged from a low of - $ 36.98 per bbl to $ 63.27 per bbl . prices of oil , natural gas , and ngls will affect the following aspects of our business : our revenues , cash flows and earnings ; the amount of oil and natural gas that we are economically able to produce ; our ability to attract capital to finance our operations and cost of the capital ; the amount we are allowed to borrow under the credit facility ; and the value of our oil and natural gas properties . period over period variances the change in absolute value for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 can be primarily attributed to the carrizo acquisition which closed in december 2019. the carrizo acquisition had a material impact to our reported results of operations . in order to provide a more meaningful basis for comparison , we focused our discussion on per unit metrics and only expanded on changes in absolute value where appropriate . oil revenue for the year ended december 31 , 2020 , oil revenues of $ 850.7 story_separator_special_tag issuance is outstanding as of such date ) , when the credit facility matures and any outstanding borrowings are due . the maximum credit amount under the credit facility is $ 5.0 billion . the borrowing base under the credit agreement is subject to regular redeterminations in the spring and fall of each year , as well as special redeterminations described in the credit agreement , which in each case may reduce the amount of the borrowing base . the credit facility is secured by first preferred mortgages covering our major producing properties . as of december 31 , 2020 , the borrowing base and elected commitment amount under the revolving credit facility was $ 1.6 billion , with borrowings outstanding of $ 985.0 million at a weighted average interest rate of 2.73 % , and letters of credit outstanding of $ 25.2 million . our credit facility contains certain covenants including restrictions on additional indebtedness , payment of cash dividends and maintenance of certain financial ratios . under the credit facility , we must maintain the following financial covenants determined as of the last day of the quarter , each as described above : ( 1 ) a secured leverage ratio of no more than 3.00 to 1.00 and ( 2 ) a current ratio of not less than 1.00 to 1.00. we were in compliance with these covenants at december 31 , 2020. the credit facility also places restrictions on us and certain of our subsidiaries with respect to additional indebtedness , liens , dividends and other payments to shareholders , repurchases or redemptions of our common stock , redemptions of senior notes , investments , acquisitions , mergers , asset dispositions , transactions with affiliates , hedging transactions and other matters . see “ note 7 – borrowings ” of the notes to our consolidated financial statements for additional information including details of the first , second , and third amendments to the credit facility . second lien notes . on september 30 , 2020 , we issued $ 300.0 million in aggregate principal amount of our september 2020 second lien notes and 7.3 million september 2020 warrants for aggregate consideration of $ 294.0 million . the company used the proceeds , net of issuance costs , of approximately $ 288.6 million to repay borrowings outstanding under the credit facility . see “ note 7 – borrowings ” of the notes to our consolidated financial statements for additional information . senior unsecured notes exchange . on november 13 , 2020 , we closed on the exchange of $ 389.0 million of aggregate principal amount of the senior unsecured notes for $ 216.7 million aggregate principal amount of november 2020 second lien notes at a weighted average exchange ratio of approximately $ 557 per $ 1,000 of principal exchanged and approximately 1.75 million november 2020 warrants . as a result of the exchange , we recognized a gain on extinguishment of debt of $ 170.4 million in our consolidated statement of operations , which consisted of the carrying values of the senior unsecured notes exchanged less the aggregate principal amount of the november 2020 second lien notes issued , net of the associated debt discount of $ 9.1 million , which was based on the november 2020 second lien notes ' allocated fair value on the exchange date . see “ note 7 - borrowings ” of the notes to our consolidated financial statements for additional information about the exchange . even considering the downturn in commodity prices as well as a drop in demand as a result of covid-19 , we expect to have sufficient liquidity to pay interest on our credit facility , second lien notes , and senior unsecured notes as well as to fund our development program . upon a redetermination , if any borrowings in excess of the revised borrowing base were outstanding , we could be forced to immediately repay a portion of the borrowings outstanding under the credit agreement . additionally , if a low commodity price environment were to persist for an extended period , our ability to remain in compliance with our restrictive financial covenants in our credit facility and our indentures could be challenged . if we are unable to remain in compliance with our restrictive financial covenants , we could be subject to lender elections for default resolution . 57 hedging . as of february 19 , 2021 , we had the following outstanding oil , natural gas and ngl derivative contracts : replace_table_token_26_th ( 1 ) premiums from the sale of call options were used to increase the fixed price of certain simultaneously executed price swaps and three-way collars . ( 2 ) the short call swaption contracts have exercise expiration dates as follows : 455,000 bbls expire on march 31 , 2021 and 1,825,000 bbls expire on december 31 , 2021 . ( 3 ) in january 2021 , we paid approximately $ 3.1 million to terminate 184,000 bbls of ice brent swaps . additionally , in february 2021 , we executed offsetting ice brent swaps on 159,300 bbls , resulting in a locked-in loss of approximately $ 2.9 million which we will pay as the applicable contracts settle . 58 for the full year of for the full year of natural gas contracts ( henry hub ) 2021 2022 swap contracts total volume ( mmbtu ) 11,123,000 — weighted average price per mmbtu $ 2.60 $ — collar contracts ( three-way collars ) total volume ( mmbtu ) 1,350,000 — weighted average price per mmbtu ceiling ( short call ) $ 2.70 $ — floor ( long put ) $ 2.42 $ — floor ( short put ) $ 2.00 $ — collar contracts ( two-way collars ) total volume ( mmbtu ) 9,550,000 1,800,000 weighted average price per mmbtu ceiling ( short call ) $ 3.04 $ 3.88 floor ( long put ) $ 2.59 $ 2.78 short call contracts total volume (

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on extinguishment of debt . during november 2020 , in connection with the exchange of $ 389.0 million of our senior unsecured notes for the november 2020 second lien notes , we recorded a gain on extinguishment of debt of $ 170.4 million , which consisted of the carrying values of the senior unsecured notes exchanged less the aggregate principal amount of the november 2020 second lien notes issued , net of the associated debt discount of $ 9.1 million , which was based on the november 2020 second lien notes ' allocated fair value on the exchange date . during december 2019 , in connection with the carrizo acquisition , we entered into a new credit facility and simultaneously terminated our prior credit facility . as a result of terminating the prior credit facility , we recorded a loss on extinguishment of debt of $ 4.9 million , which was comprised solely of the write-off of unamortized deferred financing costs associated with the prior credit facility . see “ note 7 – borrowings ” of the notes to our consolidated financial statements for additional information . sales and cost of purchased oil and gas . for the year ended december 31 , 2020 , we recorded sales of purchased oil and gas of $ 49.3 million and cost of purchased oil and gas of $ 51.8 million related to commodities purchased from third parties and sold to our customers . no sales or cost of purchased oil and gas occurred during the same periods of 2019. income tax expense . we use the asset and liability method of accounting for income taxes , under which deferred tax assets and liabilities are recognized for the future tax consequences of ( 1 ) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and ( 2 ) operating loss and tax credit carryforwards .

agilent 's debt and related interest expense were not allocated to us since we are not the legal obligor of the debt and agilent 's borrowings were not directly attributable to us . in addition , prior to the capitalization , all intercompany transactions between us and agilent were considered to be effectively settled at the time the transactions were recorded . all cash generated by our business was assumed to be remitted to the agilent subsidiary located in the same legal entity or country . the total net effect of the settlement of these intercompany transactions prior to the capitalization is reflected in the combined and consolidated statement of cash flows as a financing activity and in the combined and consolidated balance sheet as agilent net investment . on october 15 , 2014 , we issued $ 500 million of 3.30 percent senior notes due in 2019 and $ 600 million of 4.55 percent senior notes due in 2024. a portion of the proceeds from the offering was used to make a $ 900 million cash distribution to agilent in october 2014. we intend to use the remaining proceeds to fund working capital and other liquidity needs . the combined and consolidated statement of operations includes our direct expenses for cost of products and services sold , research and development , sales and marketing , distribution , and administration as well as allocations of expenses arising from shared services and infrastructure provided by agilent to us . these allocated expenses include costs of information technology , accounting and legal services , real estate and facilities , corporate advertising , insurance services , treasury and other corporate and infrastructure services . in addition , other costs allocated to us include restructuring costs , share-based compensation expense and 28 retirement plan expenses related to agilent 's corporate and shared services employees . these expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us . these costs have been allocated to us on the basis of direct usage when identifiable , with the remainder allocated on a pro-rata basis of revenue , square footage , headcount or other measures . we expect agilent to continue to provide some of these services related to these functions on a transitional basis for a fee , which will be partially offset by other income from keysight services provided to agilent . these services will be received or provided under a transition services agreement . we do not expect the net costs associated with the transition services agreement to be materially different than the historical costs that have been allocated to us related to these same services . we also expect to incur other incremental costs as an independent , publicly traded company as compared to the costs historically allocated to us by agilent . these incremental costs are estimated to be approximately $ 20 million on an annual pre-tax basis . for the fiscal year 2014 , we recognized $ 78 million of non-recurring transaction and pre-separation costs . we expect to recognize additional non-recurring transaction and separation costs , which are currently estimated to range from $ 25 million to $ 30 million through fiscal 2016. these costs are expected to include , among other things , branding , legal , accounting and other advisory fees and other costs to separate and transition from agilent . overview and executive summary we provide electronic measurement instruments and systems and related software , software design tools , and related services that are used in the design , development , manufacture , installation , deployment and operation of electronics equipment . related services include start-up assistance , instrument productivity and application services and instrument calibration and repair . we also offer customization , consulting and optimization services throughout the customer 's product lifecycle . historically , we conducted our business in one reportable operating segment for agilent . in fiscal 2014 , in conjunction with the planned separation , we implemented changes in our organizational structure which resulted in the formation of two reportable operating segments , measurement solutions and customer support and services . the measurement solutions segment is primarily the hardware and associated software businesses serving the electronic measurement market . the customer support and services segment provides repair and calibration of the hardware measurement solutions and the resale of used instrument equipment . years ended october 31 , 2014 , 2013 and 2012 total orders in 2014 were $ 2,963 million , an increase of 3 percent when compared to 2013. orders increased in all market segments including aerospace and defense ; industrial , computer , and semiconductor test ; and communications test . foreign currency movements had an unfavorable impact of 1 percentage point on the year‑over‑year comparison . orders of $ 2,866 million in 2013 declined 13 percent when compared to 2012 on declines in all market segments , including aerospace and defense ; industrial , computer and semiconductor test ; and communications test . net revenue of $ 2,933 million in 2014 increased 2 percent when compared to 2013 , with industrial , computer and semiconductor test contributing 2 percentage points of the increase , and communication test contributing 1 percentage point of the increase , partially offset by a decline in aerospace and defense revenue . foreign currency movements had an unfavorable impact of 1 percentage point on the year over year comparison . net revenue of $ 2,888 million in 2013 declined 13 percent when compared to 2012 , with lower communications test revenue contributing 8 percentage points of the decline , and lower industrial , computer and semiconductor test revenue further decreasing revenue by approximately 5 percentage points , while aerospace and defense was flat year over year . story_separator_special_tag these estimates and judgments occur in the calculation of tax credits , benefits and deductions , and in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes , as well as interest and penalties related to uncertain tax positions . significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period . significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part . when it is more-likely-than-not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryforwards will not be realized , a valuation allowance must be established for the amount of the deferred tax assets that can not be realized . we consider all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable . we consider evidence such as our past operating results , the existence of losses in recent years and our forecast of future taxable income . in the fourth quarter of fiscal 2012 we released the valuation allowance for the majority of our u.s. deferred tax assets . at october 31 , 2014 , we continue to maintain a valuation allowance for certain u.s. state and foreign deferred tax assets . we intend to maintain a valuation allowance in these jurisdictions until sufficient positive evidence exists to support its reversal . we have not provided for all u.s. federal income and foreign withholding taxes on the undistributed earnings of some of our foreign subsidiaries because we intend to reinvest such earnings permanently . should we decide to remit this income to the u.s. in a future period , our provision for income taxes will increase materially in that period . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions . although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model , the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management . in accordance with the guidance on the accounting for uncertainty in income 32 taxes , for all u.s. and other tax jurisdictions , we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether , and the extent to which , additional taxes and interest will be due . the ultimate resolution of tax uncertainties may differ from what is currently estimated , which could result in a material impact on income tax expense . if our estimate of income tax liabilities proves to be less than the ultimate assessment , a further charge to expense would be required . if events occur and the payment of these amounts ultimately proves to be unnecessary , the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary . we include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the combined and consolidated statements of operations . we have calculated our taxes on a separate return basis . however , the amounts recorded are not necessarily representative of the amounts that would have been reflected in the financial statements had we been an entity that operated independently of agilent . it is possible that we will make different tax accounting elections and assertions , such as the amount of earnings that will be permanently reinvested outside the u.s. following our distribution from agilent . consequently , our future results after our separation from agilent may be materially different from our historical results . adoption of new pronouncements see note 2 , `` new accounting pronouncements , `` to the combined and consolidated financial statements for a description of new accounting pronouncements . restructuring in fiscal 2013 , we recognized $ 15 million of restructuring charges associated with the targeted headcount reduction of approximately 200 regular employees , representing approximately 2 percent of our global workforce . through the end of fiscal 2014 , approximately $ 11 million was paid out under this program for the termination of 145 employees and $ 3 million of accrual has been reversed related to 40 employees who have been redeployed within the company . as of october 31 , 2014 , we have a remaining accrual of $ 1 million and have substantially completed this program . foreign currency our revenues , costs and expenses , and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities . we hedge revenues , expenses and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short-term and anticipated basis on our behalf . the result of the hedging has been included in our combined and consolidated statement of operations . we do experience some fluctuations within individual lines of the combined and consolidated balance sheet and statement of operations because our hedging program is not designed to offset the currency movements in each category of revenues , expenses , monetary assets and liabilities . our hedging program is designed to hedge currency movements on a relatively short-term basis ( up to a rolling twelve- month period ) . therefore , we are exposed to currency fluctuations over the longer term . to the extent that we are required to pay for all , or portions , of an acquisition price in foreign currencies , we may enter into foreign exchange contracts to reduce the risk that currency movements will impact the u.s. dollar cost of the transaction . prior to the

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net cash provided by operating activities net cash provided by operating activities was $ 563 million in 2014 as compared to $ 566 million provided in 2013 and $ 724 million provided in 2012. agilent paid most taxes and pension contributions on our behalf . we paid net taxes of approximately $ 4 million in 2014 . in 2014 , accounts receivable used cash of $ 25 million , provided cash of $ 44 million in 2013 and used cash of $ 3 million in 2012. days ' sales outstanding were 44 days in 2014 , 42 days in 2013 and 43 days in 2012. accounts payable provided cash of $ 32 million in 2014 , used cash of $ 24 million in 2013 and used cash of $ 23 million in 2012. cash used in inventory was $ 31 million in 2014 , $ 53 million in 2013 and $ 46 million in 2012. inventory days on-hand decreased to 137 days in 2014 compared to 143 days in 2013 and 118 days in 2012. the increase in days on-hand between 2013 and 2012 was due to the reduced shipment volume within our business . agilent contributed $ 15 million on our behalf to our u.s. multi-employer plans in each of 2014 , 2013 and 2012. agilent contributed $ 41 million , $ 45 million and $ 30 million to our non-u.s. multi-employer plans in 2014 , 2013 and 2012 , respectively . there were no contributions to the u.s. multi-employer post-retirement health care plan for the years ended october 31 , 2014 , 2013 , and 2012 , respectively . at the capitalization , the assets and liabilities of these plans that were allocable to keysight employees were transferred to keysight plans ; therefore , the plans are no longer considered multi-employer plans .

as of december 31 , 2011 , approximately $ 70 billion of investment assets subject to asset-based fees were managed or administered utilizing our technology platform by approximately 13,900 financial advisors through approximately 341,000 investor accounts . second , we generate revenues from recurring , contractual licensing fees for providing access to our technology platform , generally from a small number of enterprise clients . these revenues are recorded under revenues from licensing and professional services . licensing fees are generally fixed in nature for the contract term and are based on the level of investment solutions and services provided , rather than on the amount of client assets on our technology platform . licensing fees accounted for 16 % , 20 % and 24 % of our total revenues for the years ended december 31 , 2011 , 2010 and 2009. fees received in connection with professional services accounted for the remainder of our total revenues . as of december 31 , 2011 , approximately $ 70 billion of investment assets for which we receive licensing fees for utilizing our technology platform were serviced by approximately 5,700 financial advisors through approximately 588,000 investor accounts . the following table provides information regarding the amount of assets utilizing our platform , financial advisors and investor accounts in the periods indicated . replace_table_token_5_th 39 revenues from assets under management or administration we generally charge our customers fees based on a higher percentage of the market value of aum than the fees we charge on the market value of aua , because we provide fiduciary oversight and or act as the investment advisor in connection with assets we categorize as aum . the level of fees varies based on the nature of the investment solutions and services we provide , as well as the specific investment manager , fund and or custodian chosen by the financial advisor . a portion of our revenues from assets under management or administration include costs paid by us to third parties for sub-advisory , clearing , custody and brokerage services . these expenses are recorded under cost of revenues . we do not have fiduciary responsibility in connection with aua and , therefore , charge lower fees on these assets . our fees for aua vary based on the nature of the investment solutions and services we provide . for over 85 % of our revenues from assets under management or administration , we bill customers at the beginning of each quarter based on the market value of customer assets on our technology platform as of the end of the prior quarter . for example , revenues from assets under management or administration recognized during the fourth quarter of 2011 were primarily based on the market value of assets as of september 30 , 2011. our revenues from assets under management or administration are generally recognized ratably throughout the quarter based on the number of days in the quarter . our revenues from assets under management or administration are affected by the amount of new assets that are added to existing and new client accounts , which we refer to as gross sales , and the amount of assets that are withdrawn from client accounts , which we refer to as redemptions . we refer to the difference between asset in-flows and outflows as net flows . positive net flows indicate that the market value of assets added to client accounts exceeds the market value of assets that have been withdrawn from client accounts . our revenues from assets under management or administration are also affected by changes in the market values of securities held in client accounts due to fluctuations in the securities markets . certain types of securities have historically experienced greater market price fluctuations , such as equity securities , than other securities , such as fixed income securities , though in any given period the nature of securities that experience the greatest fluctuations may vary . for example , from october 2007 to march 2009 , the equity markets , as measured by the value of the s & p 500 index , declined in value by approximately 57 % , which significantly contributed to the 37 % decrease in our revenues from assets under management or administration between the fourth quarter of 2007 and the second quarter of 2009. the following table provides information regarding the degree to which gross sales , redemptions , net flows and changes in the market values of assets contributed to changes in aum or aua in the periods indicated . replace_table_token_6_th 40 on december 13 , 2011 , we closed on our acquisition of fundquest . at that time , $ 5.8 billion of fundquest assets previously reported as aua were reclassified to aum . also during the fourth quarter , one of fundquest 's clients with $ 1.5 billion in assets transitioned to licensing for a flat fee and is no longer reflected in aua as of december 31 , 2011. replace_table_token_7_th the mix of assets under management and assets under administration was as follows for the periods indicated : replace_table_token_8_th we expect the percentage of aum and aua will fluctuate in future periods . the nature and type of services requested by our customers are the key drivers in determining whether customer assets are classified as aum or aua . therefore , we do not have direct control over the mix of aum and aua . revenues from licensing and professional services fees our revenues received under license agreements are recognized over the contractual term . to a lesser degree we also receive revenues from professional services fees by providing customers with certain technology platform software development services . in the years ended december 31 , 2011 , 2010 and 2009 , our revenues from professional services fees were $ 3.8 million , $ 2.9 million and $ 2.4 million respectively . story_separator_special_tag accordingly , prior to our initial public offering , we calculated the value of our common stock at least once each fiscal quarter . the historical quarterly valuations did at times fluctuate significantly as the market value of our assets under management or administration drives our near term financial results and longer term projections . the value of our common stock could also change if a material financing transaction or other significant event occured within a given fiscal quarter . in such circumstances we performed an additional valuation of our common stock at the time of the transaction or event , using the same valuation methodology that was utilized in connection with our quarterly valuations . after we determined a value for our company , we allocated the value to each class of our shares , including our common stock . our value allocation methodology applies the principles set forth in the aicpa practice aid—valuation of privately-held-company equity securities issued as compensation , or the practice aid . the practice aid defines appropriate methods to allocate enterprise value to common shares when multiple share 46 classes exist . based on various factors , including the stage of a company 's life and the timing and likelihood of various liquidity events , one method of allocation may be more appropriate than the others . we considered , but did not use , the probability-weighted expected return method due to the number of assumptions for each scenario that are difficult to estimate , and the fact that our most likely liquidation event was an initial public offering . additionally , we did not apply the liquidation method because , as the practice aid indicates , it would be inappropriate for a later-stage company such as ours to use that method to allocate value to the various share classes . furthermore , the more imminent a liquidity event becomes , the more aligned the liquidation model and option pricing model become in attributing value to each share class . accordingly , we used the option pricing method , as defined in the practice aid , which treats each class of equity as having a “call option” on the enterprise value . the option pricing method considers the economic preferences and other rights attributable to each share class , resulting in a price for each of our share classes , including our common stock . our valuations of our common stock also reflected a discount for lack of marketability , adjusted over time to reflect the expected likelihood and timing of a liquidity event subsequent to each valuation date . no other discounts were applied in determining the value of our common stock . during 2009 and through the date our initial public offering on july 28 , 2010 , we performed the following contemporaneous valuations of our common stock : replace_table_token_10_th as described above , the assets under management or administration on our technology platform at the end of a given quarter have a significant impact on our short- and long-term financial projections and resulting valuation . for example , the valuation conducted on may 15 , 2009 incorporated financial projections based on assets under management or administration as of march 31 , 2009. the value of those assets was 6 % below the value of the assets as of december 31 , 2008. this contributed to the decline in the estimated fair value of our common stock between periods . conversely , assets under management or administration increased 16 % between march 31 , 2009 and june 30 , 2009 , contributing to an increase in the estimated fair value of our common stock between may 15 , 2009 and august 15 , 2009. in addition , assets under management or administration increased 15 % between june 30 , 2009 and september 30 , 2009 , which contributed to the increase in the fair value of our common stock between august 15 , 2009 and november 15 , 2009. a 4 % increase in assets under management or administration between september 30 , 2009 and december 31 , 2009 , as well as the platform services agreement signed with fundquest in february of 2010 , contributed to the increase in the fair value of our common stock between november 15 , 2009 and february 15 , 2010. the decrease between the fair value of our common stock on november 15 , 2009 and february 15 , 2010 and the initial public offering price was principally attributable to volatility in the trading prices of the common stock of comparable companies and the difficult conditions in the market for initial public offerings at and immediately prior to our determination of the initial public offering price . other factors , such as updated financial projections not related to changes in our assets under management or administration , as well as fluctuations in the value of comparable publicly-traded companies , also contributed to the differences in the estimated fair value of our common stock between periods . since our initial public offering on july 28 , 2010 , we have not performed internal valuations or obtained independent valuations in order to determine the company 's stock price to reference when determining the fair value of our common stock in connection with the granting of stock options or restricted stock . non-cash stock-based compensation expense for stock option and restricted stock grants is estimated at the grant date based on each grant 's fair value , calculated using the black-scholes option pricing model . compensation and benefits expenses are recognized over the vesting period for each grant . the fair value of our 47 stock options and the resulting expenses are based on various assumptions , including the expected volatility of our stock price , the expected term of the stock options , estimated forfeiture rates and the risk-free interest rate . the use of different assumptions would result in different fair values and compensation and benefits

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liquidity and capital resources as of december 31 , 2011 , we had total cash and cash equivalents of $ 64.9 million , compared to $ 67.7 million as of december 31 , 2010. in february 2012 , we announced two acquisitions that are expected to close in the first half of 2012 with a combined purchase price of $ 67.8 million . we plan to use existing cash and cash generated in the ongoing operations of our business to fund these acquisitions , our current operations and capital expenditures in 2012. cash flows the following table presents information regarding our cash flows and cash and cash equivalents for the periods indicated : replace_table_token_18_th operating activities net cash provided by operating activities in 2011 increased by $ 23.2 million compared to 2010 , primarily due to an increase in net earnings of $ 8.2 million from the year ended december 31 , 2011 compared to the prior year period and a decrease in customer inducement liability payments of $ 10.3 million , primarily a result of a $ 1.0 million payment to fundquest in 2011 compared to a payment of $ 11.3 million payment to fundquest in 2010. net cash provided by operating activities in 2010 decreased by $ 6.9 million compared to 2009 , primarily due to a payment of $ 10.3 million to fundquest in 2010 ( see note 4 to the notes to the consolidated financial statements ) , primarily offset by an increase in non-cash bad debt expense of $ 2.7 million in 2010 related to the uncollectible portion of accounts and notes receivable from fetter logic ( see note 17 to the notes to the consolidated financial statements ) .

critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowance for sales returns and doubtful accounts , warranties , inventory valuation , business combination purchase price allocations , our review for impairment of long-lived assets , intangible assets and goodwill , income taxes and compensation expense . actual results may differ from these judgments and estimates , and they may be adjusted as more information becomes available . any adjustment may be significant . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , if different estimates reasonably may have been used , or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements . management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue on the sale of products when title of the goods has transferred , there is persuasive evidence of an arrangement ( such as a purchase order from the customer ) , the sales price is fixed or determinable and collectability is reasonably assured . we record a provision for estimated retail sales returns . the provision recorded for estimated sales returns and allowances is deducted from gross sales to arrive at net sales in the period the related revenue is recorded . these estimates are based on historical sales returns , analysis of credit memo data and other known factors . actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates . if actual or expected future returns and claims are significantly greater or lower than the reserves that we have established , we will record a reduction or increase to net revenues in the period in which we make such a determination . the allowance for sales returns balance at december 31 , 2011 and 2010 was $ 1.0 million and $ 1.4 million , respectively . we accrue for discounts and rebates on product sales in the same period as the related revenues are recorded based on our current expectations , after considering historical experience . changes in such accruals may be required if future rebates and incentives differ from our estimates . rebates and incentives are recognized as a reduction of sales if distributed in cash or customer account credits . rebates and incentives are recognized as cost of sales if we provide products or services for payment . we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments for products sold or services rendered . the allowance for doubtful accounts is estimated based on a variety of factors , including credit reviews , historical experience , length of time receivables are past due , current economic trends and changes in customer payment behavior . our historical reserves have been sufficient to cover losses from uncollectible accounts . however , because we can not predict future changes in the financial stability of our customers , actual future losses from uncollectible accounts may differ from our estimates and may have a material effect on our consolidated financial position , results of operations and cash flows . if the financial conditions of our customers deteriorate resulting in their inability to make payments , a larger allowance may be required resulting in a charge to selling , general , and administrative expense in the period in which we make this determination . we incurred $ 0.3 million , $ 0.9 million , and $ 0.4 million of bad debt expense in 2011 , 2010 , and 2009 , respectively , to reflect certain customer accounts where collection was highly uncertain in the current economic environment . we have not made any material changes in our methodology for recognizing revenue during the past four fiscal years . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to recognize revenue . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that may be material . 25 warranty we warrant our products against defects in materials and workmanship arising during normal use . we service warranty claims directly through our customer service department or contracted third-party warranty repair facilities . our warranty periods range up to three years . we estimate and recognize product warranty costs , which are included in cost of sales , as we sell the related products . warranty costs are forecasted based on the best available information , primarily historical claims experience and the expected cost per claim . the costs we have incurred to service warranty claims have been minimal . historically , product defects have been less than 0.5 % of the net units sold . as a result the balance of our reserve for estimated warranty costs is not significant . we have not made any material changes in our warranty reserve methodology during the past three fiscal years . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate the warranty reserve . however , actual claim costs may differ from the amounts estimated . story_separator_special_tag at december 31 , 2011 , there was $ 4.3 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards which we expect to recognize over a weighted-average period of 2.1 years . during the annual review cycle for 2011 , the compensation committee granted our named executives 71,300 restricted stock awards . the awards were granted as part of long-term incentive compensation to assist us in meeting our performance and retention objectives . the grant , dated february 8 , 2012 , is subject to a three-year vesting period ( 8.33 % each quarter ) . the total grant date fair value of these awards was $ 1.4 million . determining the appropriate fair value model and calculating the fair value of share-based payment awards requires the utilization of highly subjective assumptions , including the expected life and forfeiture rate of the share-based payment awards and stock price volatility . management determined that historical volatility calculated based on our actively traded common stock is a better indicator of expected volatility and future stock price trends than implied volatility . the assumptions used in calculating the fair value of share-based payment awards represent management 's best estimates , but these estimates involve inherent uncertainties and the application of management 's judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense may be materially different in the future . we do not believe it is reasonably likely that there will be a material change in the future estimates or assumptions used to determine stock-based compensation expense . however , if actual results are not consistent with our estimates and assumptions we may be exposed to material stock-based compensation expense . refer to “item 8. financial statements and supplementary data — notes to consolidated financial statements — note 16” for additional disclosure regarding stock-based compensation expense . 30 results of operations the following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated . replace_table_token_10_th the comparability of information between 2011 and prior years is affected by the acquisition of enson during the fourth quarter of 2010. see “item 7. management 's discussion and analysis of financial condition and results of operations” and “item 8. financial statements and supplementary data — notes to consolidated financial statements — note 21” for further information . year ended december 31 , 2011 compared to year ended december 31 , 2010 consolidated net sales for the year ended december 31 , 2011 were $ 468.6 million , an increase of 41.2 % compared to $ 331.8 million for the same period last year . net income for 2011 was $ 19.9 million or $ 1.31 per diluted share compared to $ 15.1 million or $ 1.07 per diluted share for 2010. replace_table_token_11_th net sales in our business lines ( subscription broadcasting , oem , and computing companies ) were approximately 90 % of net sales for 2011 compared to approximately 85 % for 2010. net sales in our business lines for 2011 increased by approximately 49 % to $ 421.4 million from $ 282.9 million for 2010. this increase in net sales resulted primarily from the november 2010 acquisition of enson , which added several significant customers and contributed $ 150.1 million of net sales to the business category during 2011 compared to $ 25.0 million during 2010. excluding the net sales from enson , business category sales increased by $ 13.4 million . this is primarily due to the increase of sales to the latin america subscription broadcasting market and the acquisition of new domestic customers in our business category during 2011. net sales in our consumer lines ( one for all ® retail , private label , custom installers , and direct import ) were approximately 10 % of net sales for 2011 compared to approximately 15 % for 2011. net sales in our consumer lines for 2011 decreased by 4 % to $ 47.2 million from $ 48.9 million for 2010. net sales in north american retail decreased by $ 1.7 million , or 35 % , from $ 4.8 million for 2010 to $ 3.1 million for 2011. in addition , our custom installer sales decreased by $ 2.2 million , from $ 2.9 million for 2010 to $ 0.7 million for 2011. partially offsetting these decreases was a $ 2.1 million increase in international retail sales , from $ 41.2 million for 2010 to $ 43.3 million for 2011. the 2011 net sales in our consumer lines were positively impacted by the strengthening of the euro and the british pound compared to the u.s. dollar , which resulted in an increase in net sales of approximately $ 1.3 million . net of the favorable currency effect , international retail sales increased by $ 0.8 million due primarily to the analog to digital transition that took place in some european countries . 31 gross profit for 2011 was $ 130.1 million compared to $ 103.8 million for 2010. gross profit as a percent of sales decreased to 27.8 % in 2011 from 31.3 % in 2010 , due primarily to our sales mix , as a higher percentage of our total sales was comprised of our lower margin business category . this shift in sales composition was expected as a result of our acquisition of enson , which sells exclusively within the business category . in addition , during 2011 , customers gravitated more towards our lower margin products which put downward pressure on our gross margin percentage . research and development expenses increased 15 % to $ 12.3 million in 2011 from $ 10.7 million in 2010. the increase is primarily due to additional labor dedicated to general research & development activities in an effort to continue to develop new technologies and products . selling , general and administrative ( “sg & a” ) expenses increased 27 % to $ 91.2

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sources and uses of cash replace_table_token_13_th replace_table_token_14_th net cash provided by operating activities decreased $ 23.3 million for the twelve months ended december 31 , 2011 compared to the twelve months ended december 31 , 2010. cash flows decreased by $ 25.5 million during 2011 due to increased inventories . in the second quarter of 2011 , we altered our shipping terms with a significant customer that results in us holding title to inventories until the shipments are received by this particular customer . we also increased our investment in safety stock on certain products as a result of the timing of the chinese new year . in addition , cash inflows related to accounts receivable decreased $ 10.1 million , from $ 13.2 million for the twelve months ended december 31 , 2010 to $ 3.1 million for the twelve months ended december 31 , 2011 due primarily to net sales increasing from $ 102.5 million for the fourth quarter of 2010 to $ 117.6 million for the fourth quarter 2011. partially offsetting these decreases to cash flow from operations was an increase to net income of $ 4.9 million and an increase in depreciation and amortization of $ 9.3 million . the increase in depreciation and amortization is a direct result of the acquisition of enson assets limited . net cash provided by operating activities in 2010 was $ 38.1 million compared to $ 24.0 million during 2009. the improvement in cash flow from operations from 2009 to 2010 is due primarily to the strong collection of receivables that were acquired in the acquisition of enson assets limited . we acquired approximately $ 37.6 million of receivables from enson assets limited on november 4 , 2010 ; however , enson 's receivable balance as of december 31 , 2010 was approximately $ 26.0 million , reflecting cash inflows of approximately $ 11.6 million for the aforementioned two month period .

since the company 's revenues are based on large discrete projects , the company 's operating results in any reporting period could be negatively impacted as a result of large variations in the level of overall market demand or delays in the timing of the specific project phases in both geographies and reporting periods . the analysis presented below and discussed in more detail throughout the md & a was organized to provide instructive information for understanding the company 's business . however , this md & a should be read in conjunction with the consolidated financial statements in item 8 of this report , including the notes thereto and the risk factors contained herein . 12 consolidated results of operation : replace_table_token_3_th 2017 compared to 2016 net sales : net sales were $ 105.2 million in 2017 , an increase of 6.5 % from $ 98.8 million in 2016 . higher revenues resulted primarily from increased sales to distributors in canada . cost of sales and gross profit : gross profit remained unchanged at $ 11.7 million in 2017 and 2016 . gross margin decreased to 11 % from 12 % of net sales in the prior year due to changes in the north american product mix and continued competitive pricing pressures in the united states and middle east . selling expenses : selling expenses decreased to $ 5.0 million from $ 5.7 million , an improvement of 11.9 % . as a percentage of net sales , selling expenses decreased to 4.8 % in 2017 from 5.8 % in the prior year . this improvement was due to management changes in the middle east and realignment of the north american sales organization . general and administrative expenses : general and administrative expenses were $ 16.2 million in 2017 compared to $ 17.6 million 2016 , an improvement of 7.8 % . following the departures of the president and vice president of the company 's middle east region in june 2017 and the related regional management transition , the company 's management became concerned that its corporate policies , procedures and internal controls within the region may not have been adhered to fully by the prior management team . as a result of these concerns , the company engaged outside third-party firms to complete an extensive review of regional management activities from early 2014. the total non-recurring costs for this review and the resulting policy improvement implementations for the year 2017 were approximately $ 1.2 million . the 2016 year-to-date expenses included one-time legal settlement expenses of $ 0.8 million , and changes in the senior executive positions of the company with related hiring and separation costs of $ 0.7 million . on a comparative basis , not including these one-time charges , general and administrative expenses were $ 15.0 million and $ 16.1 million , in 2017 and 2016 , respectively . this decrease of $ 1.1 million was primarily due to the relocation of the u.s. headquarters and realignment of administrative functions , all of which contributed to the overall improvement year over year . interest expense : interest expense increased to $ 0.8 million in 2017 from $ 0.7 million in 2016 due to higher borrowings and increased interest rates , both domestic and foreign , in 2017. operating results from continuing operations before income taxes : operating results from continuing operations before income taxes improved to a loss of $ 10.2 million in 2017 compared to a loss of $ 13.8 million in 2016 . the positive contributing factors were : increased coating volume from distributors in canada ; decreased selling , general and administrative expenses due to operational realignment . accounts receivable : in 2013 , the company started a project in the middle east as a sub-contractor , with billings in the aggregate amount of approximately $ 41.9 million . the company completed all of its deliverables in 2015 , and has collected approximately $ 36.5 million , with a remaining balance due in the amount of $ 5.4 million . included in this balance is an amount of $ 3.7 million , which pertains to retention clauses within the agreements of our customer ( contractor ) , and which become payable by the customer when this project is fully tested and commissioned . in the absence of a firm date for the final commissioning of the project , and due to the long-term nature of this receivable , $ 3.2 million of this retention amount was reclassed to a long-term receivable account . the company has been engaged in ongoing active efforts to collect the outstanding amount , and has recently received an updated acknowledgment of the outstanding balances and assurances of payment from the customer . as a result , the company did not reserve any allowance against this amount as of january 31 , 2018. however , if the company 's efforts to collect on this account are not successful in fiscal 2018 , then the company may be required to recognize an allowance for all , or substantially all , of any such then uncollected amounts in the future . income taxes : the company 's worldwide effective tax rates ( `` etr `` ) were 2.3 % and 4.4 % in 2017 and 2016 , respectively . the etr in 2017 has been significantly impacted by the company reporting a pre-tax loss for the year , a portion of which was generated by the subsidiary in the u.a.e . , which receives no tax benefit due to a zero tax rate in that country and due to the impact of the full valuation allowance maintained against domestic deferred tax assets . story_separator_special_tag the company remains in a net operating loss ( `` nol `` ) carryforward position . on december 22 , 2017 , the u.s. government enacted comprehensive federal tax legislation commonly referred to as the tax cuts and jobs act of 2017 ( `` tax act `` ) . the tax act contains significant changes to corporate taxation , including reduction of the corporate tax rate from 35 % to 21 % , additional limitations on the tax deductibility of interest , substantial changes to the taxation of foreign earnings , immediate deductions for certain new investments instead of deductions for depreciation expense over time , and modification or repeal of many business deductions and credits . the company has made reasonable estimates of the financial impact of the tax act on the company . however , the estimates are provisional and may change . 13 the tax act requires multinational companies to pay u.s. income taxes on accumulated earnings of its foreign subsidiaries not previously subject to u.s. income tax at a rate of 15.5 % to the extent of foreign cash and certain other net current assets and 8 % on the remaining earnings . after going through the steps of the deemed repatriation calculation , the aggregate deferred foreign income inclusion is estimated at $ 23.2 million . this income is fully offset by the use of nol carryforwards and the current year domestic loss , resulting in no regular tax on the income . for further information , see note 10 - income taxes , in the notes to consolidated financial statements . other the company has made a bid to provide insulation of pipes to the east africa crude oil pipeline ( `` eacop `` ) project . the eacop project is a 1450 km ( 900 mile ) long heavy crude oil pipeline from the lake albert basin in uganda to the tanga port in tanzania being developed by french oil company total e & p , china national offshore oil corporation ( cnooc ) and london-based tullow oil . the pipeline is 24 inches in diameter , and is electrically heat traced . once completed , it will be the longest insulated and heat traced pipeline in the world . there can be no assurance that the company will be successful in its bid for this project , and what the final terms of any such potential engagement will be until the bid is awarded . liquidity and capital resources story_separator_special_tag $ 2.4 million . in 2017 , the company obtained three capital leases for $ 1.1 million cad ( approximately $ 0.8 million usd at the prevailing exchange rates on the transaction dates ) to finance vehicle equipment . the interest rates for these capital leases were from 4.0 % to 7.8 % per annum with monthly principal and interest payments of less than $ 0.1 million . these leases mature from april 30 , 2021 to september 29 , 2022 . critical accounting estimates and policies the company 's significant accounting policies are discussed in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k. the application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the company as well as the related footnote disclosures . the company bases its estimates on historical experience and other assumptions that it believes are reasonable . if actual amounts ultimately differ from previous estimates , the revisions are included in the company 's results of operations for the period in which the actual amounts become known . revenue recognition . the company recognizes revenues , including shipping and handling charges billed to customers , when all the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . all subsidiaries of the company , except as noted below , recognize revenues upon shipment or delivery of goods or services when title and risk of loss pass to customers . percentage of completion revenue recognition . all divisions recognize revenues under the above stated revenue recognition policy except for domestic complex contracts that require periodic recognition of income . for these contracts , the company uses the `` percentage of completion `` accounting method . under this approach , income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete . the choice of accounting method is made at the time the contract is received based on the expected length and complexity of the project . the percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract . provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions and final contract settlements , may result in revisions to costs and income . such revisions are recognized in the period in which they are determined . claims for additional compensation 16 due to the company are recognized in contract revenues when realization is probable and the amount can be reliably estimated . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out method for all inventories . income taxes . deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes . deferred income taxes on temporary differences have been recorded at the current tax rate . the company

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cash and cash equivalents as of january 31 , 2018 were $ 7.1 million , compared to $ 7.6 million on january 31 , 2017 . on january 31 , 2018 , $ 0.7 million was held in the u.s. and $ 6.4 million was held in the foreign subsidiaries . the company 's working capital was $ 23.1 million on january 31 , 2018 compared to $ 29.8 million on january 31 , 2017 . of the working capital components , accounts receivable increased $ 1.7 million as a result of higher sales . accounts payable increased $ 3.2 million due to the corresponding increase in inventory , and customer deposits increased $ 2.6 million in the middle east related to new project business . cash used in operations in 2017 was $ 1.8 million compared to $ 5.5 million in 2016 , an improvement of $ 3.7 million . net cash used in investing activities during 2017 was $ 2.4 million , compared to net cash provided by investing activities during 2016 of $ 10.2 million . the company estimates that capital expenditures for 2018 may be between $ 3.0 million to $ 4.0 million , and the company may finance capital expenditures through real estate mortgages , term loans , equipment financing loans , internally generated funds and its revolving line of credit . the majority of such expenditures relates to diversification and expansion of business worldwide . debt totaled $ 15.8 million on january 31 , 2018 . net cash provided by financing activities in 2017 was $ 3.5 million , compared to net cash used in 2016 was $ 14.9 million . for additional information , see note 8 - debt , in the notes to consolidated financial statements . other long-term liabilities of $ 0.5 million were composed primarily of deferred rent . 14 the following table summarizes the company 's estimated contractual obligations on january 31 , 2018 . replace_table_token_4_th notes to contractual obligations table : ( 1 ) interest obligations exclude floating rate interest on debt payable under the north american revolving line of credit . based on the amount of such debt on january 31 , 2018 , and the weighted average interest rate of 4.65

our net losses were $ 117.2 million , $ 74.8 million and $ 53.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 316.3 million . we expect to incur significant expenses and operating losses for the foreseeable future . as we seek to develop and commercialize sgt-001 or any other product candidates , we anticipate that our expenses will increase significantly and that we will need substantial additional funding to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity financings , debt financings or other sources , which may include licensing agreements or strategic collaborations . we may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms , if at all . if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , scale back or discontinue the development or commercialization of sgt-001 or our other product candidates . 76 because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or determine when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . on january 30 , 2018 , we completed our initial public offering in which we sold 8,984,375 shares of our common stock , including shares of our common stock issued upon the exercise in full of the underwriters ' over-allotment option , at a public offering price of $ 16.00 per share , resulting in net proceeds of $ 129.1 million , after deducting underwriting discounts and commissions and offering expenses . in july 2019 , we completed a private placement of shares of our common stock and pre-funded warrants to purchase shares of our common stock resulting in net proceeds to us of $ 57.9 million , after deducting offering costs . as of december 31 , 2019 , we had cash , cash equivalents and available-for-sale securities of $ 83.5 million . we believe that our cash , cash equivalents and available-for-sale securities as of december 31 , 2019 will enable us to fund our operating expenses and capital expenditure requirements into 2021. we have based this estimate on assumptions that may prove to be wrong , and we could use our available capital resources sooner than we currently anticipate . in january 2020 , we announced a reduction in workforce by approximately one third as part of a strategic plan designed to create a leaner company focused on advancing sgt-001 . corporate conversion we operated as a delaware limited liability company under the name solid biosciences , llc until immediately prior to the effectiveness of our registration statement on form s-1 on january 25 , 2018 , at which time we converted into a delaware corporation pursuant to a statutory conversion and changed our name to solid biosciences inc. in addition , immediately following the statutory conversion , entities formed solely for the purpose of holding membership interests in our limited liability company were merged with and into us . we refer to the corporate conversion and the mergers , collectively as the corporate conversion . as a result of the corporate conversion , the holders of the series 1 and 2 senior preferred and junior preferred units and series a , b , c and d common units of solid biosciences , llc became holders of common stock of solid biosciences inc. the consolidated financial statements included elsewhere in this annual report on form 10-k are those of solid biosciences inc. and its subsidiaries . merger and recapitalization we historically owned 100 % of the voting units of our wholly owned subsidiary , solid gt , llc , or solid gt , and the results of solid gt are included in our consolidated financial statements . solid gt was organized in delaware in august 2014 and was engaged in the business of developing disease-modifying interventions for dmd through gene therapy . in november 2015 , solid gt issued voting units to new investors , which decreased our voting ownership in solid gt to 77 % . we consolidated the results of solid gt as we owned a majority voting interest in solid gt and we directed the activities of solid gt . net loss attributable to non-controlling interests in our consolidated statement of operations and comprehensive loss consists of the portion of the net income or loss of solid gt that is not allocated to us . changes in the amount of net loss attributable to non-controlling interests are directly impacted by changes in the net income or loss of solid gt . on march 29 , 2017 , we merged the operations of solid gt into the company and solid gt ceased to exist as a separate legal entity . as a result , for periods subsequent to march 29 , 2017 , we no longer report any non-controlling interests related to solid gt . financial operations overview revenue we have not generated any revenue to date and do not expect to generate any revenue from the sale of our products for the next few years , if ever . story_separator_special_tag general and administrative expenses general and administrative expenses were $ 24.6 million for the year ended december 31 , 2019 , compared to $ 17.7 million for the year ended december 31 , 2018. the increase of $ 6.9 million was driven by a $ 4.4 million increase in equity-based compensation as a result of grants issued during the year ended december 31 , 2019 , and other personnel and facility related expenses of $ 1.6 million as well as an increase of $ 0.9 million for professional services and other corporate expenses . interest income interest income was $ 1.6 million and $ 0.6 million for the years ended december 31 , 2019 and 2018 , respectively . the increase in interest income was due to an increase in available-for-sale securities in our portfolio during the first half of 2019 . 82 other income other income for the year ended december 31 , 2019 was $ 0.5 million compared to $ 0.3 million for the year ended december 31 , 2018. the increase of $ 0.2 million was due to an increase of income from charitable organizations . we do not expect these contributions to significantly increase in future periods . comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_5_th research and development expenses replace_table_token_6_th research and development expenses for the year ended december 31 , 2018 were $ 58.0 million , compared to $ 39.9 million for the year ended december 31 , 2017. the increase of $ 18.1 million in research and development costs was due to total unallocated research and development costs of $ 11.8 million primarily due to personnel and facility related expenses , including costs incurred to operate the new lab facility , a net $ 4.4 million increase in costs related to our lead product candidate sgt-001 driven by higher clinical development and manufacturing activities of $ 6.7 million offset by a $ 2.3 million reduction in preclinical costs , and a $ 1.9 million increase in costs related to our other product candidates . general and administrative expenses general and administrative expenses were $ 17.7 million for the year ended december 31 , 2018 , compared to $ 15.0 million for the year ended december 31 , 2017. the increase of $ 2.7 million was driven by personnel and facility related expenses of $ 3.1 million as well as higher professional services and other corporate expenses of $ 1.9 million associated with being a public company , partially offset by a decrease in equity-based compensation of $ 2.3 million . the reduction in equity-based compensation of $ 2.3 million was primarily due to a charge associated with the exchange of certain of our vested common units in connection with the recapitalization of solid biosciences , llc and our merger with solid gt on march 29 , 2017 . 83 revaluation of preferred unit tranche right we issued the series 1 tranche right on march 29 , 2017 and it was settled in october 2017 in connection with the series 2 senior preferred unit financing . the revaluation of the series 1 tranche right resulted in a gain of $ 0.5 million in the year ended december 31 , 2017 due to the settlement of the tranche right . interest income interest income was $ 0.6 million and $ 0.2 million for the years ended december 31 , 2018 and 2017 respectively . the increase in interest income was due to an increase in available-for-sale securities in our portfolio . other income other income for the year ended december 31 , 2018 was $ 0.3 million compared to $ 1.0 million for the year ended december 31 , 2017. the decrease of $ 0.7 million was due a reduction of income from charitable organizations . we do not expect these contributions to significantly increase in future periods . story_separator_special_tag style= `` margin-bottom:0pt ; margin-top:12pt ; text-indent:4.86 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > during the year ended december 31 , 2017 , net cash provided by financing activities was $ 77.1 million , primarily due to the net proceeds from our sale of series 1 and 2 senior preferred units of $ 24.5 million and $ 55.0 million , respectively , partially offset by payments made in connection with our initial public offering . 85 funding requirements we expect our expenses to increase substantially in connection with our ongoing development activities related to sgt-001 . in addition , we expect to incur additional costs associated with operating as a public company . we expect that our expenses will increase substantially if and as we : seek to resolve the clinical hold on ignite dmd and , if and when lifted , continue to enroll patients in ignite dmd and continue clinical development of sgt-001 ; move other product candidates into clinical trials ; continue research and preclinical development of our other product candidates ; seek to identify additional product candidates ; seek marketing approvals for our product candidates that successfully complete clinical trials , if any ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval ; arrange for manufacture of larger quantities of our product candidates for clinical development and potential commercialization ; maintain , expand , protect and enforce our intellectual property portfolio ; hire and retain additional clinical , quality control and scientific personnel ; build out new facilities or expand existing facilities to support our activities ; acquire or in-license other drugs , technologies and intellectual property ; and add operational , financial and management information systems and personnel . on january 30 , 2018 , we completed our initial public offering in which we sold

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liquidity and capital resources sources of liquidity to date , we have financed our operations primarily through private placements of preferred units and our initial public offering as well as a private placement of shares of our common stock and pre-funded warrants to purchase shares of our common stock . through december 31 , 2019 , we raised an aggregate of $ 144.6 million of gross proceeds from our sales of preferred units prior to the completion of our initial public offering , an aggregate of $ 129.1 million of net proceeds from the sale of our common stock after deducting underwriting discounts and commission and offering expenses in our initial public offering and an aggregate $ 57.9 million of net proceeds , after deducting offering costs , from our july 2019 private placement . we completed our initial public offering on january 30 , 2018 , in which we sold 8,984,375 shares of common stock , including the underwriters ' over-allotment option , at a public offering price of $ 16.00 per share , resulting in net proceeds of $ 129.1 million . on july 30 , 2019 , we issued and sold in a private placement ( i ) 10,607,525 shares of our common stock at a price per share of $ 4.65 and ( ii ) 2,295,699 pre-funded warrants to purchase shares of our common stock at a price per warrant of $ 4.64. each pre-funded warrant is exercisable for one share of common stock at an exercise price of $ 0.01 and the pre-funded warrants have no expiration date . we received $ 57.9 million of net proceeds from the private placement after deducting offering costs . as of december 31 , 2019 , we had cash , cash equivalents and available-for-sale securities of $ 83.5 million and had no debt outstanding .

million , compared to $ 228.3 million in 2011. in 2012 , our net income after deducting the noncontrolling interest was $ 87.2 million , compared to $ 162.7 million in 2011. diluted net income per share attributable to sohu.com inc was $ 2.03 in 2012 , compared to $ 3.93 in 2011. for the details of our business and business restructuring , please see item 1 business overview . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “u.s . gaap” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . identified below are the accounting policies that reflect our more significant estimates and judgments , and those that we believe are the most critical to fully understanding and evaluating our consolidated financial statements . basis of consolidation and recognition of noncontrolling interest the consolidated financial statements include the accounts of sohu and its wholly-owned and majority-owned subsidiaries and the consolidated variable interest entities ( “vies” ) . all intercompany transactions are eliminated . we have adopted the guidance of accounting for vies , which requires vies to be consolidated by the primary beneficiary of the entity . for the consolidated vies , our management made evaluations of the relationships between us and our vies and the economic benefit flow of contractual arrangements with the vies . in connection with such evaluation , management also took into account the fact that , as a result of such contractual arrangements , the sohu group controls the shareholders ' voting interests in these vies . as a result of such evaluation , management concluded that the sohu group is the primary beneficiary of its consolidated vies . we have one vie that is not consolidated by us since we are not the primary beneficiary . noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries and vies which is not attributable , directly or indirectly , to the controlling shareholder . currently , the noncontrolling interests in our consolidated financial statements primarily consist of noncontrolling interests for changyou and sogou . noncontrolling interest for changyou to reflect the economic interest in changyou held by shareholders other than sohu ( “noncontrolling shareholders” ) , changyou 's net income attributable to these noncontrolling shareholders is recorded as noncontrolling interest in sohu 's consolidated statements of comprehensive income , based on their share of the economic interests in changyou . changyou 's cumulative results of operations attributable to these noncontrolling shareholders , along with changes in shareholders ' equity , adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in sohu 's ownership in changyou from sohu 's purchase of changyou adss representing class a ordinary shares , are recorded as noncontrolling interest in sohu 's consolidated balance sheets . 82 noncontrolling interest for sogou to reflect the economic interest in sogou held by shareholders other than sohu ( “noncontrolling shareholders” ) , sogou 's net income /loss attributable to these noncontrolling shareholders is recorded as noncontrolling interest in sohu 's consolidated statements of comprehensive income . sogou 's cumulative results of operations attributable to these noncontrolling shareholders , along with changes in shareholders ' equity / ( deficit ) and adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and noncontrolling shareholders ' investments in series a preferred shares are accounted for as a noncontrolling interest classified as permanent equity in sohu 's consolidated balance sheets , as redemption of the noncontrolling interest is solely within the control of sohu . these treatments are based on the terms governing investment by the noncontrolling shareholders in the series a preferred shares of sogou ( the “sogou series a terms” ) , the terms of sogou 's restructuring , and sohu 's purchase of sogou series a preferred shares from alibaba . by virtue of these terms , as sogou has been losing money since its restructuring , the net losses have been and will be allocated in the following order : ( i ) net losses were allocated to ordinary shareholders until their basis in sogou decreased to zero ; ( ii ) additional net losses will be allocated to holders of sogou series a preferred shares until their basis in sogou decreases to zero ; and ( iii ) further net losses will be allocated between ordinary shareholders and holders of sogou series a preferred shares based on their shareholding percentage in sogou . any subsequent net income from sogou will be allocated in the following order : ( i ) net income will be allocated between ordinary shareholders and holders of sogou series a preferred shares based on their shareholding percentage in sogou until their basis in sogou increases to zero ; ( ii ) additional net income will be allocated to holders of sogou series a preferred shares to bring their basis back ; ( iii ) further net income will be allocated to ordinary shareholders to bring their basis back ; and ( iv ) further net income will be allocated between ordinary shareholders and holders of sogou series a preferred story_separator_special_tag if at the end of each reporting period , an operator has not yet issued such billing confirmations , we estimate the amount of collectable wireless service fees and recognize revenue . when we later receive billing confirmations , we record a true-up accounting adjustment . for the three months ended december 31 , 2012 , 66 % of our estimated wireless revenues were confirmed by billing confirmations received from the china mobile network operators . generally , ( i ) within 15 to 120 days after the end of each month , we receive billing confirmations from the operators and ( ii ) within 30 to 180 days after delivering billing confirmations , each operator remits the wireless service fees , net of its service fees , to us . others revenues others revenues are primarily generated from sub-licensing of licensed video content operated by sohu , ivas provided by sogou with respect to web games developed by third-party developers , and cinema advertising services provided by changyou . revenues from sub-licensing of licensed video content for licensed video content purchased on an exclusive basis with payment in cash , we have rights to sub-license to other platforms . revenues from sub-licensing of licensed video content are recognized when the content is available for immediate and unconditional delivery under an existing sub-licensing arrangement , the sub-license period has begun and the sub-licensing fee is fixed or determinable and collection of the sub-licensing fee is reasonably assured . revenues from ivas sogou offers web games developed by third-party developers and generate revenues from the provision of ivas , including promotion , access maintenance and payment services , to third-party developers . the web games can be accessed and played by end users free of charge , but the end users may choose to purchase in-game merchandise to enhance their game playing experience . we sign revenue-sharing agreements with third-party developers . under these revenue-sharing agreements , we collect payments from the end users for items sold , keep a pre-agreed percentage of the proceeds and remit the balance to the third-party developers . revenues from ivas are recognized on a net basis , when our obligations under the agreements and all other revenue recognition criteria have been met . 86 revenues from cinema advertisements for cinema advertising revenues , a contract is signed with the advertiser to establish a fixed price and specify advertising services to be provided . based on the contracts , changyou provides advertisement placements in advertising slots to be shown in theatres before the screening of movies . revenues from cinema advertising are recognized when all the recognition criteria are met . depending on the terms of a customer contract , fees for services performed can be recognized according to two principal methods , consisting of the proportional performance method and the straight-line method . under the proportional performance method , fees are generally recognized based on a percentage of the advertising slots actually delivered where the fee is earned on a per-advertising slot placement basis . under the straight-line method , fees are recognized on a straight-line basis over the contract period when the fee is not paid based on the number of advertising slots actually delivered . cost of revenues cost of online advertising revenues cost of online advertising revenues includes cost of revenues from brand advertising services as well as cost of search and others services . cost of brand advertising revenues cost of brand advertising revenues mainly consists of content and license costs ( including amortization of licensed video content and impairment of purchased video content ) , bandwidth leasing costs , depreciation expenses , and salary and benefits expenses . cost of search and others revenues cost of search and others revenues mainly consists of traffic acquisition costs , bandwidth leasing costs , depreciation expenses , and salary and benefits expenses . traffic acquisition costs represent payments made to sogou website alliance members . we pay sogou website alliance members based either on revenue-sharing arrangements or on a pre-agreed unit price . under the revenue-sharing arrangements , we pay a percentage of pay-for-click revenues generated from clicks by users of the website alliance members ' properties . cost of online game revenues cost of online game revenues mainly consists of salary and benefits expenses , bandwidth leasing charges , depreciation expenses , revenue-based royalty payments to game developers , business tax and vat arising from transactions between changyou 's subsidiaries and its vies . cost of wireless revenues cost of wireless revenues mainly consists of revenue-sharing payments , which include payments to third party wireless service alliances and content providers , collection charges and transmission fees paid to china mobile network operators , bandwidth leasing costs and depreciation expenses . cost of revenues for other services cost of revenues for other services mainly consists of payments to theatres and film production companies for pre-film screening advertisement slots , charges for impairment of intangible assets and amortization of sub-licensing cost . product development expenses product development expenses mainly consist of personnel-related expenses incurred for enhancement and maintenance of our websites , and costs associated with new product development and maintenance , as well as enhancement of existing products and services . during the years ended december 31 , 2012 , 2011 and 2010 , no product development expenses were capitalized . sales and marketing expenses sales and marketing expenses mainly consist of advertising and promotional expenditures , salary and benefits expenses , travel expenses , and facility expenses . general and administrative expenses general and administrative expenses mainly consist of salary and benefits expenses , professional service fees , travel expenses , and facility expenses . 87 share-based compensation expense sohu , changyou , sogou , fox video limited ( “sohu video” ) and 7road all have incentive plans for the granting of share-based awards , including common stock /ordinary shares , share options , restricted shares and restricted share units ,

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liquidity and capital resources resources analysis our principal sources of liquidity are cash and cash equivalents , short-term investments , investments in debt securities , as well as the cash flows generated from our operations . cash equivalents primarily comprise time deposits . as of december 31 , 2012 , we had cash and cash equivalents , short-term investments and investments in debt securities of approximately $ 968.0 million . in addition , as of december 31 , 2012 we had , through changyou , bridge loans from offshore banks in the principal amount of $ 239 million . these bridge loans are secured by rmb deposits in onshore branches of those banks in the total amount of $ 247 million . as of december 31 , 2011 , we had cash and cash equivalents , short-term investments , and investment in debt securities of approximately $ 830 million . as of december 31 , 2010 , we had cash and cash equivalents and investment in debt securities of approximately $ 754 million . on august 29 , 2011 , our board of directors authorized a combined share purchase program of up to $ 100 million of the outstanding shares of our common stock , and or outstanding adss of changyou over a one-year period from september 1 , 2011 to august 31 , 2012. as of the expiration of the program on august 31 , 2012 , we had repurchased 500,000 shares of our common stock , and we also had purchased 750,000 changyou adss , representing 1,500,000 class a ordinary shares , for consideration of $ 25.7 million . the total consideration paid under the combined share purchase program was $ 54.9 million . in november 2009 , we entered into an agreement to purchase a beijing office building to serve as our headquarters . the purchase price is approximately $ 128 million , of which $ 125 million had been paid as of december 31 , 2012. in december 2011 , we also entered into an agreement for technological infrastructure and fitting-out work for this office building .

· the net interest margin improved 16 basis points from 2.92 % to 3.08 % . net interest income , on a tax equivalent basis , declined slightly in 2010 compared to 2009. specifically , on a tax equivalent basis , net interest income totaled $ 50.3 million for 2010 compared to $ 51.1 million for 2009. excluding the one-time positive adjustment to interest income in 2009 , declines in interest income were effectively offset by declines in interest expense . for 2010 , average earning assets increased by $ 94.9 million , or 6 % , and average interest-bearing liabilities increased by $ 46.9 million , or 3 % , when compared with average balances for 2009. a comparison of yields , spreads and margins from 2010 to 2009 shows the following ( on a tax equivalent basis ) : · the average yield on interest-earning assets decreased 61 basis points from 5.29 % to 4.68 % . · the average cost of interest-bearing liabilities decreased 41 basis points from 2.49 % to 2.08 % . · the net interest spread declined 20 basis points from 2.80 % to 2.60 % . · the net interest margin declined 22 basis points from 3.14 % to 2.92 % . the company 's management closely monitors and manages net interest margin . from a profitability standpoint , an important challenge for the company 's subsidiary banks and majority-owned leasing company is the improvement of their net interest margins . management continually addresses this issue with pricing and other balance sheet management strategies including , but not limited to , the use of alternative funding sources . 26 for example , the company 's largest subsidiary bank , qcbt , executed a balance sheet restructuring during the first quarter of 2011. specifically , the bank utilized excess liquidity and prepaid $ 15.0 million of fhlb advances with a weighted average interest rate of 4.87 % and a weighted average maturity of may 2012. the fees for prepayment totaled $ 832 thousand . the company sold $ 37.4 million of government sponsored agency securities and recognized pre-tax gains of $ 880 thousand which more than offset the prepayment fees . the proceeds from the sales of the government sponsored agency securities were reinvested into government guaranteed residential mortgage-backed securities with reduced risk-weighting for regulatory capital purposes and yields that were comparable to the sold securities . the resulting impacts were significant and included : · significantly reduced interest expense and improved net interest margin · stronger regulatory capital · reduced reliance on wholesale funding separately , during the first quarter of 2011 , qcbt modified $ 20.4 million of fixed rate fhlb advances with a weighted average interest rate of 4.33 % and a weighted average maturity of october 2013 into new fixed rate advances with a weighted average interest rate of 3.35 % and a weighted average maturity of february 2014. additionally , during the fourth quarter of 2011 , the company 's newest subsidiary bank , rb & t , modified $ 13.0 million of fixed rate fhlb advances with a weighted average interest rate of 3.37 % and a weighted average maturity of march 2013 into new fixed rate fhlb advances with a weighted average interest rate of 2.29 % and a weighted average maturity of february 2016. these modifications reduce interest expense and improve net interest margin , and minimize the exposure to rising rates through the duration extension of fixed rate liabilities . 27 the company 's average balances , interest income/expense , and rates earned/paid on major balance sheet categories , as well as the components of change in net interest income , are presented in the following tables : replace_table_token_11_th ( 1 ) interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34 % tax rate in each year presented . ( 2 ) loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance . ( 3 ) non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance . ( 4 ) in accordance with asc 860 , effective january 1 , 2010 , the company accounts for some participations sold , including sales of government-guaranteed portions of loans during the recourse period , as secured borrowings . as such , these amounts are included in the average balance for gross loans/leases receivable and other borrowings . for the years ended december 31 , 2011 and 2010 , this totaled $ 2.5 million and $ 9.6 million , respectively . during the second quarter of 2011 , sba removed the recourse provision for sales which allowed for sale accounting treatment at the time of sale ; thus , the decline in average balance . 28 for the years ended december 31 , 2011 , 2010 and 2009 replace_table_token_12_th ( 1 ) the column `` inc/ ( dec ) from prior year `` is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates . the variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume . ( 2 ) interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34 % tax rate in each year presented . ( 3 ) loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance . ( 4 ) non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance . ( 5 ) in accordance with asc 860 , effective january 1 , 2010 , the company accounts for some participations sold , including sales of government-guaranteed portions of loans during the recourse period , as secured borrowings . story_separator_special_tag similarly , as a result of favorable market conditions , rb & t sold $ 8.3 million of government agency securities for a pre-tax gain totaling $ 149 thousand . the sales proceeds were utilized to diversify rb & t 's securities portfolio and fund loan growth . separately , during the first quarter of 2011 , in an effort to offset the $ 832 thousand of fees for prepaying $ 15.0 million of fhlb advances , qcbt sold $ 37.4 million of government agency securities for a pre-tax gain totaling $ 880 thousand . see detailed discussion of this restructuring transaction in the overview section earlier in management 's discussion and analysis . in 2009 , the company identified several u.s. government-sponsored agency securities with favorable market positions which were sold at pre-tax gains totaling $ 1.5 million . the company recognized net losses on sales of other real estate owned during 2011 and 2010. by comparison , the company recognized net gains on sales of other real estate owned for 2009. these amounts tend to fluctuate depending on the individual property being sold . 34 noninterest expenses . the following tables set forth the various categories of noninterest expenses for the years ended december 31 , 2011 , 2010 and 2009. replace_table_token_15_th replace_table_token_16_th management has placed strong emphasis on overall cost containment and is committed to improve the company 's general efficiency . 35 salaries and employee benefits , which is the largest component of noninterest expense , increased 3.6 % and 9.1 % in 2010 and 2011 , respectively . for 2011 , the increase is largely the result of : · customary annual salary and benefits increases for the majority of the company 's employee base in 2011. for 2010 , the company did not generally increase salaries across the employee base . · continued increase in health insurance-related employee benefits for the majority of the company 's employee base . · higher accrued incentive compensation based on improved financial performance in 2011 . · increase in the company 's employee base as ftes increased from 350 at december 31 , 2010 to 355 at december 31 , 2011. for 2010 , the modest increase was largely the result of increases in health insurance-related employee benefits for the majority of the company 's employees as the company did not generally increase salaries across the employee base as of january 1 , 2010. additionally , the company did slightly expand its employee base from 343 ftes at december 31 , 2009 to 350 ftes at december 31 , 2010. the majority of this modest growth occurred in the fourth quarter . fdic and other insurance expense experienced a slight decline in 2010 , followed by a more significant decline in 2011. fdic insurance premiums are calculated using a variety of factors , including , but not limited to , balance sheet levels , funding mix , and regulatory compliance . the subsidiary banks have been successful in managing these factors and driving down fdic insurance cost . in addition , the fdic modified the calculation for premiums effective during the second quarter of 2011. the modification was favorable for the company 's subsidiary banks . loan/lease expense fluctuated significantly over the past two years with a 17 % decline during 2010 , and a 30 % increase in 2011. generally , loan/lease expense has a direct relationship with the level of nonperforming loans/leases ; however , it may deviate as it depends upon the individual nonperforming loans/leases . over the past few years , the company has experienced elevated levels of loan/lease expense . the company incurred additional expenses for advertising and marketing during 2011. specifically , the subsidiary banks and the leasing company are pursuing opportunities to reach new targeted customers in their respective markets as a result of the continued uncertainty with some of their competition . bank service charges , which include costs incurred to provide services to qcbt 's correspondent banking customer portfolio , have increased significantly over the past two years . the increase is due , in large part , to the success qcbt has had in growing its correspondent banking customer portfolio over the past year . in an effort to utilize some of its excess liquidity and improve net interest margin by eliminating some of its higher cost wholesale funding , qcbt prepaid $ 15.0 million of fhlb advances during the first quarter of 2011. as a result , qcbt incurred a prepayment fee totaling $ 832 thousand . to offset these fees , qcbt sold $ 37.4 million of government sponsored agency securities for a pre-tax gain totaling $ 880 thousand . see detailed discussion of this restructuring transaction in the overview section earlier in management 's discussion and analysis . during the second quarter of 2011 , the company 's evaluation of its securities portfolio for other-than-temporary impairment determined that two privately held equity securities experienced declines in fair value that were other-than-temporary . as a result , the company wrote down the value of these securities and recognized losses in the amount of $ 119 thousand . similarly , in the third quarter of 2010 , management identified a single issue trust preferred security that experienced a decline in fair value determined to be other-than-temporary . as a result , the company wrote down the value of this security and recognized a loss totaling $ 114 thousand . the company does not own any other trust preferred securities . for 2009 , the company 's periodic evaluation identified 11 publicly-traded equity investment securities owned by the holding company that experienced declines in fair value determined to be other-than-temporary . as a result , the company wrote down the value of these securities and recognized losses in the amount of $ 206 thousand . 36 during the first quarter of 2010 , the company recognized losses in residual values for two direct financing equipment leases . the

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liquidity and capital resources liquidity measures the ability of the company to meet maturing obligations and its existing commitments , to withstand fluctuations in deposit levels , to fund its operations , and to provide for customers ' credit needs . the company monitors liquidity risk through contingency planning stress testing on a regular basis . the company seeks to avoid over concentration of funding sources and to establish and maintain contingent funding facilities that can be drawn upon if normal funding sources become unavailable . one source of liquidity is cash and short-term assets , such as interest-bearing deposits in other banks and federal funds sold , which averaged $ 128.0 million during 2011 , $ 129.0 million during 2010 , and $ 107.5 million during 2009. the company 's on balance sheet liquidity position has grown significantly over the past several years . the subsidiary banks have a variety of sources of short-term liquidity available to them , including federal funds purchased from correspondent banks , fhlb advances , structured wholesale repurchase agreements , brokered time deposits , lines of credit , borrowing at the federal reserve discount window , sales of securities available for sale , and loan/lease participations or sales . the company also generates liquidity from the regular principal payments and prepayments made on its loan/lease portfolio , and on the regular monthly payments on its residential mortgage-backed securities portfolio . at december 31 , 2011 , the subsidiary banks had 22 lines of credit totaling $ 225.4 million , of which $ 72.9 million was secured and $ 152.5 million was unsecured . at december 31 , 2011 , $ 159.4 million was available as $ 66.0 million was utilized as a result of the short-term fluctuations in noninterest bearing correspondent deposit balances for several customers over the end of the year . at december 31 , 2010 , the subsidiary banks had 16 lines of credit totaling $ 153.5 million , of which $ 55.0

based on data from cox automotive , there were an estimated 37.2 million used vehicle transactions in 2020 , compared to approximately 40 million transactions in 2019. the u.s. used automotive market is also highly fragmented , with over 42,000 dealers and millions of peer-to-peer transactions across the country . it also is ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of ecommerce penetration . industry reports estimate that ecommerce penetration will grow to as much as half of all used vehicle sales by 2030. our platform , coupled with our national presence and brand , provides a significant competitive advantage versus local dealerships and regional players that lack nationwide reach and scalable technology , operations and logistics . the traditional auto dealers and peer-to-peer market do not and can not offer consumers what we offer . 56 our model we generate revenue through the sale of used vehicles and value-added products . we sell vehicles directly to consumers primarily through our ecommerce segment . as the largest segment in our business , ecommerce revenue grew 55.7 % from 2019 to 2020 , and we expect ecommerce to continue to outgrow our other segments as it is the core focus of our growth strategy . we also sell vehicles through wholesale channels , which provide a revenue source for vehicles that do not meet our vroom retail sales criteria . additionally , we generate revenue through the retail sale of used vehicles and value-added products at houston-based texas direct auto , or tda . for the year ended december 31 , 2020 , our ecommerce , wholesale and tda segments represented 67.4 % , 18.1 % and 14.5 % of our total revenue , respectively . our retail gross profit consists of two components : vehicle gross profit and product gross profit . vehicle gross profit is calculated as the aggregate retail sales price for all vehicles sold to customers along with delivery fee revenue and document fees received from customers , less the aggregate cost to acquire such vehicles , the aggregate cost of inbound transportation for such vehicles to our vehicle reconditioning centers , which we refer to as vrcs , and the aggregate cost of reconditioning such vehicles for sale . product gross profit consists of fees earned on any finance and protection products sold as part of a vehicle sale . because we are paid fees on the value-added products we sell , our gross profit on such products is equal to the revenue we generate . see “ —key operating and financial metrics . ” below is an explanation of how we calculate vehicle gross profit per unit and product gross profit per unit : our profitability depends primarily on increasing unit sales and operating leverage , as well as improving unit economics . we deploy an asset-light strategy that optimizes a combination of ownership and operation of assets by us with strategic third-party partnerships . our hybrid approach also applies to the third-party value-added products we sell to customers , which enables us to generate additional revenue streams without taking on the risk associated with underwriting vehicle financing or protection products . as we scale , we expect to benefit from efficiencies and operating leverage across our business , including our marketing and technology investments , and our inventory procurement , logistics , reconditioning and sales processes . inventory sourcing we source our vehicle inventory from a variety of channels , including auctions , consumers , rental car companies , oems and dealers . because the quality of vehicles and associated gross margin profile vary across each channel , the mix of inventory sources has an impact on our profitability . we continually evaluate the optimal mix of sourcing channels to generate the highest sales margins and shortest inventory turns , both of which contribute to increased gross profit per unit . we generate a vast set of data derived from market demand , pricing dynamics , vehicle acquisitions and subsequent sales , and we leverage that data to optimize future vehicle acquisitions . as we scale , we expect to continue to leverage the data at our disposal to optimize and enhance the volume and selection of vehicles in our inventory and , in turn , drive revenue growth and profitability . we are also exploring third party inventory strategies , which offers the possibility of expanding our sourcing channels through third party sellers while offering us attractive revenue models in an asset light , debt free structure . see “ —key factors and trends affecting our operating results—ability to drive growth by cost effectively increasing the volume and selection of vehicles in our inventory . ” 57 vehicle reconditioning before a vehicle is listed for retail sale on our platform , it undergoes a thorough reconditioning process in order to meet our vroom retail sales criteria . the efficiency of this reconditioning process is a key element in our ability to profitably grow . to recondition vehicles , we rely on a combination of our vroom vrc along with a network of vrcs owned and operated by third parties , and we intend to continue to expand our network of third-party vrcs . utilizing this hybrid approach , we have increased our total reconditioning capacity to approximately 2,000 units per week as of december 31 , 2020 , with approximately two-thirds from our eighteen third-party vrcs . as we increase the number of vehicles in our inventory and expand our reconditioning capacity , we expect that reconditioning costs and inbound shipping costs per unit will decrease as we benefit from economies of scale and operating leverage in reconditioning costs . see “ —key factors and trends affecting our operating results—ability to expand and optimize our reconditioning capacity to satisfy increasing demand . story_separator_special_tag pursuant to the acquisition agreement , the aggregate purchase price was approximately $ 120.0 million , comprised of cash and shares of our common stock . on the closing date , we paid $ 77.5 million in cash and issued 1,072,117 shares of our common stock . the purchase price is subject to adjustment for certain working capital adjustments and post-closing indemnities . update on the impact of the covid-19 pandemic the results of our operations and overall financial performance were impacted due to the covid-19 pandemic during the year ended december 31 , 2020. after the initial disruption in our ecommerce operations , consumer demand for used vehicles now exceeds pre-covid-19 levels . lower foot traffic in the initial phase of the covid-19 pandemic as well as reduced inventory at the tda location as the ecommerce business scales , continues to negatively affect our tda business . additionally , we experienced disruption across our logistics network , with a reduced number of third-party providers available to deliver our vehicles , which has resulted in a slowdown of inventory being picked up and delivered to our vrcs and in sold units being delivered to customers . our transportation costs have also increased as the remaining carriers have increased prices . 63 we expect our operations will continue to be adversely impacted continuing into in 2021 , however , the magnitude and duration of the ultimate impact is impossible to predict with certainty due to : uncertainties regarding the duration of the covid-19 pandemic and the length of time over which the disruptions caused by covid-19 will continue , including any potential future waves , the spread of new variants and the success of vaccination programs ; the impact of governmental orders and regulations that have been , and may in the future be , imposed in response to the pandemic ; the impact of covid-19 on vrcs , wholesale auctions , state dmv titling and registration services , third party vehicle carriers and other third parties on which we rely ; uncertainty as to the impact future increases in transmission could have on our ability to fully staff portions of our business ; the deterioration of economic conditions in the united states , as well as high unemployment levels , which could have an adverse impact on discretionary consumer spending ; and uncertainty as to whether and to what degree governmental stimulus packages or other economic relief will be provided to soften the negative economic effects of the covid-19 crisis and the impact of any such relief . see “ risk factors—risk related to the covid-19 pandemic—the covid-19 pandemic has had and is expected to continue to have an adverse effect on our business , financial condition and results of operations . ” severe weather conditions in february 2021 , the state of texas was hit with record breaking winter weather which resulted in dangerous road conditions , widespread power outages , water outages and contamination of the water supply , which caused significant disruptions to our houston area operations , including the closure of our offices and vroom vrc for several days . we immediately focused on the health and wellbeing of our employees , while also working to minimize the impact on our customers . we have resumed full operations and are currently working to address the backlog in certain areas of our business , including our vrc , sales support , and administrative functions . “ risk factors—general risk factors—our business is subject to the risk of natural disasters , adverse weather events and other catastrophic events , and to interruption by manmade problems such as terrorism . other key factors and trends affecting our operating results our financial condition and results of operations have been , and will continue to be , affected by a number of factors and trends , including the following : ability to utilize data science to drive revenue growth by cost effectively increasing the volume and selection of vehicles in our inventory our growth is primarily driven by vehicle sales . vehicle sales growth , in turn , is largely driven by the volume of inventory and the selection of vehicles listed on our platform . accordingly , we believe that having the appropriate volume and mix of vehicle inventory is critical to our ability to drive growth . the continued growth of our vehicle inventory requires a number of important capabilities , including the ability to finance the acquisition of inventory at competitive rates , source high quality vehicles across various acquisition channels nationwide , secure adequate reconditioning capacity and execute effective marketing strategies to increase consumer sourcing . in addition , our ability to accurately forecast pricing and consumer demand for specific types of vehicles is critical to sourcing high quality , high-demand vehicles . this ability is enabled by our data science capabilities that leverage the growing amount of data at our disposal and fine-tune our supply and sourcing models . our investment in carstory further enhances our predictive market data capabilities . as we continue to invest in our operational efficiency and data analytics , we expect that we will continue to cost effectively increase the volume and optimize the selection of our ecommerce inventory . ability to capitalize on the continued migration of vehicle purchasers to ecommerce platforms through data-driven marketing efforts while the overall ecommerce penetration rate in used vehicle sales remains low , over the last several years , ecommerce used vehicle sales have experienced significant growth . there has been a shift in consumer buying patterns 64 towards more convenient , personalized , and on-demand purchases , as well as a demand for ecommerce across more diverse categories , including the used vehicle market . we expect that the ecommerce model for buying and selling used vehicles will continue to grow and such growth may be accelerated by the covid-19 pandemic . our ability to continue to benefit from this trend will be

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liquidity and capital resources our operations historically have been financed primarily from the sale of redeemable convertible preferred stock and borrowings under our vehicle floorplan facility . on june 11 , 2020 , we completed our ipo in which we sold 24,437,500 shares of our common stock , which included 3,187,500 shares sold pursuant to the exercise by the underwriters of an over-allotment option to purchase additional shares , for proceeds of $ 504.0 million , net of the underwriting discount and before deducting offering expenses of $ 7.5 million . on september 15 , 2020 , we completed our follow-on public offering in which we sold 10,800,000 shares of common stock for proceeds of $ 569.5 million , net of the underwriting discount and before deducting offering expenses of $ 1.5 million . as of december 31 , 2020 , we had cash and cash equivalents of $ 1,056.2 million . we anticipate that our existing cash and cash equivalents and the 2020 vehicle floorplan facility will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months from the date of this annual report on form 10-k. for the year ended december 31 , 2020 , we had negative cash flow from operations and generated a net loss . we have not been profitable since our inception in 2012. we expect to incur additional losses in the future . we historically have funded vehicle inventory purchases primarily through our floorplan financing arrangements . our cash flows from operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts . the timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received .

50 as a reit , we are required to distribute annually at least 90 % of our reit taxable income ( determined without regard to the dividends paid deduction and by excluding net capital gain ) and we began paying regular distributions in 2013. we declared and paid the following regular reit distributions to our shareholders for the years ended december 31 , 20 20 and 201 9 , which were treated for federal income taxes as follows : replace_table_token_7_th ( 1 ) for 2019 and 2020 , there are no qualified dividends . qualified dividends represents the portion of total ordinary dividends which constitutes a `` qualified dividend `` , as defined by the internal revenue service . ( 2 ) the amount constitutes a `` return of capital `` , as defined by the internal revenue service . on january 15 , 2021 , our board of directors declared a quarterly cash dividend of $ 0.25 per share of common stock , which was paid on february 1 , 2021 to shareholders of record as of the close of business on january 25 , 2021. critical accounting policies we believe that the accounting policies described below are critical to understanding our business , results of operations and financial condition because they involve the more significant judgments and estimates used in the preparation of our consolidated financial statements . we have discussed the development , selection and application of our critical accounting policies with the audit committee of our board of directors , and our audit committee has reviewed our disclosure relating to our critical accounting policies in this “ management 's discussion and analysis of financial condition and results of operations . ” our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states . as such , we are required to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we routinely evaluate our estimates based on historical experience and on various other assumptions that our management believes are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . if actual results significantly differ from our estimates , our financial condition and results of operations could be materially impacted . other significant accounting policies , primarily those with lower levels of uncertainty than those discussed below , are also critical to understanding our consolidated financial statements . the notes to our consolidated financial statements contain additional information related to our accounting policies and should be read in conjunction with this discussion . revenue recognition revenue is recognized when control of the promised goods or services is transferred to our customers , in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services . sales , value added and other taxes that we collect concurrent with revenue producing activities and that are subsequently remitted to governmental authorities are excluded from revenues . the guidance distinguishes between goods and services . the definition of services under the guidance includes everything other than goods . as such , in our case , this guidance views the provision of housing as a service . 51 when a contract includes variable consideration , we determine an estimate of the variable consideration and evaluate whether the estimate needs to be constrained ; therefore , we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . variable consideration estimates are updated at each reporting date . a limited number of our domestic contracts have provisions upon which a small portion of the revenue for the contract is based on the performance of certain targets . domestically , revenue based on the performance of certain targets is less than 1 % of our consolidated domestic revenues and was not significant during the periods presented . one of our international contracts , related to our ravenhall correctional facility project ( discussed further below ) , contains a provision where a significant portion of the revenue for the contract is based on the performance of certain targets . these performance targets are based on specific criteria to be met over specific periods of time . such criteria includes our ability to achieve certain contractual benchmarks relative to the quality of service we provide , non-occurrence of certain disruptive events , effectiveness of our quality control programs and our responsiveness to customer requirements . the performance of these targets are measured quarterly and there was no significant constraint on the estimate of such variable consideration for this contract during the year ended december 31 , 20 20 or 201 9 . we do not disclose the value of unsatisfied performance obligations for ( i ) contracts with an expected length of one year or less and ( ii ) contracts for which revenue is recognized at the amount to which we have the right to invoice for services performed , which is generally the case for all of our contracts . incidental items that are immaterial in the context of the contract are recognized as expense . we generally do not incur incremental costs related to obtaining a contract with our customers that would meet the requirement for capitalization . there were no assets recognized from costs to obtain a contract with a customer at december 31 , 2020 or 2019. the timing of revenue recognition may differ from the timing of invoicing to customers . story_separator_special_tag we review long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable . events that would trigger an impairment assessment include deterioration of profits for a business segment that has long-lived assets , or when other changes occur that might impair recovery of long-lived assets such as the termination of a management contract or a significant decrease in population . if impairment indicators are present , we perform a recoverability test to determine whether or not an impairment loss should be measured . we test idle facilities for impairment upon notification that the facilities will no longer be utilized by the customer . if a long-lived asset is part of a group that includes other assets , the unit of accounting for the long-lived asset is its group . generally , we group assets by facility for the purpose of considering whether any impairment exists . the estimates of recoverability are based on projected undiscounted cash flows associated with actual marketing efforts where available or , in other instances , projected undiscounted cash flows that are comparable to historical cash flows from management contracts at similar facilities and sensitivity analyses that consider reductions to such cash flows . our sensitivity analyses include adjustments to projected cash flows compared to the historical cash flows due to current business conditions which impact per diem rates as well as labor and other operating costs , changes related to facility mission due to changes in prospective clients , and changes in projected capacity and occupancy rates . we also factor in prolonged periods of vacancies as well as the time and costs required to ramp up facility population once a contract is obtained . we perform the impairment analyses on an annual basis for each of the idle facilities and update each quarter for market developments for the potential utilization of each of the facilities in order to identify events that may cause us to reconsider the most recent assumptions . such events could include negotiations with a prospective customer for the utilization of an idle facility at terms significantly less favorable than used in our most recent impairment analysis , or changes in legislation surrounding a particular facility that could impact our ability to house certain types of individuals at such facility . further , a substantial increase in the number of available beds at other facilities that we own , or in the marketplace , could lead to deterioration in market conditions and projected cash flows . although they are not frequently received , an unsolicited offer to purchase any of our idle facilities , at amounts that are less than their carrying value could also cause us to reconsider the assumptions used in the most recent impairment analysis . we have identified marketing prospects to utilize each of the remaining currently idled facilities and do not see any catalysts that would result in a current impairment . however , we can provide no assurance that we will be able to secure management contracts to utilize our idle facilities , or that we will not incur impairment charges in the future . in all cases , except for one of our leased facilities , the projected undiscounted cash flows in our analysis as of december 31 , 2020 substantially exceeded the carrying amounts of each facility . with respect to the leased facility where the carrying amount of the facility did not exceed the projected undiscounted cash flows , we recorded an impairment charge of approximately $ 5.7 million during the year ended december 31 , 2020. our evaluations also take into consideration historical experience in securing new management contracts to utilize facilities that had been previously idled for periods comparable to or in excess of the periods our currently idle facilities have been idle . such previously idled facilities are currently being operated under contracts that generate cash flows resulting in the recoverability of the net book value of the previously idled facilities by substantial amounts . due to a variety of factors , the lead time to negotiate contracts with federal and state agencies to utilize idle bed capacity is generally lengthy which has historically resulted in periods of idleness similar to the ones we are currently experiencing . as a result of our analyses , we determined each of these assets to have recoverable values substantially in excess of the corresponding carrying values . by their nature , these estimates contain uncertainties with respect to the extent and timing of the respective cash flows due to potential delays or material changes to forecasted terms and conditions in contracts with prospective customers that could impact the estimate of projected cash flows . goodwill and other intangible assets , net goodwill we have recorded goodwill as a result of our business combinations . goodwill is recorded as the difference , if any , between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired . our goodwill is not amortized and is tested for impairment annually on the first day of the fourth quarter , and whenever events or circumstances arise that indicate impairment may have occurred . impairment testing is performed for all reporting units that contain goodwill . the reporting units are 55 the same as the reportable segment for u.s. secure services and are at the operating segment level for geo care . on the annual measurement date of october 1 , 2020 , management elected to qualitatively assess the company 's goodwill for impairment for all of its reporting units except for its community based reporting unit which was assessed using a quantitative analysis . under provisions of the qualitative analysis , when testing goodwill for impairment , we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it

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debt repurchases on august 16 , 2019 , our board of directors authorized us to repurchase and or retire a portion of the 6.00 % senior notes due 2026 , the 5.875 % senior notes due 2024 , the 5.125 % senior notes due 2023 , the 5.875 % senior notes due 2022 ( collectively the `` geo senior notes '' ) and our term loan under its amended credit agreement through cash purchases , in open market , privately negotiated transactions , or otherwise , up to an aggregate maximum of $ 100.0 million , subject to certain limitations through december 31 , 2020. on february 11 , 2021 , the company 's board of directors authorized a new repurchase program for repurchases/retirements of the above referenced senior notes and term loan , subject to certain limitations up to an aggregate maximum of $ 100.0 million through december 31 , 2022. during 2020 , the company repurchased approximately $ 7.5 million in aggregate principal amount of its 5.875 % senior notes due 2024 at a weighted average price of 77.28 % for a total cost of $ 5.8 million . additionally , during 2020 , the company repurchased approximately $ 18.2 million in aggregate principal amount of its 5.125 % senior notes due 2023 at a weighted average price of 78.99 % for a total cost of $ 14.3 million . as a result of these repurchases , the company recognized a net gain on extinguishment of debt of $ 5.3 million during the year ended december 31 , 2020. during 2019 , the company repurchased approximately $ 56.0 million in aggregate principal amount of its 5.875 % senior notes due 2022 at a weighted average price of 97.55 % for a total cost of $ 54.7 million .

we experienced $ 35.5 million in foreign currency gains during fiscal year 2013 and ( $ 20.0 ) million and ( $ 12.1 ) million in foreign currency losses during fiscal years 2012 and 2011 , respectively . to date , we have not entered into hedging transactions related to any currency , and we do not currently plan to utilize hedging transactions in the future . 38 critical accounting policies and estimates general garmin 's discussion and analysis of its financial condition and results of operations are based upon garmin 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the presentation of these financial statements requires garmin to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , garmin evaluates its estimates , including those related to customer sales programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , warranty obligations , and contingencies and litigation . garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . revenue recognition garmin recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collection is probable . for the large majority of garmin 's sales , these criteria are met once product has shipped and title and risk of loss have transferred to the customer . the company recognizes revenue from the sale of hardware products and software bundled with hardware that is essential to the functionality of the hardware in accordance with general revenue recognition accounting guidance . the company recognizes revenue in accordance with industry specific software accounting guidance for standalone sales of software products and sales of software bundled with hardware not essential to the functionality of the hardware . the company generally does not offer specified or unspecified upgrade rights to its customers in connection with software sales . garmin introduced nümaps lifetime™ in january 2009 , which is a single fee program that , subject to the program 's terms and conditions , enables customers to download the latest map and point of interest information every quarter for the useful life of their pnd . the revenue and associated cost of royalties for sales of nümaps lifetime™ products are deferred at the time of sale and recognized ratably on a straight-line basis over the estimated 36-month life of the products . with the acquisition of navigon ag in 2011 , products marketed under the navigon brand have a freshmaps program that enables customers to download the latest map and point of interest information for two years . the revenue and associated cost of royalties for sales of freshmaps products are deferred at the time of sale and recognized ratably on a straight-line basis over the two year period . for multiple-element arrangements that include tangible products that contain software essential to the tangible product 's functionality and undelivered software elements that relate to the tangible product 's essential software , the company allocates revenue to all deliverables based on their relative selling prices . in such circumstances , the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) , and ( iii ) best estimate of the selling price ( esp ) . vsoe generally exists only when the company sells the deliverable separately , on more than a limited basis , at prices within a relatively narrow range . in addition to the products listed below , the company has offered certain other products including mobile applications , aviation subscriptions and extended warranties that involve multiple-element arrangements that are immaterial . 39 in 2010 , garmin began offering pnds with lifetime map updates ( lmus ) bundled in the original purchase price . similar to nümaps lifetime™ , lmus enable customers to download the latest map and point of interest information every quarter for the useful life of their pnd . in addition , garmin offers pnds with premium traffic service bundled in the original purchase price in the european market . the company has identified multiple deliverables contained in arrangements involving the sale of pnds which include the lmu and or premium traffic service . the first deliverable is the hardware along with the software essential to the functionality of the hardware device delivered at the time of sale . the second and potentially third deliverables are the lmu and or premium traffic service . the company has allocated revenue between these deliverables using the relative selling price method . amounts allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for revenue recognition have been met . the revenue and associated cost of royalties allocated to the lmu and or the subscription for premium traffic service are deferred and recognized on a straight-line basis over the estimated 36-month life of the products . story_separator_special_tag research and development the majority of our research and development costs represent salaries for our engineers , costs for high technology components and costs of test equipment used in product and prototype development . approximately 81 % of the research and development of our products is performed in north america . we are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for gps-enabled devices . we expect our research and development budget to increase in 2014 due to our ongoing commitment to innovation and growth . customers our top ten customers have contributed between 24 % and 29 % of net sales since 2011. we have experienced average sales days in our customer accounts receivable of between 69 and 72 days since 2011. we expect the level of customer accounts receivable days to be relatively stable in 2014. income taxes we have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates . in particular , the profit entitlement afforded our swiss-based companies based on their intellectual property rights ownership of our consumer products along with tax incentives offered by the taiwanese government on certain high-technology capital investments have continued to reduce our tax rate . we have taken advantage of the tax benefit in taiwan since our inception and we expect to continue to benefit from lower effective tax rates at least through 2015. our consolidated effective tax rate was approximately 6.3 % during 2013. this is a decrease from an effective rate of 13.1 % in 2012. the significant decline was due to the impact of a $ 68.7 million benefit , which includes the release of uncertain tax position reserves from 2009 offset by taiwan surtax expense due to this reserve release . excluding these items , we would have reported an effective tax rate of 16.8 % for fiscal year 2013 compared to 13.1 % for fiscal year 2012. this increase was primarily driven by an unfavorable income mix across tax jurisdictions , reduced taiwanese tax incentives , and the release of other uncertain tax position reserves , amounting to approximately $ 11.2 million for 2013 and $ 13.0 million for 2012 that are considered immaterial , tend to be more recurring in nature and are comparable between periods . these factors were partially offset by the impact of $ 6.3 million of research and development tax credits related to 2012 which were recognized when the related legislation was enacted in january 2013. management believes that the effective tax rate for fiscal 2014 will be consistent with the 2013 effective tax rate of 16.8 % , excluding special items as outlined above , as operating profits and margins are relatively stable . the actual effective tax rate will depend upon the operating margins , production volume , additional capital investments made during fiscal 2014 , the resolution of uncertain tax positions and the composition of our earnings . 44 results of operations the following table sets forth our results of operations as a percentage of net sales during the periods shown ( the table may not foot due to rounding ) : replace_table_token_5_th the following table sets forth our results of operations through income before income taxes for each of our five segments during the period shown . for each line item in the table the total of the segments ' amounts equals the amount in the consolidated statements of income data included in item 6 . 45 replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 46 comparison of 52-weeks ended december 28 , 2013 and december 29 , 2012 net sales replace_table_token_9_th net sales decreased 3 % in 2013 when compared to the year-ago period . the decrease was driven by the automotive/mobile segment which posted a 13 % decline with offsetting growth in outdoor , fitness , marine and aviation . automotive/mobile revenue remains the largest portion of our revenue mix at 49 % in 2013 , compared to 55 % in 2012. total unit sales decreased 10 % to 13.9 million units in 2013 from 15.4 million units in 2012. the decrease in unit sales volume was attributable to reduced automotive/mobile volumes due to penetration rates and competing technologies . this decline was partially offset by growth in each of the other segments . automotive/mobile segment revenue decreased 13 % from the year-ago period , as volumes decreased 17 % partially offset by average selling price ( asp ) improvement due to the amortization of previously deferred revenue exceeding current year revenue deferrals in 2013 and increased auto oem contribution with a higher asp . aviation revenues increased 16 % from the year-ago period as the oem market improved in some aircraft categories , as well as contribution from recent share gains and aftermarket products . fitness revenues increased 11 % on the strength of our cycling products , power meter , and the forerunner 10 with strong volume growth partially offset by reduced asps associated with the forerunner 10. revenues in our marine segment increased 7 % as new product introductions were partially offset by a weak first quarter when we discounted many products in advance of new products and a global marine electronics industry that continues to be weak due to macroeconomic instability . the company anticipates revenue of $ 2.6 - $ 2.7 billion in 2014 driven by growth in the outdoor , fitness , aviation and marine segments offset by ongoing declines in the automotive/mobile segment . in general , management believes that continuous innovation and the introduction of new products are essential for future revenue growth . cost of goods sold replace_table_token_10_th 47 cost of goods sold decreased 4 % when compared to the year ago period . as a percentage of revenue , cost of goods sold decreased 50 basis points from the

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net cash provided by operating activities $ 630,084 $ 684,745 $ 822,334 the $ 54.7 million decrease in cash provided by operating activities in fiscal year 2013 compared to fiscal year 2012 was primarily due to the following : · the impact of increasing unrealized foreign currency gains providing $ 80.2 million less cash due primarily to foreign currency rate fluctuations related to our taiwan operations which utilize the taiwan dollar as their functional currency resulting in translation of assets and liabilities to u.s. dollar · deferred revenue/costs providing $ 70.8 million less working capital benefit due to the increased amortization of previously deferred revenue/cost exceeding current period revenue deferrals as discussed in the results of operations section above · other current and noncurrent assets providing $ 61.7 million less cash primarily due to the reimbursement of tax withholdings of $ 51.4 million from the swiss federal tax authority in 2012 · inventories and related provisions for obsolete and slow moving inventories providing $ 11.7 million less cash due to valuation fluctuations related to inventories held in foreign currencies · the impact of decreasing depreciation and amortization providing $ 11.7 million less non-cash adjustment to net income and · the impact of decreasing stock compensation expense providing $ 6.7 million less non-cash adjustment to net income partially offset by : · net income increasing by $ 70.0 million as discussed in the results of operations section above ·

on march 11 , 2013 , we received notice from the federal trade commission of the early termination of the waiting period applicable to the consummation of the merger under the hart-scott-rodino antitrust improvements act of 1974 , as amended . in addition on may 10 , 2013 , wms stockholders approved the merger agreement . at this time , we expect to consummate the merger in the fall of calendar 2013. the merger agreement contains certain limitations on the operations of wms during the period prior to the effective time of the merger , including a prohibition on share repurchases by the company . during the fiscal year ended june 30 , 2013 , we incurred approximately $ 13.5 million of pre-tax charges , which are recorded in selling and administrative expenses , related to the process our board of directors utilized in the sale of the company , plus completing the closing conditions and the integration efforts prior to the effective time of the pending merger . following consummation of the merger , there will be no public market for our common stock which will cease to be traded on the nyse , and we will no longer be required to file periodic reports with the sec . a description of the merger agreement and the merger is contained in our definitive proxy statement dated april 8 , 2013 , which was first mailed to our stockholders on or about april 11 , 2013. we generate revenue in two principal ways : product sales and gaming operations , as further described below . in fiscal 2012 , we expanded our interactive gaming products and services with the launch of our first non-wagering social game on facebook and the sale of select wms games for mobile devices and pc 's and in july 2012 , we grouped together all of our worldwide online wagering , social , casual and mobile gaming products and services in order to focus on their revenue growth , development and market efficiencies and to optimize the benefits of interactive gaming products and services for casino operators and their players . also , in july 2012 we launched a second non-wagering social game on facebook titled jackpot party social casino . we expect to facilitate the continued expansion , investment , evolution and extension of our interactive gaming products and 38 services and increase our focus on this rapidly evolving growth area . in fiscal 2014 , we expect to further penetrate each of the new markets and distribution channels we have entered over the last few years and look to further expand our distribution channels . the recession and financial market crisis that began in 2008 has continued to disrupt the economy worldwide , has reduced consumer discretionary spending and has led to a weakened global economic environment , all of which have been significant challenges for our industry . in calendar 2008 and 2009 , some gaming operators delayed or canceled construction projects , resulting in fewer new casino openings and expansions in fiscal 2010 and 2011 , coupled with many customers reducing their annual capital budgets for replacing gaming machines . new unit demand for new casino openings and casino expansions increased in fiscal 2012 ; however , demand for new casino openings and expansions decreased in fiscal 2013. the economic crisis has reduced disposable income for casino patrons and resulted in fewer patrons visiting casinos and lower spending by those patrons who did visit casinos . the economic crisis and operational challenges led to the review of our product plans and business strategies at the end of fiscal 2011 and beginning of fiscal 2012 as further described below . additionally , increased competition from our competitors lowered the number of new units we shipped over the last three fiscal years , resulting in lower revenues in fiscal 2012 than in fiscal 2011 and 2010. while our revenues for the year ended june 30 , 2013 , increased from the prior year period , this resulted from increased revenues from our interactive gaming products and services more than offsetting the decline in product sales and participation revenues . in late fiscal 2011 and early fiscal 2012 , with no leading indicators showing any significant increase in replacement demand , we conducted a thorough review of our business strategies and product plans . as a result of the strategic review , we announced that we would refine our product plans and restructure our organization to sharpen emphasis on our game content and product development strengths . specifically , we have streamlined our product management and product development functions , simplified product plans and further prioritized on-time commercialization of new game themes , products and portal gaming applications . as part of our restructuring , we implemented a 10 % reduction in our workforce . based upon our decisions stemming from our product , strategy and cost structure reviews , in the three-month period ended june 30 , 2011 , we recorded $ 24.0 million of net pre-tax charges , or $ 0.26 per diluted share , which included $ 18.4 million , or $ 0.20 per diluted share , of pre-tax impairment and restructuring charges . these charges were comprised of $ 16.0 million or $ 0.17 per diluted share for non-cash asset impairments ( including $ 11.0 million for impairment of technology licenses , $ 3.4 million for impairment of the orion™ brand name , $ 1.4 million of impairment of receivables related to government action to close casinos in venezuela and $ 0.2 million of other impairment charges ) and $ 2.4 million , or $ 0.03 per diluted share , for restructuring charges ( primarily separation-related costs ) , along with $ 9.6 million of pre-tax charges , or $ 0.10 per diluted share , for asset write-downs and other charges ( including inventory charges related to winding down the orion and original bluebird cabinet product lines ) , partially story_separator_special_tag we expect to ship a larger amount of vgts to illinois in fiscal 2014 than we did in fiscal 2013. international new unit shipments increased 12.2 % from the prior-year to 7,117 units from 6,344 units in fiscal 2012 and represented 34.4 % of global shipments in fiscal 2013 , compared to 30.3 % in fiscal 2012 and 38.6 % in fiscal 2011 primarily reflecting increased shipments of our new bluebird2 lite cabinet for select international markets . overall , international new unit shipments increased in fiscal 2011 but shrank in fiscal 2012 , as in fiscal 2011 the growth in mexico , new south wales , australia and singapore coupled with modest growth in asia and latin america , more than offset lower shipments to europe , which remains impacted by the challenging economic environment . in fiscal 2012 , demand from mexico and new south wales , australia abated due to unique circumstances in each country and demand from europe continued to be lower . demand from mexican customers was lower following government enforcement actions at certain casinos in mexico that began in the september 2011 quarter and demand from australian customers was lower as customers await enablement of new national vs. state gaming standards . also , we believe the higher-priced bluebird2 , bluebird xd and bluebird2e units had an impact on the unit volume customers were able to buy with fixed capital budgets . demand from customers in mexico has increased modestly in fiscal 2013 and we recently received approvals in new south wales , australia for our products that comply with the new national standards so we expect units sales will increase in the coming quarters . revenues from customers in argentina were lower in the year ended june 30 , 2013 , as government authorities modified rules related to importing product . we expect international demand in fiscal 2014 to be flat with fiscal 2013. we are still preparing to launch our products in the new vlt market in italy in the future . although much effort is still needed before the first revenue-earning wms gaming machines are placed in italy and we will have additional development work to complete as a result of new requirements that the regulator has mandated in italy that will be effective after a transition period . in addition , we continue to achieve benefits from the opening of new international offices and the addition of new geographically dispersed sales account executives . to further diversify our revenue streams , we directly entered the class ii and central determinant market in fiscal 2010 following expiration of our previous licensing agreements for those markets . we shipped our first gaming machines to a class ii market in the september 2009 quarter , and we have continued to penetrate this market in subsequent quarters . in june 2012 , we received approval of a cpu-nxt2 based operating system on our bluebird2 cabinet for the class ii markets and shipped our first gaming machines operating on this new system in the june 2012 quarter . we expect that shipments to these markets in fiscal 2014 will exceed shipments in fiscal 2013. we launched our bluebird xd gaming machine late in the june 2010 quarter and , given customer response , we achieved strong demand for this product throughout fiscal 2012 and 2011. for the year ended june 30 , 2013 , bluebird xd gaming machines accounted for 22.8 % of our global new unit sales which compares to 31.2 % in fiscal 2012. we launched an enhanced version of our bluebird2 product , the bluebird2e cabinet with an emotive lighting feature in the march 2012 quarter . during fiscal 2013 , the majority of the global bluebird2 product line new unit sales were bluebird2e units and we would expect this to also occur in future periods . we launched our bluebird2 lite cabinet in the september 2012 quarter which is a lower cost cabinet for select international markets . in march 2013 , we launched our new blade gaming cabinet , using the latest version of our operating system software , the cpu-nxt3 platform , and blade units accounted for 16.5 % , or 3,412 units , of total unit shipments in fiscal 2013 , even though the product was not approved in certain gaming jurisdictions in the united states or any gaming jurisdictions outside of the united states . we expect that the percentage of our 43 quarterly shipments that are blade units will increase in future quarters while the percentage of bluebird2e and bluebird2 lite units will decrease . we are dependent , in part , on innovative new products , casino openings and expansions , continued market penetration and new market opportunities to generate growth of our gaming machine revenues . we have continued to invest in research and development activities to be able to offer creative and high earning products to our customers and in the year ended june 30 , 2013 , such expenses totaled 16.4 % of revenues , or $ 114.5 million , in fiscal 2013 , and the aggregate amount spent was up $ 20.0 million , or 21.2 % , compared to the prior-year period . expansion and new market opportunities may come from political action as governments look to gaming to provide tax revenues in support of public programs and view gaming as a key driver for tourism . strategic priority : invest in the establishment , development and operation of our interactive gaming products and services . fiscal 2013 result : in the december 2010 quarter , we launched a business-to-consumer , online casino website for residents in the united kingdom , although we did not begin to market the site until february 2011. our jackpotparty.com online casino offers a variety of our popular slot games and certain card and table games . we believe the success of our gaming content , technology foundation and interactive capabilities allows us to provide

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cash flows summary our cash is utilized to acquire materials for the manufacture of goods for resale , to pay payroll , operating expenses , interest , and taxes and to fund research and development activities , invest in gaming operations equipment , property , plant and equipment and license or acquire intangibles and other non-current assets from third parties and fund share repurchases although under the terms of our merger agreement we can not repurchase any shares through the effective time of the merger . cash flows from operating , investing and financing activities , as reflected in our consolidated statements of cash flows , are summarized in the following table ( in millions ) : replace_table_token_14_th operating activities : the $ 3.4 million decrease in cash provided by operating activities in fiscal 2013 compared to fiscal 2012 , resulted from : ø a $ 55.9 million negative impact from a $ 29.5 million decrease in net income , a $ 20.1 million negative impact from lower tax benefits from exercise of stock options and deferred income taxes and a $ 6.3 million decrease from non-cash based impairment and restructuring charges and other non-cash items ; partially offset by ø a $ 30.7 million positive impact from a $ 30.6 million increase of depreciation and amortization expense and a $ 0.1 million increase of share-based compensation ; and ø a $ 21.8 million positive impact from lower changes in operating assets and liabilities .

the following table evaluates the potential impact of estimates utilized during the periods ended december 31 , 2013 and 2012 : description judgments and uncertainties effect if actual results differ from estimates and assumptions allowance for doubtful accounts we evaluate our allowance for doubtful accounts on an ongoing basis and record adjustments when , in management 's judgment , circumstances warrant it . reserves are recorded to reduce receivables to the amount ultimately expected to be collected . we evaluate the collectability of our accounts receivable based on factors such as the customer 's ability to pay , the age of the receivable and our historical collection experience . a deterioration in any of these factors could result in an increase in the allowance for doubtful accounts balance . if actual collection results are not consistent with our judgments , we may experience an increase in uncollectible receivables . a 10 % increase in our allowance for doubtful accounts would result in a decrease in net income of approximately $ 0.2 million . depreciation depreciation expense is computed using the straight-line method over the useful life of the assets . determination of depreciation expense requires judgment regarding estimated useful lives and salvage values of property , plant and equipment . as circumstances warrant , estimates are reviewed to determine if any changes in the underlying assumptions are needed . the lives of our fixed assets range from 3 - 25 years . if the depreciable lives of our assets were decreased by 10 % , we estimate that annual depreciation expense would increase approximately $ 5.5 million , resulting in a corresponding reduction in net income . impairment of long-lived assets we periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of the assets may not be recoverable . these evaluations are based on undiscounted cash flow projections over the remaining useful life of the asset . the carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows . any impairment loss is measured as the excess of the asset 's carrying value over its fair value . our impairment analyses require management to use judgment in estimating future cash flows and useful lives , as well as assessing the probability of different outcomes . applying this impairment review methodology , we have recorded no impairment charges during the periods ended december 31 , 2013 , 2012 and 2011. if actual events are not consistent with our estimates and assumptions or our estimates and assumptions change due to new information , we may incur an impairment charge . impairment of goodwill 46 goodwill is subject to a fair-value based impairment test on an annual basis , or more frequently if events or changes in circumstances indicate that the fair value of any of our reporting units is less than its carrying amount . we determine fair value using accepted valuation techniques , including discounted cash flow and the guideline public company method . these analyses require management to make assumptions and estimates regarding industry and economic factors , future operating results and discount rates . we conduct impairment testing using present economic conditions , as well as future expectations . we completed the most recent annual review of goodwill as of august 31 , 2013 and determined there was no impairment . additionally , management is aware of no change in circumstances which indicate a need for an interim impairment evaluation . purchase price allocations we allocate the purchase price of an acquired business to its identifiable assets ( including identifiable intangible assets ) and liabilities based on their fair values at the date of acquisition . any excess of purchase price in excess of amounts allocated to identifiable assets and liabilities is recorded as goodwill . as additional information becomes available , we may adjust the preliminary allocation for a period of up to one year . the determination of fair values of acquired assets and liabilities requires a significant level of management judgment . fair values are estimated using various methods as deemed appropriate . for significant transactions , third party assessments may be utilized to assist in the valuation process . if subsequent factors indicate that estimates and assumptions used to allocate costs to acquired assets and liabilities differ from actual results , the allocation between goodwill , other intangible assets and fixed assets could significantly differ . any such differences could impact future earnings through depreciation and amortization expense . additionally , if estimated results supporting the valuation of goodwill or other intangible assets are not achieved , impairments could result . asset retirement obligations asset retirement obligations ( “ aros ” ) associated with a contractual or regulatory remediation requirement are recorded at fair value in the period in which the obligation can be reasonably estimated and depreciated over the life of the related asset or contractual term . the liability is determined using a credit-adjusted risk-free interest rate and is accreted over time until the obligation is settled . determining the fair value of aros requires management judgment to evaluate required remediation activities , estimate the cost of those activities and determine the appropriate interest rate . if actual results differ from judgments and assumptions used in valuing an aro , we may experience significant changes in aro balances . the establishment of an aro has no initial impact on earnings . environmental liabilities we estimate environmental liabilities using both internal and external resources . activities include feasibility studies and other evaluations management considers appropriate . environmental liabilities are recorded in the period in which the obligation can be reasonably estimated . story_separator_special_tag in addition , $ 3.5 million of the increase is related to the smackover refining assets , primarily attributable to the sunoco pipeline . selling , general and administrative expenses . selling , general and administrative expenses increased primarily due to increased advertising expense in our blending and packing operations . depreciation and amortization . the increase in depreciation and amortization is due to the impact of recent capital expenditures . other operating loss . other operating loss represents losses on the disposal of property , plant and equipment . natural gas services segment comparative results of operations for the twelve months ended december 31 , 2013 and 2012 52 replace_table_token_12_th revenues . the marine transportation revenue is attributable to our acquisition of the florida marine assets on february 28 , 2013. natural gas services sales volumes increased 26 % , positively impacting revenues $ 200.4 million , primarily as a result of us entering the louisiana butane market during april 2012. our ngl average sales price per barrel decreased $ 3.42 , or 5 % , resulting in an offsetting decrease to revenues of $ 41.3 million . cost of products sold . our average cost per barrel decreased $ 4.08 , or 6 % . our margins increased $ 0.67 per barrel during the period , primarily related to increased margins resulting from our entrance into the louisiana butane market in april 2012. operating expenses . operating expenses increased primarily as a result of outside towing , tankerman , and fuel expenses associated with the newly acquired florida marine assets of $ 1.5 million , higher property and liability premiums of $ 0.3 million , and increased pipeline maintenance expenses of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses decreased primarily as a result of the reserve for an uncollectible customer receivable in 2012 of $ 0.7 million and the recovery of an uncollectible customer receivable in 2013 of $ 0.3 million . these decreases were partially offset by increased compensation expense of $ 0.3 million and increased property tax expense of $ 0.1 million . depreciation and amortization . depreciation and amortization increased as a result of the acquisition of the florida marine assets during the first quarter of 2013. comparative results of operations for the twelve months ended december 31 , 2012 and 2011 53 replace_table_token_13_th revenues . natural gas services sales volumes increased 54 % , positively impacting revenues $ 288.0 million , primarily as a result of us entering the louisiana butane market during april 2012. our ngl average sales price per barrel decreased $ 9.44 , or 12 % , resulting in an offsetting decrease to revenues of $ 74.2 million . cost of products sold . our average cost per barrel decreased $ 9.79 , or 12 % . our margins increased $ 0.36 per barrel during the period , primarily related to increased margins resulting from our entrance into the louisiana butane market in april 2012. operating expenses . operating expenses increased primarily as a result of increased pipeline maintenance expenses of $ 0.2 million and increased compensation expense of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses increased primarily as a result of increased compensation expense of $ 1.4 million and an increase in bad debt expense of $ 0.7 million . depreciation and amortization . depreciation and amortization remained consistent from year to year . sulfur services segment comparative results of operations for the twelve months ended december 31 , 2013 and 2012 replace_table_token_14_th 54 revenues . the increase in service revenue is attributable to increased contract rates . product revenue declined $ 28.3 million as a result of a 12 % decrease in sales volumes . the volume reduction was primarily related to the conversion of a buy/sell contract with a major customer to a fee-based handling contract . additionally , product revenues decreased $ 20.4 million due to an 8 % decline in sales prices where our sulfur products saw a decrease in sales prices of 14 % and our fertilizer products saw a decrease in sales prices of 3 % . cost of products sold . a 12 % decrease in sales volumes reduced cost of products sold by $ 22.3 million . an 8 % decrease in prices reduced our cost by an additional $ 14.9 million . margin per ton decreased $ 4.32 , or 10 % , resulting in a decline in gross margin of $ 11.5 million , primarily attributable to the decline in market prices discussed above . also contributing to the decline in the gross margin of our fertilizer business was significant downtime attributable to plant turnarounds at our plainview and neches production facilities . costs associated with these turnarounds were $ 1.2 million higher than the same period of 2012. operating expenses . our operating expenses decreased due to $ 0.8 million less in outside towing expenses offset by increased compensation expense of $ 0.6 million . selling , general and administrative expenses . selling , general and administrative expenses increased as a result of increased compensation expense . depreciation and amortization . the increase in depreciation and amortization is due to the impact of recent capital expenditures . other operating loss . other operating loss represents losses on the disposal of property , plant and equipment in 2012. comparative results of operations for the twelve months ended december 31 , 2012 and 2011 replace_table_token_15_th revenues . the increase in service revenue is attributable to increased contract rates . the volume reduction was primarily related to the conversion of a buy/sell contract with a major customer to a fee-based handling contract . revenue declined $ 44.0 million as a result of a 15 % decrease in sales volumes . offsetting this was an increase of $ 30.2 million due to an 11 % increase in sales price where our sulfur products

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debt financing activities on february 18 , 2014 , we increased the maximum amount of borrowings and letters of credit under our revolving credit facility from $ 600.0 million to $ 637.5 million utilizing the accordion feature of our revolving credit facility . on march 28 , 2013 , we amended and restated our revolving credit facility to ( i ) increase the maximum amount of borrowings and letters of credit under our revolving credit facility from $ 400.0 million to $ 600.0 million , ( ii ) extend the maturity date of all amounts outstanding under our revolving credit facility from april 15 , 2016 to march 28 , 2018 , ( iii ) decrease the applicable interest rate margin on committed revolver loans under our revolving credit facility as described in more detail below , ( iv ) adjust the financial covenants as described in more detail below , ( v ) increase the maximum allowable amount of additional outstanding indebtedness of the borrower and us and certain of our subsidiaries as described in more detail below , and ( vi ) adjust the commitment fee incurred on the unused portion of the loan facility as described in more detail below . on february 11 , 2013 , we completed a private placement of $ 250.0 million in aggregate principal amount of 7.250 % senior unsecured notes due 2021 to qualified institutional buyers under rule 144a . we received proceeds of approximately $ 245.1 million , after deducting initial purchasers ' discounts and the expenses of the private placement . the proceeds were primarily used to repay borrowings under our revolving credit facility .

gross profit margin as a percentage of sales in 2016 was 33.7 % , compared with 41.3 % for 2015. our gross profit margin is primarily a reflection of the mix of products sold , manufacturing volumes and competitive factors . the change in gross profit margin was attributed primarily to competitive pressures associated with the tsa contract and delivery orders . selling , general and administrative ( “ sg & a ” ) expenses for 2016 totaled approximately $ 12.8 million , or 25.2 % of sales , compared with $ 10.9 million , or 36.5 % of sales for 2015. the increase was attributed primarily to selling and engineering expenses . pre-tax income for 2016 increased 208.2 % to approximately $ 4.3 million , compared with $ 1.4 million for 2015. for 2016 , we recognized income tax expense of approximately $ 1.6 million , compared with $ 345,000 for 2015. our income tax expense for both years is largely non-cash , as a result of deferred items derived primarily from nols . 17 net income for 2016 increased 158.3 % to approximately $ 2.7 million ( $ 0.20 per basic share and $ 0.19 per diluted share ) , compared with approximately $ 1.0 million ( $ 0.08 per basic and diluted share ) for 2015. as of december 31 , 2016 , working capital totaled approximately $ 23.4 million , of which $ 14.4 million was comprised of cash and cash equivalents and trade receivables . this compares with working capital totaling approximately $ 23.9 million at year end 2015 , which included $ 8.8 million of cash and cash equivalents and trade receivables . also , as of december 31 , 2016 and 2015 , there were no borrowings outstanding under our revolving credit facility . we may experience seasonality in our quarterly results , in part , due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations . we may also experience seasonality in our quarterly results , in part , due to our concentration of sales to federal and state agencies that participate in wildland fire-suppression efforts , which are typically the greatest during the summer season when forest fire activity is heightened . in some years , these factors may cause an increase in sales for the second and third quarters compared with the first and fourth quarters of the same fiscal year . such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition . results of operations as an aid to understanding our operating results , the following table shows items from our consolidated statements of income expressed as a percentage of sales : replace_table_token_5_th fiscal year 2016 compared with fiscal year 2015 sales , net for 2016 , net sales increased 70.5 % to approximately $ 50.7 million , compared with approximately $ 29.7 million for 2015. sales of p-25 digital products in 2016 increased 64.5 % to approximately $ 33.2 million ( 65.5 % of total sales ) , compared with approximately $ 20.2 million ( 68.0 % of total sales ) for 2015. the comparative increase in total sales and sales of digital products for 2016 was attributed primarily to previously announced orders from the tsa . product shipments related to these orders were completed during the year . sales to customers other than the tsa increased approximately 9.6 % in 2016 , compared with the previous year . key contributors to this growth included international sales and sales to legacy domestic customers that were fueled , in part , by wildland fire-suppression efforts . looking forward , requests for quotes from prospective new customers and our funnel of sales prospects is encouraging . we also believe that the high-profile of the tsa contract award can serve to enhance our reputation in pursuing other new opportunities . however , the timing and size of orders from government agencies at all levels can be unpredictable due to the influence of budgets and other priorities . 18 cost of products and gross profit margin cost of products as a percentage of sales for 2016 was 66.3 % , compared with 58.7 % in 2015. gross profit margin as a percentage of sales for 2016 was 33.7 % , compared with 41.3 % for 2015. our cost of products and gross profit margin are derived primarily from material , labor and overhead costs , product mix , manufacturing volumes and pricing . the decline in gross profit margins for 2016 compared to the prior year is attributed primarily to competitive factors associated with the tsa orders , which comprised a significant portion of our sales for the year . the gross profit margins realized from our product sales to customers other than tsa were relatively consistent with the prior year . we continue to utilize contract manufacturing relationships to maximize production efficiencies and minimize material and labor costs . we also regularly consider manufacturing alternatives to improve quality , speed and costs . we anticipate that our current contract manufacturing relationships or comparable alternatives will be available to us in the future . we believe gross margin improvements can be realized by leveraging increased sales volumes and manufacturing efficiencies . we may encounter product cost and competitive pricing pressures in the future . however , the extent of their impact on gross margins , if any , is uncertain . selling , general and administrative expenses sg & a expenses consist of marketing , sales , commissions , engineering , product development , management information systems , accounting , headquarters expenses and non-cash , share-based employee compensation expense . story_separator_special_tag we analyze our trade receivables portfolio based on the age of each customer 's invoice . in this way , we can identify those accounts that are more likely than not to have collection problems . we may reserve a portion or all of the customer 's balance . as of december 31 , 2016 and 2015 , we had no specific allowance on trade receivables . 24 excess and obsolete inventory the allowance for obsolete and slow-moving inventory was approximately $ 1.6 million and $ 1.7 million at december 31 , 2016 and 2015 , respectively . the allowance for slow-moving , excess , or obsolete inventory is used to state our inventories at the lower of cost or market . because the amount of inventory that we will actually recoup through sales can not be known with certainty at any particular time , we rely on past sales experience , future sales forecasts and our strategic business plans . generally , in analyzing our inventory levels , we classify inventory as having been used or unused during the past year and establish an allowance based upon several factors , including , but not limited to , business forecasts , inventory quantities and historical usage profile . supplemental to the aforementioned analysis , specific inventory items are reviewed individually by management . based on the review , considering business levels , future prospects , new products and technology changes , management , using its business judgment , may adjust the valuation of specific inventory items to reflect an accurate valuation . management also performs a determination of net realizable value for all finished goods with a selling price below cost . for all such items , the inventory is valued at not more than the selling price less cost , if any , to sell . allowance for product warranty we offer two-year warranties to our customers depending on the specific product and terms of the customer purchase agreement . our typical warranties require us to repair and replace defective products during the warranty period at no cost to the customer . at the time the product revenue is recognized , we record a liability for estimated costs under our warranties . the costs are estimated based on historical experience . we periodically assess the adequacy of our recorded liability for product warranties and adjust the amount as necessary . software development certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products . we determine technological feasibility to be established upon the internal release of a detailed program design . upon the general release of the product to customers , development costs for that product are amortized over periods not exceeding five years , based on current and future revenue of the product . net capitalized software costs totaled approximately $ 176,000 as of december 31 , 2016 , as compared with approximately $ 370,000 as of december 31 , 2015. income taxes we account for income taxes using the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized . the effect of changes in net deferred tax assets and liabilities is recognized on our consolidated balance sheets and consolidated statements of income in the period in which the change is recognized . valuation allowances are provided to the extent that it is more likely than not that some portion , or all , of deferred tax assets will not be realized . in determining whether a tax asset is realizable , we consider , among other things , estimates of future earnings based on information currently available , current and anticipated customers , contracts and new product introductions , as well as recent operating results and certain tax planning strategies . if we fail to achieve the future results anticipated in the calculation and valuation of net deferred tax assets , we may be required to adjust the valuation allowance related to our deferred tax assets in the future . 25 forward-looking statements we believe that it is important to communicate our future expectations to our security holders and to the public . this report , therefore , contains statements about future events and expectations which are “ forward-looking statements ” within the meaning of sections 27a of the securities act of 1933 and 21e of the securities exchange act of 1934 , including the statements about our plans , objectives , expectations and prospects under the heading “ management 's discussion and analysis of financial condition and results of operations . ” you can expect to identify these statements by forward-looking words such as “ may , ” “ might , ” “ could , ” “ would , ” “ should , ” “ will , ” “ anticipate , ” “ believe , ” “ plan , ” “ estimate , ” “ project , ” “ expect , ” “ intend , ” “ seek ” and other similar expressions . any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement . forward-looking statements include , but are not limited to , statements regarding industry trends and expected impact on us , the impact of general economic conditions , future product development and the demand for new products , growth/contraction , general demand , customer spending and resulting opportunities and challenges , the impact of our strategy , our dependence on sales to the u.s. government , the impact from the loss of key customers , suppliers and manufacturers ,

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liquidity and capital resources for the year ended december 31 , 2016 , net cash provided by operating activities totaled approximately $ 10.7 million , compared with approximately $ 2.9 million used in operations for 2015. cash provided by operating activities was primarily related to net income , inventories , prepaid expenses and other current assets , accrued compensation and related taxes , deferred tax assets , and depreciation and amortization . for the year ended december 31 , 2016 , we realized net income of approximately $ 2.7 million , compared with approximately $ 1.0 million last year . net inventories and prepaid expenses and other current assets decreased approximately $ 2.1 million and $ 1.7 million , respectively , in 2016 , primarily due to fulfilling the tsa delivery orders , which are described in “ item 1. business ” of part i of this report , under the heading “ significant events of 2016. ” this compares with increases in inventory and prepaid expenses and other current assets of approximately $ 4.2 million and $ 1.2 million , respectively , for 2015. accrued compensation and related taxes for the year ended december 31 , 2016 increased approximately $ 1.1 million , related primarily to incentive compensation , compared with a decrease of $ 110,000 for 2015. deferred tax assets for 2016 decreased by approximately $ 1.2 million due to non-cash tax expense on our pre-tax income , compared with a decrease of $ 328,000 for 2015. depreciation and amortization totaled approximately $ 942,000 for the year ended december 31 , 2016 , compared with approximately $ 914,000 for the previous year . cash used in investing activities for the year ended december 31 , 2016 totaled approximately $ 1.9 million , $ 481,000 of which was related to the investment in iteris common stock ( see “ note 7 ” to our consolidated financial statements in this report ) , and $ 1.4 million that was utilized for the purchase of manufacturing and engineering equipment .

alternatively , in light of our current limited cash resources , the recent trading price of our common stock , outstanding debt and associated minimum cash covenant , and based on a review of the status of our programs , resources and capabilities , we continue to explore a wide range of strategic alternatives with the support of our financial advisor , jefferies llc , or jefferies , that could maximize stockholder value . our efforts have been and continue to be focused primarily upon the potential formation of a partnership or a licensing transaction with respect to our lead program , liq861 , for the treatment of pah . strategic alternatives may also include the sale of some of our assets or proprietary technologies , or a potential merger or sale of the company . there can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis , on terms that are favorable to us , or at all . product pipeline we are currently focused on the development of two product candidates for which we hold worldwide commercial rights : liq861 for the treatment of pah and liq865 for the treatment of local post-operative pain . 95 the following table summarizes our clinical-stage product candidates being developed using print technology : liq861 in january 2020 , we submitted an nda to the fda for liq861 , our lead product candidate , as a potential treatment for patients with pah . treprostinil is a synthetic analog of prostacyclin , a vasoactive mediator essential to normal lung function , which is deficient in patients with pah . we believe that liq861 has the potential to improve the therapeutic profile of existing formulations of treprostinil by enhancing deep-lung delivery and achieving higher dose levels than current inhaled therapies . we are developing liq861 under the 505 ( b ) ( 2 ) regulatory pathway with tyvaso as the reference listed drug , which allows us to rely in part on the fda 's previous findings of efficacy and safety of tyvaso and the active ingredient treprostinil , which has been approved in four different products administered through the oral , inhaled and continuous infusion ( parenteral ) routes . in august 2019 , we completed an open-label phase 3 clinical trial , inspire , or in vestigation of the s afety and p harmacology of dry powder i nhalation of t re prostinil , for liq861 . the primary objective of the inspire study was to evaluate the long-term safety and tolerability of liq861 . the study was designed to evaluate patients who have either been under stable treatment with tyvaso ( nebulizer-delivered treprostinil ) , for at least three months and were transitioned to liq861 under the protocol , or transition patients , or patients who had been under stable treatment with no more than two non-prostacyclin oral pah therapies for at least three months and then had their treatment regimen supplemented with liq861 under the protocol , or add-on patients . within the inspire study , 18 transition patients were evaluated in a one-directional crossover sub-study comparing bioavailability and pharmacokinetics , or pk , of treprostinil following dosing of liq861 as compared with tyvaso . in march 2019 , we reported that we had completed enrollment and met the primary endpoint , which was long-term safety and tolerability , in our inspire trial . liq861 was observed to be well-tolerated in 109 patients , with 101 patients ( 93 % ) completing at least two months of treatment . during the two-month period , liq861 was evaluated at doses up to 159 mcg with no study-drug related serious adverse events . dosing has exceeded 159 mcg in some patients receiving drug beyond the month 2 time point . we have not yet determined a maximum tolerated dose of liq861 . we also reported fully enrolling our one-directional crossover sub-study comparing bioavailability and pk of treprostinil as sub-study patients transitioned from tyvaso to liq861 . in april 2019 , we reported further data from these 109 patients in our inspire trial on exploratory endpoints at two months of treatment that demonstrated generally favorable results with respect to six-minute walk distance and quality of life as indicated by the minnesota living with heart failure questionnaire , or mlhfq . in may 2019 , we reported further presentation of this data at the american thoracic society , or ats , international conference 2019. in june 2019 , we reported results from the inspire study indicating that the 79.5 mcg dose of liq861 correlates with nine breaths of tyvaso , the maximum recommended label dose of tyvaso . analysis of the data from the pk sub-study in patients showed variability in systemic plasma levels of both liq861 and tyvaso , which is believed to be attributed to variation in severity of disease and has been seen in prior studies of treprostinil in patients . to more accurately characterize the pk of liq861 , we conducted two additional pk studies in healthy volunteers . in the first of these studies , we observed unexpected variability in pk levels . post-hoc analysis showed that plasma levels of treprostinil were tightly correlated to the liq861 dose delivered . based upon additional non-clinical and clinical work , we believe the unexpected variability seen in this healthy volunteer study was due to an administration technique unique to the conduct of the study in the phase 1 setting . in august 2019 , we completed a second pk study in healthy volunteers in which the proper administration technique was followed . this study demonstrated significantly reduced variability , and we believe we have established comparative bioavailability to the reference listed drug . 96 final enrollment in the pivotal inspire trial included 121 pah patients to assess safety and tolerability through month 2 , the primary endpoint of the trial . story_separator_special_tag the changes required us to revise our segment reporting . management reorganized our operations and reporting structure and began to manage our operations under our new segment structure , resulting in a single reportable segment . the financial statements were adjusted to reflect this change in segment reporting for all periods presented . all long-lived assets are domiciled and all revenues were earned within the united states . cost of sales cost of sales consists of the amortization of license fees owed to unc upon our receipt of licensing revenues . see “ business — our collaboration and licensing agreements — the university of north carolina at chapel hill ” for further details . we amortize the license fees owed to unc in a manner consistent with our recognition of the related revenue . 100 research and development expenses research and development expense consists of expenses incurred in connection with the development of our product candidates . we expense research and development costs as incurred . these expenses include : ● expenses incurred under agreements with cros as well as investigative sites and consultants that conduct our clinical trials and preclinical studies ; ● manufacturing process development and scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials , including manufacturing validation batches ; ● outsourced professional scientific development services ; ● employee-related expenses , which include salaries , benefits and stock-based compensation for personnel in research and development functions ; ● expenses relating to regulatory activities , including filing fees paid to regulatory agencies ; ● laboratory materials and supplies used to support our research activities ; and ● allocated expenses for utilities and other facility-related costs . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our research and development expenses to increase significantly over the next several years as we increase personnel costs , including stock-based compensation , conduct our ongoing clinical trial and other development work for liq861 , continue the development of liq865 , conduct additional clinical trials , continue manufacturing process development and scale up and prepare for regulatory filings for our product candidates and regulatory inspection of facilities utilizing our print manufacturing process . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of , or when , if ever , material net cash inflows may commence from any of our product candidates . this uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials , which vary significantly over the life of a project as a result of many factors , including : ● the number of clinical sites included in the trials ; ● the length of time required to enroll suitable patients ; ● the number of patients that ultimately participate in the trials ; ● the number of doses patients receive ; ● the duration of patient follow-up ; and ● the results of our clinical trials . our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending and enforcing any patent claims or other intellectual property rights . we may never succeed in achieving regulatory approval for any of our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of some product candidates or focus on others . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , or our ability to manufacture and supply product , we could be required to expend significant additional financial resources and time on the completion of clinical development . drug commercialization will take several years and millions of dollars in development costs . 101 general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , administrative , finance and legal functions , including stock-based compensation , travel expenses and recruiting expenses . other general and administrative expenses include facility related costs , patent filing and prosecution costs and professional fees for marketing , legal , auditing and tax services and insurance costs . we anticipate that our general and administrative expenses will increase as a result of increased personnel costs , including stock-based compensation , expanded infrastructure and higher consulting , legal and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , accounting and investor relations costs , and director and officer insurance premiums associated with being a public company . additionally , when we believe a regulatory approval of a product candidate appears likely , we anticipate an increase in payroll and expense as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidate . other income ( expense ) other income ( expense ) is comprised primarily of interest income and expense . interest income consists of interest earned on our cash deposits . interest expense consists of interest charges on leases and debt . these charges include monthly recurring interest on such obligations in addition to

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liquidity and capital resources we have financed our growth and operations through a combination of funds generated from our licensing revenues , the issuance of convertible preferred stock and common stock , capital leases , bank borrowings and the issuance of convertible notes . our principal uses of cash have been for working capital requirements and capital expenditures . as of december 31 , 2019 , we had a cash balance of $ 55.8 million , stockholders ' equity of $ 34.9 million and an accumulated deficit of $ 215.2 million . 105 in july 2018 , we closed the initial public offering of 4,833,099 shares of common stock at a public offering price of $ 11.00 per share , including the underwriters ' partial exercise of their over-allotment option in connection therewith , which resulted in aggregate net proceeds of $ 47.3 million , after underwriting discounts and the payment of other offering expenses . in march 2019 , we closed an underwritten follow-on offering of 3,000,000 shares of our common stock at a public offering price of $ 11.50 per share . the gross proceeds from the offering were $ 34.5 million and net proceeds were $ 31.8 million , after deducting underwriting discounts and commissions and other offering expenses . in august 2019 , we entered into a sales agreement , or the atm agreement , with jefferies to issue and sell shares of our common stock , having an aggregate offering price of up to $ 40.0 million , from time to time during the term of the atm agreement , through an “ at-the-market ” equity offering program at our sole discretion , under which jefferies will act as our agent and or principal . we will pay jefferies a commission up to 3.0 % of the gross proceeds of any common stock sold through jefferies under the atm agreement . during the year ended december 31 , 2019 , we sold 2,409,356 shares of common stock for gross proceeds of $ 8.4 million and net proceeds were $ 8.1 million , after deducting underwriting discounts and other offering expenses under the atm agreement .

we believe the potential for arhalofenate to prevent or reduce flares while also lowering sua could differentiate it from currently available treatments for gout and classify it as the first potential drug in what we believe could be a new class of gout therapy referred to as urate lowering anti-flare therapy ( ulaft ) . arhalofenate has established a favorable safety profile in 64 clinical trials involving over 1,000 patients exposed to date . we are currently planning to hold an end of phase 2 meeting with the fda in the second half of 2015 to review the results of our completed studies and to discuss the design of a phase 3 program for arhalofenate . our second product candidate , mbx-8025 , demonstrated favorable effects on cholesterol , triglycerides and markers of liver health in a phase 2 clinical trial in patients with mixed dyslipidemia . we are planning to pursue development of mbx-8025 in a number of orphan diseases in which these attributes could be beneficial , such as homozygous familial hypercholestorolemia ( hofh ) , primary biliary cirrhosis ( pbc ) and severe hypertriglyceridemia ( shtg ) . we also believe that mbx-8025 could have utility in the treatment of the more prevalent , but high unmet need , indication of nonalcoholic steatohepatitis ( nash ) . we plan to initiate one or more pilot or proof-of-concept studies for mbx-8025 , beginning with hofh , in the first half of 2015. we are an emerging growth company . under the jobs act emerging growth companies can delay adopting new or revised accounting standards until such time of those standards apply to private companies . we have adopted this exemption from new or revised accounting standards , and therefore , we may not be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.” preferred stock conversion and recent financings on september 30 , 2013 , all of the shares of our outstanding preferred stock converted to common stock , we sold shares of our common stock and warrants to purchase shares of our common stock in a private placement for aggregate gross proceeds of $ 26.8 million , and raised an additional $ 5.0 million in venture debt financing pursuant to a $ 10.0 million loan agreement which we entered into simultaneously with the private placement , resulting in aggregate net proceeds to us of $ 28.8 million after deducting placement agent fees and estimated offering expenses . at the same time we issued shares of our common stock in cancellation of approximately $ 16.9 million of debt owed to the holder of that debt . on october 31 , 2013 , we sold additional shares of our common stock and warrants to purchase shares of our common stock , which sales are also part of the private placement , for net proceeds to us of $ 2.2 million after deducting placement agent fees and estimated offering expenses . further , on november 22 , 2013 , we entered into an agreement with investors to purchase shares of our common stock and warrants to purchase shares of our common stock as part of the private placement for net proceeds of $ 2.7 million , which sales occurred shortly after the listing of our common stock on the over-the-counter market on january 24 , 2014. we refer to the private placement , the venture debt financing and the issuance of our common stock in cancellation of the $ 16.9 million of debt as our 2013 financing on july 25 , 2014 , we completed a public offering of 4.6 million shares of our common stock at $ 5.50 per share which we refer to as our 2014 public offering . net proceeds to us in connection with the 2014 public offering were approximately $ 23.0 million after deducting underwriting discounts , commissions and offering expenses . on november 7 , 2014 , we filed a $ 100 million registration statement on form s-3 with the sec and also entered into an at-the-market facility ( atm ) to sell up to $ 25 million of common stock under the registration statement , under which , as of march 1 , 2015 , we have sold shares of common stock with aggregate net proceeds to us of $ 4.3 million . critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . we base our estimates on historical experience and on various other factors that we believe to be materially reasonable under the circumstances , the results of which form our basis for making judgments 65 about the carrying value of assets and liabilities that are not readily apparent from other sources , and evaluate our estimates on an ongoing basis . actual results may materially differ from those estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 of our financial statements included in this annual report , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation and understanding of our financial statements . research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . story_separator_special_tag total project costs increased by $ 10.5 million for the year ended december 31 , 2014 , as compared to december 31 , 2013 , primarily due to ongoing phase 2b clinical trial activities for arhalofenate . specifically , substantial costs were incurred for clinical research services performed by our cro partner to coordinate patient dosing visits at investigator sites , patient sample testing , data collection and analysis , and other clinical trial activities . in addition , toxicology studies and other preclinical activities were initiated in 2014 to support the development of mbx-8025 . internal research and development cost increased by $ 0.8 million for year ended december 31 , 2014 , as compared to december 31 , 2013 , due to increased employee compensation , recruiting and consulting costs incurred to support our expanded research and development activities . general and administrative expenses consist principally of personnel-related costs , professional fees for legal , consulting , audit services , rent and other general operating expenses not otherwise included in research and development . general and administrative expenses increased by $ 3.3 million , from $ 4.9 million to $ 8.2 million , for the years ended december 31 , 2013 and 2014 , respectively , primarily due to higher employee compensation of $ 1.6 million , professional and consulting fees of $ 1.4 million , and insurance and other administrative costs of $ 0.3 million , primarily as a result of becoming a publicly traded company . other income ( expense ) , net reflected a loss of $ 7.2 million for the year ended december 31 , 2014 , as compared to a gain of $ 0.1 million for the year ended december 31 , 2013 , due primarily to the re-measurement of our warrant liabilities at fair value as of december 31 , 2014 , as compared to the fair value re-measurement of our warrants at december 31 , 2013. at each reporting date , we use a binomial lattice option pricing model to value warrants we issued in connection with our 2013 financing . the warrant valuation in 2014 changed primarily due to an increase in the price of our common stock which is one of several inputs to our valuation model . specifically , the $ 7.2 million warrant revaluation loss recognized during the year ended december 31 , 2014 was due primarily to an increase in the value of our common stock from $ 5.00 at december 31 , 2013 , to $ 9.83 at december 31 , 2014. during the year ended december 31 , 2013 , a warrant revaluation loss of $ 0.5 million was recorded . the 2013 revaluation loss was not as significant since the warrants were issued on september 30 , 2013 , and were only outstanding for the three months ended december 31 , 2013. during this shortened period binomial model inputs did not change significantly . income taxes as of december 31 , 2014 , we had federal net operating loss carryforwards of $ 181.0 million and state net operating loss carryforwards of $ 164.6 million to offset future taxable income , if any . in addition , we had federal research and development tax credit carry forwards of $ 6.7 million and state research and development tax credit carryforwards of $ 3.2 million . if not utilized , the federal net operating loss and tax credit carryforwards will 70 expire beginning in 2024 through 2034 and the state net operating loss carryforwards will expire beginning in 2015 through 2034 ( specifically , $ 17.3 million of state net operating losses will expire in 2015 ) . the state tax credit will carry forward indefinitely . current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change . even if the carryforwards are available , they may be subject to annual limitations , lack of future taxable income , or future ownership changes that could result in the expiration of the carryforwards before they are utilized . at december 31 , 2014 , we recorded a 100 % valuation allowance against our deferred assets of approximately $ 102.0 million as our management believes it is more likely than not that they will not be fully realized . if we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards , an adjustment to our net operating loss carryforwards would increase net income in the period in which we make such a determination . story_separator_special_tag and increased general and administrative expenses as a result of becoming a publicly traded company . investing activities : net cash used in investing activities was $ 16.9 million for the year ended december 31 , 2014 and $ 6.2 million for the year ended december 31 , 2013 , and was primarily due to the purchase of marketable securities as we sought to invest funds raised in our equity and debt financings . financing activities : net cash provided by financing activities was $ 25.2 million in the year ended december 31 , 2014 , primarily due to $ 25.4 million of proceeds received from the sale of equity securities , offset by $ 0.2 million in principal repayments on our venture debt facility . net cash provided by financing activities was $ 31.4 million in the year ended december 31 , 2013 , primarily due to $ 26.5 million of proceeds received from the sale of equity securities , and $ 4.9 million from the receipt of funds under our venture debt facility . capital requirements we have incurred operating losses since inception and had an accumulated deficit of $ 380.8 million at december 31 , 2014. management expects operating losses and negative cash flows to continue for the foreseeable future . as of december 31 , 2014 , we had $ 34.8

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liquidity and capital resources we have financed our operations primarily through the sale of equity securities , licensing fees , issuance of debt and collaborations with third parties . at december 31 , 2014 , we had cash , cash equivalents and marketable securities of $ 34.8 million , primarily as a result of the aggregate proceeds received in our 2013 financing and 2014 public offering . specifically , on september 30 , 2013 , we issued common stock and warrants to purchase our common stock and we secured a term loan facility which together enabled us to raise aggregate net proceeds of $ 28.8 million . on september 30 , 2013 , all of the shares of our outstanding redeemable convertible preferred stock converted to common stock , and we sold shares of our common stock and warrants to purchase shares of our common stock in a private placement for aggregate gross proceeds of $ 26.8 million , and raised an additional $ 5.0 million in venture debt financing pursuant to a $ 10.0 million loan agreement which we entered into simultaneously with the private placement , resulting in aggregate net proceeds to us of $ 28.8 million after deducting placement agent fees and offering expenses . at the same time we issued shares of our common stock in cancellation of approximately $ 16.9 million of debt owed to the holder of that debt and on october 31 , 2013 , we issued common stock and warrants to purchase our common stock to raise additional net proceeds of $ 2.2 million . furthermore , on november 22 , 2013 , we entered into an agreement with investors to purchase shares of our common stock and warrants to purchase our common stock as part of the private placement for net proceeds of $ 2.7 million , which sales occurred shortly after our listing of our common stock on the over-the-counter market on january 24 , 2014. on july 28 , 2014 , we completed a public offering of 4.6 million shares of our common stock at $ 5.50 per share .

if certain of our customers cancel or delay drilling and or completion activities or temporarily shut-in production , the associated mvcs , if any , ensure that we will earn a minimum amount of revenue . 70 the following table presents certain consolidated and reportable segment financial data . for additional information on our reportable segments , see the `` segment overview for the years ended december 31 , 20 20 and 201 9 ” section herein . replace_table_token_0_th ( 1 ) see `` liquidity and capital resources `` herein and note 20 to the consolidated financial statements for additional information on capital expenditures . 71 k ey matters for the year ended december 31 , 20 20 . the following items are reflected in our financial results for the fiscal year ended december 31 , 2020 : gp buy-in transaction . in may 2020 , the partnership completed the gp buy-in transaction whereby the partnership acquired from its then private equity sponsor , ecp , ( i ) summit investments , which indirectly owned the partnership 's general partner , ( ii ) through its ownership of smp holdings , 3,415,646 of its common units and ( iii ) a deferred purchase price obligation receivable owed by the partnership . consideration paid to ecp included a $ 35.0 million cash payment and warrants to purchase up to 666,667 common units . in connection with the closing of the gp buy-in transaction , ecp 's management resigned from the board of directors and fully exited its investment in the partnership ( other than retaining the aforementioned warrants ) . refer to note 1 – organization , business operations and presentation and consolidation for details . suspension of common and preferred unit distributions . in may 2020 , and in conjunction with the gp buy-in transaction , the partnership suspended distributions to holders of its common units and its series a preferred units , commencing with respect to the quarter ending march 31 , 2020. the suspension of distributions enabled the partnership to retain an incremental $ 76 million per annum of operating cash flow and reallocate this retained cash to indebtedness reduction , liability management transactions and other corporate initiatives . the unpaid cash distributions on the series a preferred units continue to accrue semi-annually , until paid . july 2020 series a preferred unit exchange . in july 2020 , the partnership completed the preferred exchange offer , whereby it issued 837,547 smlp common units in exchange for 62,816 series a preferred units . upon closing the preferred exchange offer , it eliminated $ 66.5 million of the series a preferred unit liquidation preference amount , inclusive of $ 3.7 million of accrued distributions due as of the settlement date . open market repurchase of senior notes . throughout 2020 , the partnership completed its open market repurchases , which resulted in the extinguishment of $ 32.4 million of face value of the 2022 senior notes and $ 201.8 million of face value of the 2025 senior notes . total cash consideration paid to repurchase the principal amounts outstanding of the 2022 senior notes and 2025 senior notes , plus accrued interest totaled $ 150.3 million and the partnership recognized a $ 86.4 million gain on the extinguishment of debt related to these open market repurchases during 2020. debt tender offers . in september 2020 , the co-issuers completed the debt tender offers to purchase a portion of their 2022 senior notes and 2025 senior notes . upon completion of the debt tender offers , the co-issuers repurchased $ 33.5 million principal amount of the 2022 senior notes and $ 38.7 million principal amount of the 2025 senior notes . total cash consideration paid to repurchase the principal amounts outstanding of the 2022 and 2025 senior notes , plus accrued interest , totaled $ 48.7 million , and the partnership recognized a $ 23.3 million gain on the extinguishment of debt related to the debt tender offers during 2020. tl restructuring . in november 2020 , the partnership completed the tl restructuring . all of the term loan lenders participated in the tl restructuring . as part of the tl restructuring , the partnership paid smp holdings $ 26.5 million in cash as consideration to fully settle the deferred purchase price obligation , which smp holdings then paid to the term loan lenders . in addition , the term loan lenders executed the strict foreclosure on the 2,306,972 common units pledged as collateral under the smph term loan in full satisfaction of smp holdings ' outstanding obligations under the smph term loan . december 2020 series a preferred unit tender . on december 29 , 2020 , the partnership completed the preferred tender offer , whereby it accepted 75,075 series a preferred units for a purchase price of $ 333.00 per series a preferred unit and an aggregate purchase price of $ 25.0 million . upon closing the preferred tender offer , it eliminated $ 82.7 million of the series a preferred unit liquidation preference due as of the settlement date , inclusive of $ 7.6 million of accrued distributions . double e project . for the year ended december 2020 , the partnership 's proportionate share of capital calls due in 2020 totaled $ 99.9 million , which includes $ 2.7 million in capitalized interest , and was funded with $ 20.6 million of partnership generated funds and the issuance of $ 85.3 million of subsidiary series a preferred units . 2020 restructuring costs . in the fourth quarter of 2020 , we completed an internal initiative to evaluate and transform our cost structure , enhance margins and improve our competitive position in response to covid-19 and the related weakening of the economy . for the year ended december 31 , 2020 , we incurred approximately $ 5.6 million in restructuring costs relating to this initiative ( included in general and administrative expense ) . story_separator_special_tag our management uses a variety of financial and operational metrics to analyze our consolidated and segment performance and we view these metrics as important factors in evaluating our profitability . these metrics include ( i ) throughput volume , ( ii ) revenues , ( iii ) operation and maintenance expenses , and ( iv ) segment adjusted ebitda . throughput volume the volume of ( i ) natural gas that we gather , compress , treat and or process and ( ii ) crude oil and produced water that we gather depends on the level of production from natural gas or crude oil wells connected to our gathering systems . aggregate production volumes are impacted by the overall amount of drilling and completion activity . furthermore , because the production rate of natural gas and crude oil wells decline over time , production can only be maintained or increased by new drilling or other activity . as a result , we must continually obtain new supplies of production to maintain or increase the throughput volume on our systems . our ability to maintain or increase throughput volumes from existing customers and obtain new supplies of throughput is impacted by : successful drilling activity within our amis ; the level of work-overs and recompletions of wells on existing pad sites to which our gathering systems are connected ; the number of new pad sites in our amis awaiting connections ; our ability to compete for volumes from successful new wells in the areas in which we operate outside of our existing amis ; and our ability to gather , treat and or process production that has been released from commitments with our competitors . we report volumes gathered for natural gas in cubic feet per day . we aggregate crude oil and produced water gathering and report volumes gathered in barrels per day . revenues our revenues are primarily attributable to the volumes that we gather , compress , treat and or process and the rates we charge for those services . a majority of our gathering and processing agreements are fee-based , which limits our direct exposure to fluctuations in commodity prices . we also have percent-of-proceeds arrangements with certain customers under which the gathering and processing revenues that we earn correlate directly with the fluctuating price of natural gas , condensate and ngls . certain of our gathering and processing agreements contain mvcs pursuant to which our customers agree to ship or process a minimum volume of production on our gathering systems , or , in some cases , to pay a minimum monetary amount , over certain periods during the term of the mvc . these mvcs help us generate stable revenues and serve to mitigate the financial impact associated with declining volumes . operation and maintenance expenses we seek to maximize the profitability of our operations in part by minimizing , to the extent appropriate , expenses directly tied to operating our assets . direct labor costs , compression costs , ad valorem taxes , repair and non-capitalized maintenance costs , integrity management costs , utilities and contract services comprise the most significant portion of our operation and maintenance expense . other than utilities expense , these expenses are largely independent of volumes delivered through our gathering systems but may fluctuate depending on the activities performed during a specific period . segment adjusted ebitda segment adjusted ebitda is a supplemental financial measure used by management and by external users of our financial statements such as investors , commercial banks , research analysts and others . 77 segment adjusted ebitda is used to assess : the ability of our assets to generate cash sufficient to make cash distributions and support our indebtedness ; the financial performance of our assets without regard to financing methods , capital structure or historical cost basis ; our operating performance and return on capital as compared to other companies in the midstream energy sector , without regard to financing or capital structure ; the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities ; and the financial performance of our assets without regard to ( i ) income or loss from equity method investees , ( ii ) the impact of the timing of mvc shortfall payments under our gathering agreements or ( iii ) the timing of impairments or other noncash income or expense items . additional information . for additional information , see the `` results of operations `` section herein and the notes to the consolidated financial statements . for information on pending accounting changes that are expected to materially impact our financial results reported in future periods , see note 2 to the consolidated financial statements . 78 results of operations consolidated overview for the years ended december 31 , 2020 and 2019 the following table presents certain consolidated data and volume throughput for the years ended december 31 , 2020 and 2019. replace_table_token_1_th * not considered meaningful ( 1 ) exclusive of volume throughput for ohio gathering . for additional information , see the `` ohio gathering `` section herein . volumes – gas . natural gas throughput volumes decreased 22 mmcf/d for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily reflecting : a volume throughput increase of 5 mmcf/d for the marcellus shale segment . a volume throughput decrease of 88 mmcf/d for the piceance basin segment . a volume throughput increase of 85 mmcf/d for the utica shale segment . a volume throughput increase of 14 mmcf/d for the permian basin segment . a volume throughput decrease of 39 mmcf/d for the barnett shale segment . volumes – liquids . crude oil and produced water throughput volumes at the williston segment decreased 26 mbbl/d for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. for additional information on volumes , see

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gain on early extinguishment of debt . the $ 203.1 million gain on the early extinguishment of debt is primarily related to liability management initiatives undertaken during 2020 that resulted in a $ 86.4 million gain from the open market repurchases , a $ 23.3 million gain from the debt tender offers , and a $ 93.9 million gain from our tl restructuring . further details of our liability management results are summarized below . 80 replace_table_token_2_th 81 segment overview for the years ended december 31 , 20 20 and 2019 utica shale . the utica shale reportable segment includes the summit utica system . volume throughput for our summit utica system follows . replace_table_token_3_th volume throughput increased compared to the year ended december 31 , 2020 primarily due to new wells that came online in the fourth quarter of 2019 and through the first three quarters of 2020. in addition , volume throughput was impacted by an increase in temporary production curtailments , completion activity and other operational downtime associated with customers on existing pad sites . financial data for our utica shale reportable segment follows . replace_table_token_4_th * not considered meaningful year ended december 31 , 2020 . segment adjusted ebitda increased $ 3.5 million compared to the year ended december 31 , 2019 , primarily due to the volume throughput previously discussed . ohio gathering . the ohio gathering reportable segment includes ogc and occ . we account for our investment in ohio gathering using the equity method . we recognize our proportionate share of earnings or loss in net income on a one-month lag based on the financial information available to us during the reporting period . gross volume throughput for ohio gathering , based on a one-month lag follows .

industry dynamics and trends there are a number of industry factors that affect our business which include , among others : overall demand for products and applications using sic power devices , gan and si rf devices , and leds . our potential for growth depends significantly on the adoption of sic and gan materials and device products in the power and rf markets , the continued use of si devices in the rf telecommunications market , the continued adoption of leds and led lighting , and our ability to win new designs for these applications . demand also fluctuates based on various market cycles , continuously evolving industry supply chains , and evolving competitive dynamics in each of the respective markets . these uncertainties make demand difficult to forecast for us and our customers . intense and constantly evolving competitive environment . competition in the industries we serve is intense . many companies have made significant investments in product development and production equipment . product pricing pressures exist as market participants often undertake pricing strategies to gain or protect market share , increase the utilization of their production capacity and open new applications in the power , rf , led and lighting markets we serve . to remain competitive , market participants must continuously increase product performance , reduce costs and develop improved ways to serve their customers . to address these competitive pressures , we have invested in research and development activities to support new product development , lower product costs and deliver higher levels of performance to differentiate our products in the market . in addition , we invest in systems , people and new processes to improve our ability to deliver a better overall experience for our customers . technological innovation and advancement . innovations and advancements in materials , power , rf , leds and lighting technologies continue to expand the potential commercial application for our products . however , new technologies or standards could emerge or improvements could be made in existing technologies that could reduce or limit the demand for our products in certain markets . intellectual property issues . market participants rely on patented and non-patented proprietary information relating to product development , manufacturing capabilities and other core competencies of their business . protection of intellectual property is critical . therefore , steps such as additional patent applications , confidentiality and non-disclosure agreements , as well as other security measures are generally taken . to enforce or protect intellectual property rights , litigation or threatened litigation is common . governmental trade and regulatory conditions . our potential for growth , as with most multi-national companies , depends on a balanced and stable trade , political , economic and regulatory environment among the countries where we do business . changes in trade policy such as the imposition of tariffs or export bans to specific customers or countries could reduce or limit demand for our products in certain markets . lighting sales channel development . commercial lighting is usually sold through lighting agents and distributors in the north american lighting market . the lighting agents typically have exclusive sales rights for a defined territory and are typically aligned with one large lighting company for a large percentage of their product sales . the size , quality and capability of the lighting agent has a significant effect on winning new projects and sales in any given geographic market . while these agents sell other lighting products , the large traditional lighting companies have taken steps to prevent their channel partners from selling competing product lines . we are constantly working to improve the capabilities of our existing channel partners and increase our share of their sales as well as develop new partners to improve our sales effectiveness in each geographic market . fiscal 2018 overview the following is a summary of our financial results for the year ended june 24 , 2018 : our year-over-year revenue increased by $ 21 million to $ 1.5 billion . gross margin decreased to 27.3 % from 29.5 % . gross profit decreased by $ 27 million to $ 408 million . operating loss was $ 329 million in fiscal 2018 , which includes impairment charges of $ 247 million attributable to our lighting products segment , compared to operating loss of $ 19 million in fiscal 2017 . net loss per diluted share was $ 2.81 in fiscal 2018 compared to net loss per diluted share of $ 1.00 in fiscal 2017 . 30 combined cash , cash equivalents and short-term investments decreased to $ 387 million at june 24 , 2018 from $ 611 million at june 25 , 2017 . cash provided by operating activities was $ 167 million in fiscal 2018 , compared to $ 216 million in fiscal 2017 . purchases of property and equipment were $ 186 million in fiscal 2018 compared to $ 87 million in fiscal 2017 . business outlook we are uniquely positioned as an innovator in all three business segments . the strength of our balance sheet and operating cash flow provides us the ability to invest in our businesses , as we did with the recent asset acquisition of the infineon rf power business to aid in the growth of our wolfspeed segment as discussed in note 4 , `` acquisition `` to our audited financial statements in part ii , item 8 of this annual report . we are focused on the following priorities to support our goals of delivering higher revenue and shareholder returns over time : wolfspeed - invest in the business to expand the scale , further develop the technologies , and accelerate the growth opportunities of sic materials , sic power devices and modules , and gan and si rf devices . led products - focus our efforts where our best-in-class technology and application-optimized solutions are differentiated and valued while using cree venture led to access the broader mid-power led markets . story_separator_special_tag the increase in fiscal 2018 compared to fiscal 2017 was primarily due to the additional costs assumed in running the business and operations acquired in the rf power acquisition , which closed in march 2018 , the additional non-recurring costs associated with completing and integrating the rf power acquisition , and severance costs pursuant to our lighting products restructuring plan , partially offset by the decrease in wolfspeed transaction expenses associated with the terminated sale to infineon in fiscal 2017. the decrease in fiscal 2017 compared to fiscal 2016 was primarily due to lower spending on corporate sales and marketing expenses related to lower sales and a decrease in litigation spending partially offset by higher wolfspeed transaction expenses referred to above . amortization or impairment of acquisition-related intangibles as a result of our acquisitions , we have recognized various amortizable intangible assets , including customer relationships , developed technology , non-compete agreements and trade names . 36 amortization of intangible assets related to our acquisitions was as follows ( in thousands , except percentages ) : replace_table_token_9_th amortization of acquisition-related intangibles increased in fiscal 2018 compared to fiscal 2017 due to the acquisition of the rf power business that was purchased during the third quarter of fiscal 2018. amortization of acquisition-related intangibles decreased in fiscal 2017 compared to fiscal 2016 primarily due to less amortization expense for customer relationships and non-compete agreements in fiscal 2017. this decrease was partially offset by an increase in the amortization of developed technology related to the acquisition of arkansas power electronics international , inc. ( apei ) that was placed in service in the fourth quarter of fiscal 2016. impairment of goodwill based on the updated long-range business strategy that was announced february 26 , 2018 , we determined there was a triggering event and performed an impairment test in connection with the preparation of our financial statements for the period ended march 25 , 2018. as a result of this evaluation , we determined the remaining carrying value for the lighting products segment exceeded the fair value and therefore , we recorded a $ 247.5 million non-cash goodwill impairment charge attributable to our lighting products segment in our fiscal third quarter ended march 25 , 2018. the impairment charge resulted from the inability to meet forecasted results and our new business strategy . loss on disposal or impairment of long-lived assets we operate a capital-intensive business . as such , we dispose of a certain level of our equipment in the normal course of business as our production processes change due to production improvement initiatives or product mix changes . due to the risk of technological obsolescence or changes in our production process , we regularly review our equipment and capitalized patent costs for possible impairment . the following table sets forth our loss on disposal or impairment of long-lived assets ( in thousands , except percentages ) : replace_table_token_10_th we recognized a net loss of $ 10.7 million , $ 2.5 million , and $ 16.9 million on the disposal of long-lived assets in fiscal years 2018 , 2017 , and 2016 , respectively . the increase in net loss in fiscal 2018 compared to fiscal 2017 was primarily due to demolition and moving costs associated with our current wolfspeed manufacturing capacity expansion , closure of certain manufacturing facilities , and a fair value market write-down for a sold aircraft . the net losses in fiscal 2017 and fiscal 2016 were primarily due to the planned sale or abandonment of certain long-lived assets to reduce excess manufacturing capacity pursuant to our led products restructuring plan discussed above . wolfspeed transaction termination fee as discussed more fully in note 1 , “ business ” , in our consolidated financial statements included in item 8 of this annual report , as a result of the termination of the agreement to sell the wolfspeed business to infineon , infineon paid us a termination fee of $ 12.5 million in cash on march 10 , 2017 . 37 non-operating income ( expense ) , net the following table sets forth our non-operating income ( expense ) , net ( in thousands , except percentages ) : replace_table_token_11_th during fiscal 2018 , 2017 and 2016 , we were in a net interest income position . our short-term investments consisted primarily of municipal bonds , corporate bonds , u.s. agency securities , and non-u.s. certificates of deposit . the primary objective of our investment policy is preservation of principal . other long-term investments consisted of our approximately 16 % common stock ownership interest in lextar , which was completed in december 2014. this investment was accounted for under the equity method from the date of investment until june 2016 when we chose for our representative not to stand for re-election as a member of the lextar board of directors . we utilize the fair value option in accounting for our investment in lextar . ( loss ) gain on sale of investments , net . loss on sale of investments , net was $ 86 thousand in fiscal 2018 , compared to a gain on sale of investments of $ 93 thousand and $ 238 thousand in fiscal 2017 and fiscal 2016 , respectively . we had a loss on sale of investments , net in fiscal 2018 primarily due to losses realized on the sale of investments liquidated in order to partially fund the purchase of the rf power business . gain on sale of investments , net decreased in fiscal 2017 from fiscal 2016 primarily due to lower sales of investments . gain ( loss ) on equity investment . gain on equity investment was $ 7.1 million in fiscal 2018 , gain on equity investment was $ 7.5 million in fiscal 2017 and loss on equity investment was $ 15.4 million in fiscal 2016 . we had a gain on equity investment in fiscal 2018 and fiscal 2017 due to the increase in the fair

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cash flows from investing activities our investing activities primarily relate to transactions within our purchase of the infineon rf power business , short-term investments , purchases of property and equipment and payments for patents and licensing rights . net cash used in investing activities was $ 423.9 million in fiscal 2018 compared to $ 145.3 million in fiscal 2017 . during the third quarter of fiscal 2018 , we had $ 429.2 million of net expenditures to acquire the infineon rf power business . purchases of property , equipment and patent rights increased by $ 96.4 million in fiscal 2018 compared to fiscal 2017 . net proceeds of short-term investments increased $ 247.8 million in fiscal 2018 compared to fiscal 2017 to help fund the infineon rf power acquisition . net cash used in investing activities was $ 145.3 million in fiscal 2017 compared to $ 7.9 million in fiscal 2016 . purchases of property , equipment and patent rights decreased by $ 35.1 million in fiscal 2017 compared to fiscal 2016 . net purchases of short-term investments increased $ 181.1 million in fiscal 2017 compared to fiscal 2016 . this year over year increase was primarily due to a decrease in proceeds from the sale and maturities of short-term investments , partially offset by a decrease in short-term investment purchase activity . fiscal 2016 included $ 12.5 million in net expenditures to acquire apei . for fiscal 2019 , we target approximately $ 220 million of capital investment , which is primarily related to capacity and infrastructure projects to support our wolfspeed segment longer-term growth and strategic priorities . 41 cash flows from financing activities net cash provided from financing activities was $ 242.7 million in fiscal 2018 compared to use of $ 104.1 million in fiscal 2017 .

in connection with the transaction , as part of the regulatory approval process the company made certain commitments to the board of governors of the federal reserve system ( the “federal reserve” ) and the maine bureau of financial institutions ( the “bureau” ) , the most significant of which are , ( i ) maintain a tier 1 leverage ratio of at least 10 % , ( ii ) maintain a total risk-based capital ratio of at least 15 % , ( iii ) limit purchased loans to 40 % of total loans , ( iv ) fund 100 % of the company 's loans with core deposits ( defined as non-maturity deposits and non-brokered insured time deposits ) , and ( v ) hold commercial real estate loans ( including owner-occupied commercial real estate ) to within 300 % of total risk-based capital . the company is currently in compliance with all commitments to the federal reserve and the bureau . as a result of the sale of the company 's insurance agency business in the first quarter of fiscal 2012 and discontinuation of further significant business activities in the insurance agency segment , the company has classified the results of its insurance agency division as discontinued operations in the company 's consolidated financial statements and discussion herein . critical accounting policies critical accounting policies are those that involve significant judgments and assessments by management , and that could potentially result in materially different results under different assumptions and conditions . northeast considers the following to be its critical accounting policies : loans loans are carried at the principal amounts outstanding , or amortized acquired fair value in the case of acquired loans , adjusted by partial charge-offs and net of deferred loan costs or fees . loan fees and certain direct origination costs are deferred and amortized into interest income over the expected term of the loan using the level-yield method . when a loan is paid off , the unamortized portion is recognized in interest income . interest income is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status . all loans purchased by the company in the secondary market by the loan acquisition and servicing group ( “lasg” ) are accounted for under asc 310-30 , receivables – loans and debt securities acquired with deteriorated credit quality ( “asc 310-30” ) . at acquisition , the effective interest rate is determined based on the discount rate that equates the present value of the company 's estimate of cash flows with the purchase price of the loan . prepayments are not assumed in determining a purchased loan 's effective interest rate and income accretion . the application of asc 310-30 limits the yield that may be accreted on the purchased loan , or the “the accretable yield , ” to the excess of the company 's estimate , at acquisition , of the expected undiscounted principal , interest , and other cash flows over the company 's initial investment in the loan . the excess of contractually required payments receivable over the cash flows expected to be collected on the loan represents the purchased loan 's “nonaccretable difference.” subsequent improvements in expected cash flows of loans with nonaccretable differences result in a prospective increase to the loan 's effective yield through a reclassification of some , or all , of the nonaccretable difference to accretable yield . the effect of subsequent declines in expected cash flows of purchased loans are recorded through a specific allocation in the allowance for loan losses . loans are generally placed on nonaccrual status when they are past due 90 days as to either principal or interest , or when in management 's judgment the collectability of interest or principal of the loan has been significantly impaired . loans accounted for under asc 310-30 are placed on nonaccrual when it is not possible to reach a reasonable expectation of the timing and amount of cash flows to be collected on the loan . when a loan has been placed on nonaccrual status , previously accrued and uncollected interest is reversed against interest on loans . a loan is returned to accrual status when collectability of principal is reasonably assured and the loan has performed for a reasonable period of time . 37 in cases where a borrower experiences financial difficulties and the company makes certain concessionary modifications to contractual terms , the loan is classified as a troubled debt restructuring ( “tdr” ) . modifications may include adjustments to interest rates , extensions of maturity , and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral . nonaccrual loans that are restructured remain on nonaccrual for a minimum period of six months to demonstrate that the borrower can meet the restructured terms . if the restructured loan is on accrual status prior to being modified , it is reviewed to determine if the modified loan should remain on accrual status . if the borrower 's ability to meet the revised payment schedule is not reasonably assured , the loan is classified as a nonaccrual loan . loans classified as tdrs remain classified as such until the loan is paid off . allowance for loan losses the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . the allowance for loan losses consists of general , specific , and unallocated reserves and reflects management 's estimate of probable loan losses inherent in the loan portfolio at the balance sheet date . management uses a consistent and systematic process and methodology to evaluate the adequacy of the allowance for loan losses on a quarterly basis . story_separator_special_tag successor company for the period , the 3.69 % net interest margin earned was 11 basis points higher than that earned for the 184 days ended june 30 , 2011. the net interest margin improved during fiscal year 2012 principally due to the 16.35 % yield earned on the company 's purchased loans , offset in part by a decline in the effect of accretion of merger-related fair value adjustments and a reduction in the yield earned on investment securities . the decrease in the yield on securities was the result realizing gains on the portfolio during the year , and reinvesting sale proceeds at lower yields . the following table summarizes interest income and related yields recognized on the company 's purchased and originated loans . replace_table_token_11_th 45 the yield on purchased loans was increased by unscheduled loan payoffs during the period , which resulted in immediate recognition of the prepaid loans ' discount in interest income . the company also realized gains on the sale of purchased loans . the company recognized $ 3.5 million in transactional income during fiscal 2012 , resulting from a total of eleven transactions . the following table details the “total return” on purchased loans , based on regularly scheduled interest and accretion , accelerated accretion , and other income recognized upon unscheduled loan payoffs or sales . replace_table_token_12_th the following table summarizes the effects of accretion of fair value adjustments on the net interest margin , for the periods indicated : replace_table_token_13_th the cost of funding was little changed when comparing fiscal 2012 to the 184 days ended june 30 , 2012 , rising 3 basis points to 1.32 % in fiscal 2012 from 1.29 % in the earlier period . predecessor company the net interest margin for the 181 days ended december 28 , 2010 was 2.92 % . the yield on earning assets was 4.92 % , which included higher yielding investment securities , compared to market rates for such instruments in 46 fiscal 2012. the cost of interest- bearing liabilities was 2.23 % for the period , higher than comparable rates in fiscal 2012. as noted above , the results of the prior period is not directly comparable with those of the current periods as a result of the accretion of fair value adjustments in the current periods . provision for loan losses quarterly , the company determines the amount of its allowance for loan losses adequate to provide for losses inherent in the company 's loan portfolios , with the provision for loan losses determined by the net change in the allowance for loan losses . for acquired loans accounted for under asc 310-30 , a provision for loan losses is recorded when estimates of future cash flows are lower than had been previously expected . the provision for loan losses for periods subsequent to the merger reflects the impact of adjusting loans to their then fair values , as well as the elimination of the allowance for loan losses in accordance with the acquisition method of accounting . subsequent to the merger , the provision for loan losses has been recorded based on estimates of inherent losses in newly originated loans and for incremental reserves required for pre-merger loans based on estimates of deteriorated credit quality post-merger . successor company the provision for loan losses for the fiscal year ended june 30 , 2012 was $ 946 thousand . this compares to a provision for loan losses of $ 707 thousand for the 184 days ended june 30 , 2011. at june 30 , 2012 and 2011 , the allowance for loan losses stood at $ 824 thousand and $ 437 thousand , respectively , and the ratio of allowance for loan losses to total loans was 0.23 % and 0.14 % , respectively . the allowance for loan losses at june 30 , 2012 reflects provisions for loans originated post-merger , and the effect of any credit deterioration in the company 's pre-merger loan portfolio . management 's analysis of the company 's purchased loans detected no credit deterioration since the dates of the loans ' purchase , and accordingly no provision for loan losses was recorded for the purchased portfolio in fiscal 2012. net charge-offs for the fiscal year ended june 30 , 2012 totaled $ 559 thousand , representing approximately 0.17 % of the company 's average portfolio loan balance during the fiscal year . predecessor company the provision for loan losses for the 181 days ended december 28 , 2010 was $ 912 thousand . as indicated above , the allowance for loan losses was eliminated at the time of the merger . loans with indicators of deteriorated credit quality at the time of the merger were recorded at fair value and assigned a nonaccretable difference , hence the lower level of overall loan loss provisions associated with the successor company during the current year periods . for additional information on the allowance for loan losses , see “asset quality.” noninterest income successor company noninterest income for the fiscal year ended june 30 , 2012 totaled $ 9.7 million . during the fiscal year , the company realized $ 1.1 million in security gains , investment commissions of $ 2.8 million , and produced total gains on loan sales of $ 3.8 million , of which $ 2.8 resulted from sales of residential mortgage loans . during the fiscal year , the company originated residential mortgages totaling $ 136.3 million , of which $ 123.9 million were sold into the secondary market . gains on portfolio loan sales totaled $ 1.1 million , principally resulting from the sale of loans acquired by the lasg . noninterest income for the 184 days ended june 30 , 2011 totaled $ 20.2 million , which includes a non-recurring bargain purchase gain of $ 15.4 million resulting from the application of the acquisition method of accounting in connection with the merger . during the period , the

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cash flows expected to be collected 26,690 accretable yield ( 8,589 ) fair value of loans acquired $ 18,101 other assets the cash surrender value of the company 's boli assets increased $ 501 thousand , or 3.6 % , to $ 14.3 million at june 30 , 2012 , compared to $ 13.8 million at june 30 , 2011. boli assets are invested in the general account of three insurance companies and in separate accounts of a fourth insurance company . a general account policy 's cash surrender value is supported by the general assets of the insurance company . a separate account policy 's cash surrender value is supported by assets segregated from the general assets of the insurance company . standard and poor 's rated these companies a+ or better at june 30 , 2012. interest earnings , net of mortality costs , increase the cash surrender value . these interest earnings are based on interest rates that reset each year , and are subject to minimum guaranteed rates . these increases in cash surrender value are recognized in other income and are not subject to income taxes . borrowing on or surrendering a policy may subject the company to income tax expense on the increase in cash surrender value . for these reasons , management considers boli an illiquid asset . boli represented 11.5 % of the company 's total risk-based capital at june 30 , 2012. intangible assets totaled $ 4.5 million and $ 13.1 million at june 30 , 2012 and june 30 , 2011 , respectively .

under our subscription contracts with most of our direct advertisers and some of our agency customers , customers are contractually committed to a monthly minimum fee , which is payable on a monthly basis over the duration of the contract and is generally greater than one-half of our estimated monthly revenues from these customers , at the time the contract is signed . however , most of our 31 subscription contracts with our advertising agency customers do not include a committed monthly minimum fee . our contractual arrangement is with the advertising agency and the advertiser is not a party to the terms of the contract . accordingly , most advertisers through our agency customers do not have a commitment to use our services and the advertisers may be added or removed from our platform at the discretion of the respective agency . we invoice the advertising agency for the amounts due under the contract . historically , approximately half of our revenues have been earned from advertising agency customers . our subscription fee under most contracts is variable based upon the value of advertising spend that our customers manage through our platform . our deferred revenues consist of the unearned portion of billed subscription fees . our subscription contracts indicate the date at which we begin invoicing our customers , which is generally the first day of the month following the execution of the contract . we generally invoice the greater of the minimum fee or the percentage of advertising spend on our platform . the implementation process for new advertisers is typically four to six weeks ; however , we generally do not charge a separate implementation fee under our subscription contracts . our implementation and customer support personnel , as well as costs associated with our operating infrastructure , are included in our cost of revenues . our cost of revenues and operating expenses have increased in absolute dollars due to our need to increase our headcount to grow our business and to increase data center capacity to support customer revenue growth on our platform . we expect that our cost of revenues will continue to increase in absolute dollars as we continue to invest in our growth . in order to grow revenues , we need to invest in ( 1 ) sales and marketing activities by adding sales and customer success representatives globally to target new advertisers and agencies and ( 2 ) research and development to further expand our platform and support for additional publishers . these activities will require us to make investments , particularly in research and development and sales and marketing , and if these investments do not generate additional customers or additional advertising spend managed by our platform , our future operating results could be harmed . the majority of our revenues are derived from our advertisers in the united states . we believe the markets outside of the united states offer an opportunity for growth , and we intend to make additional investments in sales and marketing to expand in these markets . advertisers from outside of the united states represented 34 % , 32 % and 27 % of total revenues for 2014 , 2013 and 2012 , respectively . we were incorporated in 2006 and initially focused on building the core elements of our cloud-based platform , which we currently use to service our customers . in september 2007 , we launched marin enterprise , which targets large advertisers and agencies . we released marin professional edition in march 2011 , which targets mid-market advertisers and agencies . we have an iterative development process and we typically release new features every one to two months . additionally , we have continued to expand internationally , opening our london office in 2009 , our paris , hamburg , singapore and sydney offices in 2011 , our dublin and tokyo offices in 2012 and our shanghai office in 2013. we completed our acquisition of nowspots , inc. , which conducted business as perfect audience ( “perfect audience” ) in june 2014 to complement our product offerings , which is more fully described in note 3 to our accompanying consolidated financial statements . in february 2015 , we completed our acquisition of socialmoov to provide us with innovative social advertising technologies that will augment our current social offering , which is further described in note 18 to our accompanying consolidated financial statements . key metrics we regularly review a number of metrics to evaluate growth trends , measure our performance , establish budgets and make strategic decisions . our selected key metrics include revenue , gross margin , operating expenses , active advertisers , annualized advertising spend on our platform and revenue retention rate . we discuss revenue , gross margin and operating expenses below under “– components of results of operations.” we monitor our key metrics to measure our success . our revenues are generally based on the amount of advertising 32 spend our customers manage on our platform in a period . as a result , revenues are an important metric to understanding the overall health of our business , and we use revenue trends to formulate financial projections and make strategic business decisions . number of active advertisers we define an active advertiser as an advertiser from whom we recognized revenues in excess of $ 2,000 in at least one month in a period . we believe the $ 2,000 threshold best identifies advertisers who are actively using our platform . we focus on revenues in at least one month in a period to account for seasonality in advertising spend by our customers , some of whom may not run digital advertising campaigns in every month of a year but still represent an active advertiser on our platform . story_separator_special_tag the decrease of $ 0.4 million , or 37 % , in other expenses , net , and interest expense , net , during 2014 was primarily due to a decrease of $ 0.3 million in interest expense as we continued to pay down our long-term debt , partially offset by an increase of $ 0.2 million in foreign exchange losses due to the growth of our international operations and fluctuations in foreign currency exchange rates . other expenses , net , during 2014 also excluded $ 0.2 million in losses resulting from the change in the fair value of freestanding preferred stock warrants incurred during 2013. upon the consummation of the company 's initial public offering ( “ipo” ) , those warrants converted into warrants to purchase common stock and were reclassified from liabilities to additional paid-in capital . as a result , changes in their fair value are no longer recorded on the consolidated statement of comprehensive loss . benefit from ( provision for ) income taxes replace_table_token_20_th benefit from income taxes for 2014 increased $ 1.9 million primarily due to a decrease in our valuation allowances of $ 2.3 million as a result of deferred tax liabilities recorded as part of our acquisition of perfect audience in june 2014. this increased benefit was partially offset by additional provision for income taxes due to increased profits generated in foreign jurisdictions by our wholly-owned subsidiaries . comparison of the years ended december 31 , 2013 and 2012 revenues years ended december 31 , change 2013 2012 $ % ( dollars in thousands ) revenues $ 77,315 $ 59,558 $ 17,757 30 % 40 revenues increased $ 17.8 million , or 30 % , for 2013 as compared to 2012. this increase was driven by growth in revenues from both new and existing advertisers in all geographies as our ongoing investment in sales and marketing resources resulted in increased demand for our platform worldwide . during 2013 , we generated $ 11.1 million of revenue from new advertisers and $ 6.7 million of additional revenue from our existing advertisers . we define a new advertiser as an advertiser from whom we earned revenue during the current fiscal period and from whom we did not earn any revenue during the previous corresponding period . there were no customers that accounted for greater than 10 % of our revenues in 2013 or 2012. revenues in 2013 from the united states and international locations represented 68 % and 32 % , respectively , of revenues , and in 2012 , revenues from the united states and international locations represented 73 % and 27 % , respectively , of revenues . cost of revenues and gross margin replace_table_token_21_th cost of revenues increased $ 6.3 million , or 26 % , as compared to 2012. this reflected an increase in the average number of global services and platform infrastructure personnel from 118 employees during 2012 to 135 employees during 2013 , resulting in an increase of $ 2.7 million in compensation and benefits expenses and $ 0.1 million of allocated overhead . during 2013 , we also experienced increases of $ 2.2 million in depreciation and amortization expense , $ 0.9 million in hosting costs , $ 0.3 million of equipment-related expenses , and $ 0.2 million of professional fees to support the increased use of our hosted platform . our gross margin increased to 60 % during 2013 from 58 % during 2012. this increase was due to the achievement of greater operational efficiency from personnel dedicated to our cloud infrastructure and global services precipitated by upgraded functionality and capabilities delivered by our engineering team . compensation for these personnel was 23 % of revenues during 2013 , as compared to 25 % during 2012. sales and marketing replace_table_token_22_th sales and marketing expenses increased $ 10.2 million , or 31 % , as compared to 2012. the increases were primarily due to an increase our average global sales and marketing headcount from 123 employees during 2012 to 161 employees during 2013 , contributing to an increase of $ 8.2 million in personnel-related costs , consisting primarily of increased employee compensation , benefits and travel costs associated with our sales force . stock-based compensation during 2013 did not include $ 0.4 million in stock-based compensation incurred in 2012 directly attributable to the redemption of common shares from an employee for an amount above the fair value at the time of the redemption . allocated overhead increased $ 0.8 million and recruiting fees increased $ 0.1 million , also due to the growth in headcount relative to the rest of our company . marketing event and technology costs increased $ 0.7 million due to our continued marketing efforts and professional fees also increased $ 0.3 million during 2013 . 41 research and development replace_table_token_23_th research and development expenses increased $ 6.7 million , or 48 % , as compared to 2012. this reflected an increase in average research and development headcount from 88 employees during 2012 to 130 employees during 2013 , resulting in an increase of $ 4.9 million in compensation expense . stock-based compensation for 2013 did not include $ 0.3 million in stock-based compensation incurred in 2012 directly attributable to the redemption of common shares from two employees for an amount above the fair value at the time of the redemption . allocated overhead also increased $ 1.1 million due to the increase in headcount . professional fees increased $ 0.3 million to supplement our employees ' efforts to enhance our software architecture . recruiting , equipment , and travel expenses increased $ 0.3 million in total to support the opening of our new office in shanghai . general and administrative replace_table_token_24_th general and administrative expenses increased $ 3.6 million , or 27 % , respectively , as compared to 2012. included in this balance during 2012 is $ 1.9 million in stock-based compensation directly associated with the redemption of common shares from

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liquidity and capital resources since our incorporation in march 2006 , we have relied primarily on sales of our capital stock to fund our operating activities . from incorporation until our ipo , we raised $ 105.7 million , net of related issuance costs , in funding through private placements of our preferred stock . in march and april 2013 , we raised net proceeds of $ 109.3 million in our ipo . from time to time , we have also utilized equipment lines to fund capital purchases . as of december 31 , 2014 , our principal sources of liquidity were our cash and cash equivalents of $ 68.3 million , access to borrowing under our fully available $ 15.0 million revolving credit facility and our capital lease arrangement . the approximate weighted average interest rate on our outstanding borrowings as of december 31 , 2014 , was 3.2 % . our primary operating cash requirements include the payment of compensation and related costs , as well as costs for our facilities and information technology infrastructure . we also have an outstanding irrevocable letter of credit for $ 1.3 million related to the non-cancelable lease for our corporate headquarters in san francisco , california . we presently maintain minimal cash balances in our foreign subsidiaries . as of december 31 , 2014 , we had $ 68.3 million of cash and cash equivalents , of which only $ 7.4 million was held by our foreign subsidiaries . in 44 the future , we plan to increase the invoicing and remittance of proceeds from our international operations in our foreign subsidiaries ' bank accounts . we plan to re-invest the cash earned by our foreign subsidiaries to finance the growth of our foreign operations . based on our current level of operations and anticipated growth , we believe that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months .

the sellers were jerett a. creed , the company 's former chief executive officer , chief financial officer , director and formerly a controlling stockholder of the company , the creed family limited partnership and ralph sinibaldi . the shares represented approximately 95 % of the company 's then issued and outstanding common stock . the sale was consummated on august 28 , 2014. as a result of the transaction , there was a change in control of the company . on august 27 , 2014 , we entered into a contribution agreement with cardigant neurovascular . pursuant to the contribution agreement , we assigned all our assets , properties , rights , title and interest used or held for use by our business , ( except for certain excluded assets set forth therein ) which was the treatment of atherosclerosis and plaque stabilization in both the coronary and peripheral vasculature using systemic and local delivery of large molecule therapeutics and peptide mimetics based on high density lipoprotein targets ( “ cardigant business ” ) . in consideration for such contribution of capital , cardigant neurovascular agreed to assume all our liabilities raising from the business prior to the date of the contribution agreement and thereafter with regard to certain contributed contacts . we granted cardigant neurovascular an exclusive option for a period of 6 months to purchase the excluded assets for $ 1. cardigant neurovascular exercised this option october 20 , 2014 and the excluded assets were assigned to cardigant neurovascular on october 20 , 2014. also on october 20 , 2014 , we acquired all the issued and outstanding shares of hong kong takung , a privately held hong kong corporation , pursuant to the share exchange agreement and hong kong takung became the wholly owned subsidiary of us in a reverse merger , or the merger . pursuant to the merger , all of the issued and outstanding shares of hong kong takung common stock were converted , at an exchange ratio of 10.4988-for-1 , into an aggregate of 8,399,040 shares ( before reverse stock split was 209,976,000 shares ) of our common stock and hong kong takung became a wholly owned subsidiary of us . the holders of our common stock as of immediately prior to the merger held an aggregate of 933,236 shares ( before reverse stock split was 23,330,662 shares ) of our common stock , the accompanying financial statements share and per share information has been retroactively adjusted to reflect the exchange ratio in the merger . subsequent to the merger , our name was changed from “ cardigant medical inc. ” to “ takung art co. , ltd. ” . hong kong takung is a limited liability company incorporated on september 17 , 2012 under the laws of hong kong , special administrative region , china . although takung was incorporated in 2012 , it did not commence business operations until late 2013. as a result of the transfer of the excluded assets pursuant to the contribution agreement and the acquisition of all the issued and outstanding shares of hong kong takung , we are no longer conducting the cardigant business and have now assumed hong kong takung 's business operations as it now our only operating wholly-owned subsidiary . hong kong takung operates an electronic online platform located at http : //eng.takungae.com for artists , art dealers and art investors to offer and trade in valuable artwork . through hong kong takung , we offer on-line listing and trading services that allow artists/art dealers/owners to access a much bigger art trading market where they can engage with a wide range of investors that they might not encounter without our platform . our platform also makes investment in high-end and expensive artwork more accessible to ordinary people without substantial financial resources . 41 we generate revenue from our services in connection with the offering and trading of artwork on our system , primarily consisting of listing fees , trading commissions , management fees and authorized agent subscription . our headquarters are located in hong kong , special administrative region , people 's republic of china and we conduct our business primarily in hong , shanghai and tianjin . recently , we set up a new office in hangzhou to conduct technology development . our principal executive offices are located at flat/rm 03-04 , 20/f , hutchison house , 10 harcourt road , central hong kong . on july 28 , 2015 , hong kong takung incorporated a wholly owned subsidiary , takung ( shanghai ) co. , ltd. ( “ shanghai takung ” ) , in shanghai free-trade zone ( sftz ) in shanghai , china , with a registered capital of $ 1 million . shanghai takung is engaged in providing services to its parent company hong kong takung by receiving deposits from and making payments to online artwork traders for and on behalf of hong kong takung . on january 27 , 2016 , hong kong takung incorporated another subsidiary , takung cultural development ( tianjin ) co. , ltd ( “ tianjin takung ” ) , a limited liability company , with a registered capital of $ 1 million in tianjin pilot free trade zone in tianjin , people 's republic of china . tianjin takung provides technology development services to hong kong takung and shanghai takung , and also carries out marketing and promotion activities in mainland china . since july 28 , 2016 , we have expanded access to our trading platform to residents of russia , mongolia , australia and new zealand – our first major expansion of operations outside of china . to further stimulate trading interest , we have added selected portfolios from these countries to our platform , which now numbers 181 artworks including three russian painting portfolios and fifteen mongolian paintings . results of operation of takung hong kong takung operates a platform for offering and trading artwork . story_separator_special_tag asc 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements . fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . when determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value , the company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability . asc 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . asc 820 establishes three levels of inputs that may be used to measure fair value . the hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ( level 1 measurements ) and the lowest priority to measurements involving significant unobservable inputs ( level 3 measurements ) . the three levels of the fair value hierarchy are as follows : · level 1 inputs to the valuation methodology are quoted prices ( unadjusted ) for identical assets or liabilities in active markets . · level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the assets or liability , either directly or indirectly , for substantially the full term of the financial instruments . · level 3 inputs to the valuation methodology are unobservable and significant to the fair value . there were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of asc 820 as of december 31 , 2016 and 2015 , respectively . comprehensive income the company follows the provisions of the financial accounting standards board ( the “ fasb ” ) accounting standards codification ( “ asc ” ) 220 “ reporting comprehensive income ” , and establishes standards for the reporting and display of comprehensive income , its components and accumulated balances in a full set of general purpose financial statements . for the year ended december 31 , 2016 and 2015 , the company 's comprehensive income includes net income and foreign currency translation adjustment . foreign currency translation and transaction the functional currency of the hong kong takung and shanghai takung are the hong kong dollar ( “ hkd ” ) . the reporting currency of the company is the united states dollar ( “ usd ” ) . transactions in currencies other than the entity 's functional currency are recorded at the rates of exchange prevailing on the date of the transaction . at the end of each reporting period , monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods . exchange differences arising on the settlement of monetary items and on re-translation of monetary items at period-end are included in income statement of the period . 48 for the purpose of presenting these financial statements , the company 's assets and liabilities with functional currency of hkd are expressed in usd at the exchange rate on the balance sheets dates , which is 7.7534 and 7.7507 as of december 31 , 2016 and december 31 , 2015 , respectively ; stockholder 's equity accounts are translated at historical rates , and income and expense items are translated at the weighted average exchange rates during the year , which is 7.7620 and 7.7524 for the year ended december 31 , 2016 and 2015 , respectively . for renminbi currency , the company 's assets and liabilities are expressed in usd at the exchange rate on the balance sheet date , which is 6.9430 and 6.4778 as of december 31 , 2016 and december 31 , 2015 ; stockholder 's equity accounts are translated at historical rates , and income and expense items are translated at the weighted average exchange rates during the year , which is 6.6400 and 6.2827 for the year ended december 31 , 2016 and december 31 , 2015. the resulting translation adjustments are reported under accumulated other comprehensive income in the stockholder 's equity section of the balance sheets . cash and cash equivalents the company considers highly liquid investments with maturities of three months or less , when purchased , to be cash equivalents . as of december 31 , 2016 and 2015 , the company 's cash and cash equivalents amounted to $ 13,395,337 and $ 10,769,456. the company 's cash deposit is held in the financial institutions located in hong kong and mainland china where there are currently regulations mandated on obligatory insurance of bank accounts . restricted cash restricted cash represents the cash deposited by the traders ( “ buyers and sellers ” ) into a specific bank account under takung ( “ the broker 's account ” ) in order to facilitate the trading shares of the artwork . the buyers are required to have their funds transferred to the broker 's account before the trading take place . upon the delivery of the shares , the seller will send instructions to the bank , requesting the amount to be transferred to their personal account . after deducting the commission and the management fee as per takung , the bank will transfer the remainder to the seller 's personal account . except for instructing the bank to deduct the commission and management fee , takung has no right to manipulate any funds in the broker 's account except the company statements of intention with regard to particular deposits . the whole process was monitored and approved by a third party accounting firm . restricted cash amounted to $ 21,743,360 and $ 16,195,289 as of december 31 , 2016 and 2015 , respectively

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sources of liquidity the cash balance at december 31 , 2016 was $ 13,395,337. of the $ 13,395,337 , we had $ 1,729,608 denominated in hong kong dollars in hong kong banks , $ 148,594 and $ 761,691 denominated in us dollars deposited in banks in hong kong and china respectively , and $ 10,755,444 denominated in renminbi and deposited in a bank in china . during the year ended december 31 , 2016 , net cash provided by operating activities totaled $ 4,624,343 net cash used in investing activities totaled $ 7,786,348. net cash provided by financing activities totaled $ 7,340,318. the resulting change in cash for the period was an increase of $ 2,625,881 , which was primarily due to a net income of $ 6,370,694 and the collection from subscription proceeds from the issuance of shares . the cash balance at december 31 , 2015 was $ 10,769,456. of the $ 10,769,456 , we had $ 1,849,010 denominated in hong kong dollars in hong kong banks , $ 1,457,247 and $ 953,186 denominated in us dollars deposited in banks in hong kong and china respectively , and $ 6,510,013 denominated in renminbi and deposited in a bank in china . during the year ended december 31 , 2015 , net cash provided by operating activities totaled $ 5,419,693. net cash used in investing activities totaled $ 512,144. net cash provided by financing activities totaled $ 3,510,853. the resulting change in cash for the period was an increase of $ 8,413,617 , which was primarily due to a net income of $ 5,436,109 and the collection from subscription proceeds from the issuance of shares . as of december 31 , 2016 , the company had $ 30,602,706 in total current liabilities , which included $ 608,883 in account payables and other accruals , $ 21,743,360 in customers ' deposits , $ 360,248 in advance from customers , $ 6,308,513 in short-term borrowings from third parties , $ 1,031,805 in amount due to related party and $ 549,897 in tax payables .

the results of industrial filtration have been included in the company 's financial statements since the date of the acquisition . as a result , the consolidated financial results for the year ended december 31 , 2014 do not reflect a full twelve months of the industrial filtration business . the acquisition resulted in the inclusion of industrial filtration 's assets and liabilities as of the acquisition date at their respective fair values . accordingly , the acquisition materially affected the company 's results of operations and financial position . below are financial highlights comparing lydall 's 2014 results to its 2013 results : consolidated net sales of $ 535.8 million , an increase of $ 137.9 million , or 34.6 % , as net sales increased 6.4 % related to pre-acquisition businesses and 28.2 % from the acquisition . foreign currency translation had a minimal impact on sales . gross margin increased to 21.5 % , compared to 21.4 % , principally led by the t/a fibers segment which experienced favorable product mix as well as improved absorption of fixed costs and lower raw material costs , partially offset by lower industrial filtration segment gross margin . 18 selling , product development and administrative expenses were $ 80.9 million , or 15.1 % of net sales , compared to $ 56.5 million , or 14.2 % of net sales ; ◦ inclusion of the industrial filtration segment in 2014 increased selling , product development and administrative expenses by $ 9.5 million ; ◦ selling , product development and administrative expenses increased by $ 5.4 million in all of the company 's pre-acquisition operating businesses including in the performance materials , t/a fibers and t/a metals segments as well as in other products and services . this increase was primarily related to a $ 2.9 million commission settlement in the t/a metals segment as the company terminated a long-standing commercial sales agreement in 2014. other increases were primarily associated with higher salaries and benefits expenses , including an increase of $ 1.3 million in accrued incentive compensation under the company 's 2014 bonus program . excluding the $ 2.9 million commission settlement expense in the t/a metals segment , selling , product development and administrative expenses in the company 's pre-acquisition operating businesses were flat as a percentage of net sales in 2014 compared to 2013 . ◦ corporate office administrative expenses increased by $ 9.6 million primarily due to a non-cash pension plan settlement charge of $ 4.9 million associated with a voluntary one-time lump sum payment option elected by certain former u.s. employees under the company 's domestic defined benefit pension plan , an increase of $ 1.4 million of transaction related costs associated with the industrial filtration acquisition , and increases in salaries and benefit expenses , including greater accrued incentive compensation under the company 's 2014 bonus program and stock-based compensation aggregating to $ 1.3 million , and increases in other administrative expenses . operating income was $ 34.0 million , or 6.4 % of net sales , compared to $ 28.7 million , or 7.2 % of net sales ; ◦ industrial filtration segment operating income was $ 6.4 million , or 5.7 % of industrial filtration segment net sales , including the unfavorable impact of $ 2.1 million , or 180 basis points , of purchase accounting adjustments relating to inventory step-up . ◦ operating income from performance materials , t/a metals , t/a fibers , ops and corporate office was $ 27.6 million , or 6.5 % of pre-acquisition business net sales , compared to $ 28.7 million , or 7.2 % in 2013. the increase in selling , product development and administrative expenses of $ 14.9 million was partially offset by an increase in gross profit of $ 13.8 million in 2014 compared to 2013. the increase in gross profit was primarily from the t/a fibers segment and to a lesser extent the t/a metals segment due to higher sales volumes and a favorable mix of part sales in both segments , and improved absorption of fixed costs , lower raw material costs and labor efficiencies in the t/a fibers segment . net income was $ 21.8 million , or $ 1.28 per diluted share , compared to $ 19.2 million , or $ 1.14 per diluted share in 2013 ; cash generated from operations was $ 41.6 million in 2014 compared to $ 30.3 million in 2013 , the increase primarily a result of increased net income adjusted for non-cash items , in 2014 compared to 2013 , offset to some extent by increased working capital requirements . other matters on february 18 , 2014 , the company amended and restated its $ 35 million senior secured revolving domestic credit facility to increase the available borrowing under this agreement to $ 100 million . the amended credit facility , secured by substantially all of the assets of the company , has a maturity date of january 31 , 2019 and was completed with the same financial institution as well as two additional financial institutions . the company entered into this amended credit facility in part to fund $ 60 million of the purchase price of the acquisition , as well as provide the company with greater borrowing flexibility , more favorable interest rates and financial covenants . as of december 31 , 2014 , the company had outstanding borrowings under this credit facility of $ 40 million , and a consolidated leverage ratio of 0.7. on january 30 , 2015 , the company sold all of the outstanding shares of common stock of its vital fluids business for a cash purchase price of $ 29.9 million , subject to a customary post-closing adjustment ( the “ disposition ” ) . the disposition was completed pursuant to a stock purchase and sale agreement , dated january 30 , 2015 , by and among the company , and the buyer . story_separator_special_tag million , or 5.1 % , in 2013 compared to 2012 , due to decreased sales volumes offset to some extent by the positive impact of foreign currency translation of $ 1.1 million or 0.9 % . a reduction in filtration net sales of $ 3.6 million , or 5.3 % , primarily contributed to the reduction in segment net sales as demand for products in europe was lower due to macroeconomic conditions . net sales in the thermal insulation business decreased by $ 1.5 million , including $ 4.5 million of lower net sales in 2013 of electrical papers products . the company completed in 2012 its obligation to manufacture and sell these products , pursuant to an agreement with the buyer of this product line in a prior year . this reduction was partially offset by higher net sales of other thermal insulation products of $ 3.0 million , including greater demand for products used to transport cryogenic products and insulate commercial buildings . net sales of life sciences filtration products decreased by $ 0.9 million , or 7.9 % , in 2013 compared to 2012 due to decreased demand for products used in water and respiration application products . the performance materials segment reported operating income of $ 9.5 million , or 8.4 % of net sales in 2013 , compared to operating income of $ 10.4 million , or 8.8 % of net sales in 2012. operating income in 2012 included a $ 0.8 million gain from services provided to the buyer of the electrical papers product line in accordance with the terms of a license agreement , which expired june 30 , 2012. operating income in 2013 was essentially flat with 2012 when excluding this gain of $ 0.8 million from 2012. during 2013 , the impact of lower sales volume , unfavorable absorption of fixed overhead costs and unfavorable product mix on operating income was nearly offset by lower selling , product development and administrative expenses of $ 2.0 million , or 10.6 % , in 2013 compared to 2012 , primarily due to cost containment measures . the segment reported lower general administrative expenses of $ 0.9 million , lower salaries , benefits and accrued incentive compensation of $ 0.6 million , and reductions in research and development expenses of $ 0.4 million . the reduction in general administrative expenses of $ 0.9 million was primarily related to a loss on 24 disposal of assets in 2012 , lower amortization of intangible assets , lower professional services and lower travel expenses in 2013 compared to 2012. industrial filtration segment segment net sales were $ 112.2 million from the acquisition date of february 20 , 2014 through december 31 , 2014. approximately 50 % of net sales in this segment were manufactured at industrial filtration sites in north america with the remaining net sales split nearly evenly between manufacturing sites in europe and asia . the industrial filtration segment reported operating income of $ 6.4 million , or 5.7 % of net sales from the acquisition date through december 31 , 2014 , which included the impact of purchase accounting adjustments in cost of sales related to inventory step-up of $ 2.1 million negatively impacting operating margin by 180 basis points . there were no comparative results for the year ended december 31 , 2013 as the industrial filtration segment was created through the acquisition of that business on february 20 , 2014. thermal/acoustical metals segment segment net sales increased by $ 5.9 million , or 3.7 % , in 2014 compared to 2013. foreign currency translation positively impacted net sales by $ 0.1 million , or 0.1 % , in 2014 compared to 2013. automotive parts net sales increased by $ 9.3 million , or 6.8 % , in 2014 compared to 2013 , primarily due to increased demand from customers served by the company 's north american and european automotive operations and to a lesser extent , parts sales in china as the company 's new manufacturing facility began production in 2014. market conditions in north america have continued to remain favorable and improved in europe which led to increased sales volumes . tooling net sales in 2014 were lower by $ 3.4 million , or 15.3 % , due to timing of new product launches , particularly in europe . the thermal/acoustical metals segment reported operating income of $ 13.8 million , or 8.4 % of net sales , in 2014 compared to $ 14.1 million , or 8.9 % of net sales , in 2013. the decrease in operating income was due to an increase in selling , product development and administrative costs of $ 3.5 million in 2014 compared to 2013. this increase was primarily related to higher sales commission expenses of $ 1.9 million , largely the result of a $ 2.9 million commission settlement expense in the second quarter of 2014 associated with the termination of a long-standing commercial sales agreement in europe . also , increases in salaries and benefits expense of $ 0.5 million , professional service expenses of $ 0.4 million , primarily legal expenses associated with the on-going german federal cartel investigation , and other increases in selling expenses contributed to the overall increase in expenses . this increase in selling , general and administrative costs was offset to some extent by an increase in gross profit of $ 3.2 million , primarily in north america and europe , due to increased sales volume and a favorable mix of sales of automotive parts . this increased gross profit was offset to some extent by higher production costs , primarily related to sourcing raw material in china as the company began production operations in 2014. segment net sales increased by $ 4.5 million , or 2.9 % , in 2013 compared to 2012. foreign currency translation positively impacted net sales by $ 2.7 million , or 1.8 % , in 2013 compared to 2012.

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net cash provided by operating activities in 2014 was $ 41.6 million compared with $ 30.3 million in 2013 . this increase was primarily due to increases in net income of $ 2.7 million and non-cash adjustments to net income of $ 10.4 million . net operating assets and liabilities increased $ 6.4 million in 2014 , compared to an increase in operating assets and liabilities of $ 4.7 million in 2013 . the increase in operating assets and liabilities in 2014 was due to an increase in accounts receivable of $ 7.2 million primarily due to the addition of the industrial filtration segment . prepaid expenses and other assets and taxes receivable increased $ 6.4 million in 2014 , partially offset by a decrease in inventory $ 4.5 million in 2014 , due to lower inventory days on hand from improvements within the industrial filtration business . further offsetting the increase in operating assets and liabilities in 2014 was a $ 3.3 million increase in accrued payroll and other compensation mainly due to higher accruals related to the company 's incentive bonus program and health benefits . net cash provided by operating activities in 2013 was $ 30.3 million compared with $ 34.4 million in 2012. this decrease was primarily due to an increase in operating assets and liabilities of $ 4.7 million in 2013 , compared to a decrease in operating assets and liabilities of $ 3.0 million in 2012 , for a change of $ 7.7 million , partially offset by improvement in net income of $ 2.3 million .

the fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories ( highest to lowest priority ) : level 1 : observable inputs that reflect quoted prices ( unadjusted ) for identical assets or liabilities in active markets ; level 2 : inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly ; and level 3 : unobservable inputs that are significant to the overall fair value measurement . the company 's financial instruments that are recorded at fair value generally are classified within level 1 or level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers . financial instruments classified within level 1 are valued based on quoted market prices in active markets and consist of u.s. government , federal agency , and sovereign government obligations , corporate equities , and certain money market instruments . level 2 financial instruments primarily consist of investment grade and high-yield corporate debt , convertible bonds , mortgage and asset-backed securities , municipal obligations , and certain money market instruments . financial instruments classified as level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active . some financial instruments are classified within level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability . such financial instruments include investments in hedge funds and private equity funds where the company , through its subsidiaries , is general partner ; less-liquid private label mortgage and asset-backed securities ; certain distressed municipal securities ; interest rate lock commitments where omhhf enters into contractual commitments to originate ( purchase ) and sell multifamily mortgage loans at fixed prices with fixed expiration dates ; and auction rate securities . 35 legal and regulatory reserves the company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities . the determination of the amounts of these reserves requires significant judgment on the part of management . in accordance with applicable accounting guidance , the company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the company can reasonably estimate the amount of that loss . when loss contingencies are not probable and can not be reasonably estimated , the company does not establish reserves . when determining whether to record a reserve , management considers many factors including , but not limited to , the amount of the claim ; the stage and forum of the proceeding , the sophistication of the claimant , the amount of the loss , if any , in the client 's account and the possibility of wrongdoing , if any , on the part of an employee of the company ; the basis and validity of the claim ; previous results in similar cases ; and applicable legal precedents and case law . each legal and regulatory proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management . any change in the reserve amount is recorded in the results of that period . the assumptions of management in determining the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount . goodwill the company defines a reporting unit as an operating segment . the company 's goodwill resides in its private client division ( `` pcd `` ) reporting unit . goodwill of a reporting unit is subject to at least an annual test for impairment to determine if the estimated fair value of a reporting unit is less than its carrying amount . goodwill of a reporting unit is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . due to the volatility in the financial services sector and equity markets in general , determining whether an impairment of goodwill has occurred is increasingly difficult and requires management to exercise significant judgment . the company 's goodwill impairment analysis performed at december 31 , 2015 applied the same valuation methodologies with consistent inputs as that performed at december 31 , 2014 , as follows : in estimating the fair value of the pcd , the company uses traditional standard valuation methods , including the market comparable approach and income approach . the market comparable approach is based on comparisons of the subject company to public companies whose stocks are actively traded ( `` price multiples `` ) or to similar companies engaged in an actual merger or acquisition ( `` precedent transactions `` ) . as part of this process , multiples of value relative to financial variables , such as earnings or stockholders ' equity , are developed and applied to the appropriate financial variables of the subject company to indicate its value . the income approach involves estimating the present value of the subject company 's future cash flows by using projections of the cash flows that the business is expected to generate , and discounting these cash flows at a given rate of return ( `` discounted cash flow `` or `` dcf `` ) . each of these standard valuation methodologies requires the use of management estimates and assumptions . in its price multiples valuation analysis , the company uses various operating metrics of comparable companies , including revenues , after-tax earnings , ebitda as well as price-to-book value ratios at a point in time . story_separator_special_tag the ceo of the company is required to make such a certification on an annual basis and did so in march 2015. on july 30 , 2013 , the sec adopted final amendments to the financial responsibility rules ( `` frrs `` ) and reporting rules under sec rule 17a-5 ( `` reporting rule `` ) for broker-dealers . the final amendments to the frrs make changes to the rules related to proprietary accounts for broker-dealers , special reserve deposits with banks , bank sweep programs , deductions from net worth , solvency requirements , the sec 's ability to restrict withdrawals of capital , books and records requirements , and notifications to regulators . the rules became effective on march 3 , 2014 except for the reporting rule which became effective on december 31 , 2013. the reporting rule requires all broker-dealers to file a new unaudited quarterly form custody report which provides information around custodial practices . in addition , the new reporting rule provides significant changes to annual reporting of broker-dealers by eliminating the internal control report referred to as the material inadequacy letter , and providing for a new compliance report asserting the effectiveness of internal controls for compliance with net capital , customer reserve formula , quarterly security count , and customer account statements . also , the reporting rule makes changes to the audit and attestation requirements for auditor reporting from american institute of certified public accountants ( `` aicpa `` ) standards to public 39 company accounting oversight board ( `` pcaob `` ) standards as well as provides the sec with access to auditors and audit workpapers . these rules are effective for fiscal years ending on or after june 1 , 2014. on may 14 , 2013 , the committee of sponsoring organizations of the treadway commission ( coso ) released an updated version of its internal control – integrated framework ( the `` 2013 framework `` ) , which supersedes the original framework that was developed in 1992. the company adopted the 2013 framework on december 15 , 2014 as a basis for their compliance with the sarbanes-oxley act of 2002. in september 2015 , finra released regulatory notice 15-33 which provides guidance on effective liquidity risk management strategies . based on the guidelines , broker-dealers are expected to rigorously evaluate their liquidity needs related to both market wide stress and idiosyncratic stresses , devote sufficient resources to measuring risks applicable to its business and report the results of measurement to senior management . this would include a review for what those risks might be based on historical events that have affected the firm or other firms and stresses that could occur but have not yet been observed . additionally , based on the guidelines , every broker-dealer needs to consider developing contingency plans for addressing those risks so that the firm will have sufficient liquidity to operate after the stress occurs while continuing to protect all customer assets , conduct stress tests and other reviews to evaluate the effectiveness of the contingency plans , have a training plan for its staff and have tested processes on which it intends to rely if such stresses occur . the company is reviewing these guidelines and plans to assess them in the context of its current liquidity risk management strategies and will make any necessary enhancements to its procedures upon the conclusion of its review . other regulatory matters on february 19 , 2015 , the board of directors of the company ( the `` board `` ) formed a special committee of the board ( the `` special committee `` ) in order to engage an independent law or consulting firm to conduct a review of oppenheimer and oam 's broker-dealer and investment adviser compliance processes and related internal controls and governance processes and provide recommendations to the special committee on how to improve any of the foregoing . on february 19 , 2015 , the special committee agreed to engage an independent law firm to conduct the aforementioned review . on april 22 , 2015 , the special committee agreed to retain kalorama partners llp to act as the independent law firm . in july 2015 , the company created a compliance committee made up of independent directors to oversee the company 's compliance with applicable rules and regulations . as part of its engagement , the company agreed that the recommendations of the independent law firm be shared with the sec . moreover , oppenheimer and oam have agreed to adopt recommendations made by the independent law firm . the company has implemented a number of recommendations made by the independent law firm . however , as of december 31 , 2015 , the independent law firm was continuing its review . for several quarters , oppenheimer has been responding to information requests from finra regarding the sale of leveraged and inverse exchange traded funds ( `` etfs `` ) . a number of oppenheimer employees have provided on-the-record testimony in connection with the finra inquiry . the company believes that finra may file a complaint against the company in connection with the investigation . since early 2014 , oppenheimer has been responding to information requests from finra regarding the supervision of one of its former financial advisers who was indicted by the united states attorney 's office for the district of new jersey in march 2014 on allegations of insider trading . in august 2014 , oppenheimer received information requests from the sec regarding supervision of the same financial adviser . a number of oppenheimer employees have provided on-the-record testimony in connection with the sec inquiry . oppenheimer is continuing to cooperate with both the finra and sec inquiries . since january 2016 , oppenheimer has been responding to information requests from finra regarding the sale of class a mutual fund shares to charitable organizations and certain qualified retirement plans . oppenheimer is continuing to cooperate with finra

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liquidity for the most part , the company 's assets consist of cash and cash equivalents and assets which can be readily converted into cash . receivable from brokers , dealers and clearing organizations represents deposits for securities borrowed transactions , margin deposits or current transactions awaiting settlement . receivable from customers represents margin balances and amounts due on transactions awaiting settlement . the company 's receivables are , for the most part , collateralized by marketable securities . the company 's collateral maintenance policies and procedures are designed to limit the company 's exposure to credit risk . securities owned , with the exception of the ars , are mainly comprised of actively trading , readily marketable securities . the company advanced $ 13.8 million in forgivable notes to employees ( which are inherently illiquid ) for the year ended december 31 , 2015 ( $ 12.0 million for the year ended december 31 , 2014 ) as upfront or backend inducements . the amount of funds allocated to such inducements will vary with hiring activity . the company satisfies its need for short-term liquidity from internally generated funds , collateralized and uncollateralized bank borrowings , stock loans and repurchase agreements and warehouse facilities . bank borrowings are collateralized by firm and customer securities . in addition , letters of credit are issued in the normal course of business to satisfy certain collateral requirements in lieu of depositing cash or securities . the company does not repatriate the earnings of its foreign subsidiaries . foreign earnings are permanently reinvested for the use of the foreign subsidiaries and therefore these foreign earnings are not available to satisfy the domestic liquidity requirements of the company .

currently , there are 22 non-producing mineral leases covering approximately 2,078 gross acres , or 714 net acres . the company believes that some of these leases will be drilled and production discovered as oil and gas prices are projected to increase as the national economy improves . the company expects timber prices to remain depressed in 2012 due to a continued weak housing market . we do expect timber revenue to remain flat as we perform our maintenance programs during 2012. we are unaware of any changing trends in our agriculture operations and expect agriculture income to remain flat in 2012. story_separator_special_tag bold `` > management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( “ icfr ” ) for the company . in assessing the company 's icfr , management follows the committee of sponsoring organizations of the treadway commission 's ( “ coso ” ) internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) in assessing the effectiveness of the company 's icfr . management shall determine icfr ineffective if a material weakness exists in the controls . due to the company 's management inability to assess walker louisiana properties ' icfr and lack of compensating controls , management has assessed the company 's icfr as ineffective as of december 31 , 2011. the company owns a one-sixth interest in wlp and wlp 's activities are material to the company . wlp prepares cash basis interim financial statements and audited gaap basis financial statements at year end . at report date , we have not identified a plan or process to remediate the ineffectiveness of the icfr . this annual report does not include an attestation report of the company 's registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to temporary rules of the securities and exchange commission that permit the company to provide only management 's report in this annual report . during the quarter ending december 31 , 2011 , the company 's management followed the coso internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) when assessing the icfr . during the quarter ending december 31 , 2011 , there have been no changes in the company 's internal control over financial reporting that has materially affected or is reasonably likely to affect , the company 's internal control over financial reporting . item 9b . other information none . 8 part iii item 10. directors , executive officers , promoters and control persons ; compliance with section 16 ( a ) of the exchange act the information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant joseph k. cooper 68 president , chief executive officer and director brian r. jones 51 treasurer , chief financial officer and director charles d. viccellio 78 vice president , secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations joseph k. cooper president and chief executive officer of ckx lands , inc. since 2008 and 2009 , respectively ; manager of walker louisiana properties , vice president and operations manager of prairie land co. brian r. jones treasurer and chief financial officer of ckx lands , inc. since december 1 , 2006 ; managing member of brian r. jones cpa , llc . charles d. viccellio vice-president and secretary of the company since 1997 and director of the company since 1996 ; attorney in the law firm of stockwell , sievert , viccellio , clements & shaddock , llp . there are no family relationships between any of our directors , except mrs. leach and mrs. werner are mother and daughter , and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 . 9 item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and services the information required by item 14 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 10 part iv item 15. story_separator_special_tag currently , there are 22 non-producing mineral leases covering approximately 2,078 gross acres , or 714 net acres . the company believes that some of these leases will be drilled and production discovered as oil and gas prices are projected to increase as the national economy improves . the company expects timber prices to remain depressed in 2012 due to a continued weak housing market . we do expect timber revenue to remain flat as we perform our maintenance programs during 2012. we are unaware of any changing trends in our agriculture operations and expect agriculture income to remain flat in 2012. story_separator_special_tag bold `` > management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( “ icfr ” ) for the company . in assessing the company 's icfr , management follows the committee of sponsoring organizations of the treadway commission 's ( “ coso ” ) internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) in assessing the effectiveness of the company 's icfr . management shall determine icfr ineffective if a material weakness exists in the controls . due to the company 's management inability to assess walker louisiana properties ' icfr and lack of compensating controls , management has assessed the company 's icfr as ineffective as of december 31 , 2011. the company owns a one-sixth interest in wlp and wlp 's activities are material to the company . wlp prepares cash basis interim financial statements and audited gaap basis financial statements at year end . at report date , we have not identified a plan or process to remediate the ineffectiveness of the icfr . this annual report does not include an attestation report of the company 's registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to temporary rules of the securities and exchange commission that permit the company to provide only management 's report in this annual report . during the quarter ending december 31 , 2011 , the company 's management followed the coso internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) when assessing the icfr . during the quarter ending december 31 , 2011 , there have been no changes in the company 's internal control over financial reporting that has materially affected or is reasonably likely to affect , the company 's internal control over financial reporting . item 9b . other information none . 8 part iii item 10. directors , executive officers , promoters and control persons ; compliance with section 16 ( a ) of the exchange act the information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant joseph k. cooper 68 president , chief executive officer and director brian r. jones 51 treasurer , chief financial officer and director charles d. viccellio 78 vice president , secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations joseph k. cooper president and chief executive officer of ckx lands , inc. since 2008 and 2009 , respectively ; manager of walker louisiana properties , vice president and operations manager of prairie land co. brian r. jones treasurer and chief financial officer of ckx lands , inc. since december 1 , 2006 ; managing member of brian r. jones cpa , llc . charles d. viccellio vice-president and secretary of the company since 1997 and director of the company since 1996 ; attorney in the law firm of stockwell , sievert , viccellio , clements & shaddock , llp . there are no family relationships between any of our directors , except mrs. leach and mrs. werner are mother and daughter , and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 . 9 item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and services the information required by item 14 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 10 part iv item 15.

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liquidity and capital resources the company 's current assets and securities available-for-sale totaled $ 4,917,578 and total liabilities equaled $ 333,052 at december 31 , 2011. additional sources of liquidity include the company 's certificates of deposits and an available bank line of credit for $ 1,000,000 . 5 in the opinion of management , current cash flow from operations , cash and cash equivalents , investments and the available line of credit are adequate for projected operation , possible land purchases and continuation of the regular cash dividend . critical accounting policies the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . the most significant accounting estimates inherent in the preparation of our financial statements include the following items : our accounts receivable consist of incomes received after year end for royalties produced prior to year end . when there are royalties that have not been received at the time of the preparation of the financial statements for months in the prior year , we estimate the amount to be received based on the last month 's royalties that were received from that particular company . we do not maintain an allowance for doubtful accounts because we can confirm virtually all receivables before they are booked as income . the company accounts for income taxes in accordance with asc topic 740 , income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities . when land is purchased with standing timber , the cost is divided between land and timber based on timber cruises contracted by the company . reforestation costs are capitalized and added to the timber asset account .

in an effort to maintain our long-term strategy of being the leading provider of talent management solutions , our strategic focus for fiscal 2012 centers upon enhancing the integration of our multi-service strategy . we plan to continue to address areas of increasing client demand , including rpo and ltc . we further plan to explore new products and services , continue to pursue a disciplined acquisition strategy , enhance our technology and processes and aggressively leverage our brand through thought leadership and intellectual capital projects as a means of delivering world-class service to our clients . fee revenue increased $ 171.9 million in fiscal 2011 to $ 744.3 million compared to $ 572.4 million fiscal 2010 , with increases in fee revenue in all regions of executive recruitment and futurestep . the north america region in executive recruitment experienced the largest dollar increase in fee revenue . during fiscal 2011 , we recorded consolidated operating income of $ 85.8 million , with the executive recruitment and futurestep segments contributing $ 111.4 million and $ 5.0 million , respectively , offset by corporate expenses of $ 30.6 million . this represents an increase of $ 88.5 million in fiscal 2011 , from an operating loss of $ 2.7 million in fiscal 2010. our cash , cash equivalents and marketable securities increased by $ 72.6 million , or 24 % , to $ 369.1 million at april 30 , 2011 compared to $ 296.5 million at april 30 , 2010 , mainly due to cash provided by operating activities , partially offset by bonuses earned in fiscal 2010 , which were paid in fiscal 2011. as of april 30 , 2011 , we held marketable securities , to settle obligations under our executive capital accumulation plan ( “ecap” ) , with a cost value of $ 64.7 million and a fair value of $ 71.4 million . our working capital increased by $ 24.9 million in fiscal 2011 to $ 207.7 million . we believe that cash on hand and funds from operations will be sufficient to meet our anticipated working capital , capital expenditures and general corporate requirements in the next twelve months . we had neither long-term debt nor any outstanding borrowings under our credit facility at april 30 , 2011. under our credit facility , we are required to maintain $ 10.0 million on account with the lender , and provides collateral for the standby letters of credit and potential future borrowings . as of april 30 , 2011 , we had $ 2.9 million of standby letters of credit issued under our facility . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . preparation of this annual report on form 10-k requires us to make estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period . actual results may differ from those estimates and assumptions and changes in the estimates are reported in current operations . in preparing our consolidated financial statements and accounting for the underlying transactions and balances , we apply our accounting policies as disclosed in the notes to our consolidated financial statements . we consider the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management 's judgment . specific risks for these critical accounting policies are described in the following paragraphs . senior management has discussed the development and selection of the critical accounting estimates with the audit committee of the board of directors . revenue recognition . management is required to establish policies and procedures to ensure that revenue is recorded over the performance period for valid engagements and related costs are matched against such revenue . we provide recruitment services on a retained basis and generally bill clients in three monthly installments . fees earned in excess of the initial contract amount are billed upon completion of the engagement , which reflects the final actual compensation of the placed executive . since the fees are generally not contingent upon placement of a candidate , our assumptions primarily relate to establishing the period over which such service is performed . these assumptions determine the timing of revenue recognition and profitability for the reported period . if these assumptions do not accurately reflect the period over which revenue is earned , revenue and profit could differ . any services that are provided on a contingent basis are recognized once the contingency is fulfilled . fee revenue from ltc services is recognized as earned . furthermore , a provision for doubtful accounts on recognized revenue is established with a charge to general and administrative expenses based on historical loss experience , assessment of 22 the collectability of specific accounts , as well as expectations of future collections based upon trends and the type of work for which services are rendered . annual incentive compensation . each quarter , management records its best estimate of its annual incentive compensation , which on a quarterly basis requires management to , among other things , project annual consultant productivity ( as measured by engagement fees billed and collected by that consultant ) , our performance , competitive forces and future economic conditions and their impact on our results . at the end of each fiscal year , bonuses paid take into account final individual consultant productivity , our results , the achievement of strategic objectives and the results of individual performance appraisals , as determined by management , and the current economic landscape . changes in any of the assumptions underlying the quarterly bonus accrual may significantly impact the compensation and benefits liability on our balance sheet and related compensation and benefits cost on our statement of operations . story_separator_special_tag futurestep operating income as a percentage of fee revenue was 5 % in fiscal 2011 as compared to 2 % in fiscal 2010. other income , net other income , net decreased by $ 3.7 million , to $ 6.4 million in fiscal 2011 compared to $ 10.1 million in fiscal 2010. the decrease is primarily due to lower net gains on marketable securities classified as trading in fiscal 2011 as compared to fiscal 2010. the decrease in other income , net includes a $ 3.5 million decrease in gains in the market value of mutual funds held in trust for settlement of our obligations under certain deferred compensation plans ( see note — 5 marketable securities , in the notes to our consolidated financial statements ) . partially offsetting this decline in market value gains was a decrease in the related deferred compensation retirement plan liabilities of $ 1.9 million , which is included in compensation and benefit expense . 27 interest expense , net interest expense , net primarily relates to borrowings under our coli policies , which is partially offset by interest earned on cash and cash equivalent balances . interest expense , net was $ 2.5 million in fiscal 2011 as compared to $ 2.6 million in fiscal 2010. income taxes provision ( benefit ) the provision for income taxes was $ 32.7 million in fiscal 2011 compared to a benefit for income taxes of $ 0.5 million in fiscal 2010. the provision for income taxes in fiscal 2011 reflects a 36 % effective tax rate , compared to a 10 % tax benefit for fiscal 2010. the effective tax rate in fiscal 2011 is higher when compared to the effective tax rate in fiscal 2010 , as we recorded higher income before provision for income taxes during fiscal 2011 compared to fiscal 2010. the effective tax rate for fiscal 2011 is lower when compared to a normalized effective tax rate as we recorded a $ 2.1 million reversal of a liability related to a state tax provision taken in 2004 due to the state statue expiring . in addition , in fiscal 2010 , we recorded a $ 10.3 million reversal of a liability related to a federal tax position taken in fiscal 2004 , offset by an additional provision of $ 7.5 million for the tax impact of future repatriations of cash dividends and additional valuation allowances on the company 's current inventory of foreign tax credit carryforwards . equity in earnings of unconsolidated subsidiaries , net equity in earnings of unconsolidated subsidiary , net is comprised of our less than 50 % interest in our mexican subsidiary . we report our interest in earnings or loss of our mexican subsidiary on the equity basis as a one-line adjustment to net income ( loss ) , net of taxes . equity in earnings was $ 1.9 million in fiscal 2011 compared to $ 0.1 million in fiscal 2010. fiscal 2010 compared to fiscal 2009 fee revenue fee revenue . fee revenue decreased $ 65.8 million , or 10 % , to $ 572.4 million in fiscal 2010 compared to $ 638.2 million in fiscal 2009. excluding fee revenue of approximately $ 40 million in fiscal 2010 from the acquisition of whitehead mann and sensa solutions , fee revenue would have been $ 532.4 million in fiscal 2010 , a decrease of $ 105.8 million , or 17 % as compared to fiscal 2009. the decrease in fee revenue , excluding fee revenue from these fiscal 2010 acquisitions , was primarily attributable to an 8 % decrease in the weighted-average fees billed per engagement during fiscal 2010 as compared to fiscal 2009 and an 8 % decrease in the number of executive search engagements billed during the same period , both of which were driven by the depressed global economic conditions in the second half of fiscal 2009 and the first half of fiscal 2010 , which continue to have an impact on many of our client 's people initiatives . exchange rates favorably impacted fee revenues by $ 4.4 million in fiscal 2010. executive recruitment . executive recruitment reported fee revenue of $ 504.4 million , a decrease of $ 38.9 million , or 7 % , in fiscal 2010 compared to $ 543.3 million in fiscal 2009. the decline in executive recruitment fee revenue was due to a 7 % decrease in the average fees billed per engagement in fiscal 2010 as compared to fiscal 2009 and a 1 % decrease in the number of engagements billed during the same period . exchange rates favorably impacted fee revenues by $ 2.7 million in fiscal 2010. north america reported fee revenue of $ 278.8 million , a decrease of $ 30.7 million , or 10 % , in fiscal 2010 compared to $ 309.5 million in fiscal 2009 primarily due to a 6 % decrease in the average fees billed per engagement in the region during fiscal 2010 as compared to fiscal 2009 and a 4 % decrease in the number of engagements billed during the same period . the overall decline in fee revenue was driven by declines in fee revenue in the industrial , consumer goods and healthcare sectors . exchange rates favorably impacted north america fee revenue by $ 1.5 million in fiscal 2010. emea reported fee revenue of $ 137.5 million , a decrease of $ 5.7 million , or 4 % , in fiscal 2010 compared to $ 143.2 million in fiscal 2009. emea 's decrease in fee revenue was driven by a 10 % decrease in average fees billed per engagement in fiscal 2010 as compared to fiscal 2009 , offset by a 6 % increase in the number of engagements billed during the same period . the performance in existing offices in the netherlands , italy , united arab emirates 28 and germany were the primary contributors to the decrease in fee revenue in fiscal 2010 in

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liquidity and capital resources our performance is subject to the general level of economic activity in the geographic regions and industries in which we operate . the economic activity in those regions and industries has shown improvement in 2011 but further recovery may be gradual . if the national or global economy or credit market conditions in general were to deteriorate further in the future , it is possible that such changes could put additional negative pressure on demand for our services and affect our cash flows . although global economic conditions and demand for our services continued to show signs of improvement during fiscal 2011 , the demand for executive searches remains slightly below its peak level of 2008. in response to the uncertain economic environment and labor markets , and in an effort to retain positive cash flows , we took steps to align our cost structure with anticipated revenue levels in fiscal 2009 and fiscal 2010. future adverse changes in our revenue , could require us to institute cost cutting measures . to the extent our efforts are insufficient , we may incur negative cash flows , and if such conditions were to persist over an extended period of time , it might require us to obtain financing to meet our capital needs . we believe that our cash on hand and funds from operations will be sufficient to meet anticipated working capital , capital expenditures and general corporate requirements during the next twelve months . cash and cash equivalents and marketable securities were $ 369.1 million and $ 296.5 million as of april 30 , 2011 and 2010 , respectively . cash and cash equivalents consisted of cash and highly liquid investments purchased with original maturities of three months or less . marketable securities consist of mutual funds and investments in corporate bonds , u.s. treasury and agency securities and commercial paper . the primary objectives of the mutual funds are to meet the obligations under certain of our deferred compensation plans , while the other securities are available for general corporate purposes .

- 82 - we plan to ( i ) continue investing in our infrastructure , including but not limited to solution development , sales and marketing , implementation and support , ( ii ) continue efforts to make infrastructure investments within an overall context of maintaining reasonable expense discipline , ( iii ) add new clients through maintaining and expanding sales , marketing and solution development activities , ( iv ) expand our relationships with existing clients through delivery of add-on and complementary solutions and services and ( v ) continue our commitment of service in support of our client satisfaction programs . 2020 acquisition of the opennms group , inc. on july 22 , 2020 , we entered into an assignment agreement ( the “ assignment agreement ” ) with cambridge to acquire approximately 91 % of opennms for $ 5.6 million in cash . contemporaneously with the closing of the assignment agreement , opennms issued call options to the company consisting of , when exercised , cash payment of $ 0.3 million and issuance of 56,769 shares of the company 's common stock in exchange for the 9 % of the shares of opennms common stock held by the remaining shareholders . these call options expired unexercised on september 30 , 2020. covid-19 pandemic in march 2020 , the world health organization declared the novel coronavirus ( covid-19 ) a pandemic . in the same month , the president of the united states declared a state of national emergency due to the covid-19 outbreak . many jurisdictions , particularly in north america ( including the united states ) , europe and asia , as well as u.s. states in which we operate , including california , have adopted or are considering laws , rules , regulations or decrees intended to address the covid-19 outbreak , including implementing travel restrictions , closing non-essential businesses and or restricting daily activities . in addition , many communities have limited , and are considering to further limit , social mobility and gathering . to date , there has been no material adverse impact to our business from the covid-19 pandemic . given the unprecedented and evolving nature of the pandemic , the future impact of these changes and potential changes on the company and our contractors , consultants , customers , resellers and partners is unknown at this time . however , in light of the uncertainties regarding economic , business , social , health and geopolitical conditions , our revenues , earnings , liquidity , and cash flows could be adversely affected , whether on an annual or quarterly basis . continued impacts of the covid-19 pandemic could materially adversely affect our current and long-term account receivable collectibility , as our negatively impacted customers from the pandemic may request temporary relief , delay , or not make scheduled payments . in addition , the deployment of our solutions may represent a large portion of our customers ' investments in software technology . decisions to make such an investment are impacted by the economic environment in which the customers operate . uncertain global geopolitical , economic and health conditions and the lack of visibility or the lack of financial resources may cause some customers to reduce , postpone or terminate their investments , or to reduce or not renew ongoing paid services , adversely impacting our revenues or timing of revenue . health conditions in some geographic areas where our customers operate could impact the economic situation of those areas . these conditions , including the covid-19 pandemic , may present risks for health and limit the ability to travel for our employees , which could further lengthen our sales cycle and delay revenue and cash flows in the near-term . for information on the cares act , refer to note 15 to the accompanying consolidated financial statements . 2020 sale of the connected care business on january 13 , 2020 , we entered into an asset purchase agreement ( the “ purchase agreement ” ) with masimo corporation ( “ masimo ” ) , vccb holdings , inc. , a wholly owned subsidiary of masimo ( collectively with masimo , the “ purchaser ” ) , and , solely with respect to certain provisions of the purchase agreement , nantworks , llc , an affiliate of ours . pursuant to the purchase agreement , we agreed to sell to the purchaser certain of our assets related to our “ connected care ” business , including the products known as dcx ( formerly deviceconx ) , vcx ( formerly vitalsconx ) , hbox and shuttle cable ( collectively , the “ connected care business ” ) . on february 3 , 2020 , we completed the sale of the connected care business for $ 47.3 million of cash consideration in exchange for assets primarily related to the connected care business ( as defined under the terms of the purchase agreement ) . the cash consideration is subject to adjustment based upon the final amount of working capital as of the closing date . the sale of the connected care business qualified as a discontinued operation because it comprised operations and cash flows that could be distinguished , operationally and for financial reporting purposes , from the rest of the company . the disposal of the connected care business represented a strategic shift in our operations as the sale enables us to focus on molecular analysis , clinical decision support , payer engagement , and data analytics . - 83 - evolution of gps cancer test platform nanthealth and nantomics ( our technology partner for the gps cancer test ) are continually taking steps to optimize the utility and value of our tests for physicians and their patients . story_separator_special_tag molecular analysis revenue categories . total software-related revenue increased by $ 0.1 million , or 0.2 % , for the year ended december 31 , 2020 , compared to the prior year period . the increase is related to higher maintenance and professional services revenue due to the acquisition of opennms ( see note 19 to the accompanying consolidated financial statements ) and was partially offset by a decrease in saas revenue of $ 0.6 million . the decrease in saas revenue was driven by a $ 3.7 million decrease in navinet revenue related to lower membership , lower professional services implementation amortization , and promotional activities related to the covid-19 pandemic in the second quarter of 2020 , partially offset by higher revenues of $ 3.1 million from our eviti platform solutions due to a combination of new customers and increased covered lives on existing customers . one of our navinet customers representing approximately 14.9 % and 12.9 % of our total revenue for the years ended december 31 , 2020 and 2019 , respectively , did not renew its contract . while the contract expired in january 2021 , the customer has requested that we continue to provide our saas services and transition assistance through at least june 30 , 2021. further , we continue to engage in discussions with the customer regarding supplemental services and business opportunities that may extend beyond the service termination date . customer churn is a natural part of our business and , while there is no guarantee that we will be able to offset the loss of this customer in the short term , we continue to develop new product enhancements and offerings to help drive customer acquisition and expansion opportunities to replace this lost revenue in the long term . sequencing and molecular analysis revenue decreased $ 1.5 million , or 87.8 % , from $ 1.7 million for the year ended december 31 , 2019 to $ 0.2 million for the year ended december 31 , 2020. this decrease reflected lower volume of gps samples sequenced and recognized as we moved to a cash basis model until full cms billing can be established . currently , we recognize revenue from customers with executed contracts , and from customers without a contractual agreement where we recognize revenue on a cash basis given the uncertainty over reimbursement . as we gain additional insurance coverage , including coverage under government insurance programs , we expect to be able to reduce the portion of sequencing and molecular analysis revenue which is recognized on a cash basis . in may 2020 , we received notice of molecular diagnostic services coverage for omics core , which opens the path for us to receive coverage of advanced diagnostic laboratory testing at our full listing price . home health care services revenue decreased $ 2.9 million , or 100.0 % , for the year ended december 31 , 2020 as compared to the prior year period . this decrease was due to the sale of our home health care services business in june 2019. we believe that significant opportunities exist for expanded cross-selling across our products and across our existing customer base , including eviti , navinet , and opennms customer bases . we also believe that our customer base and our product solutions provide unique opportunities to expand the volume of gps cancer analysis reporting to our customer base . - 91 - cost of revenue replace_table_token_5_th comparison of the years ended december 31 , 2020 and 2019 cost of revenue decreased $ 4.9 million , or 14.4 % , from $ 34.1 million in the year ended december 31 , 2019 to $ 29.2 million for the year ended december 31 , 2020. the decrease is related to declines in the sequencing and molecular analysis and home health care services categories . total software-related cost of revenue was essentially flat from $ 28.1 million in the year ended december 31 , 2019 to $ 28.2 million for the year ended december 31 , 2020. saas related cost of revenue was flat due to higher personnel costs related to the timing of project implementations fully offset by lower capitalization of labor costs associated with development of internal-use software . amortization of developed technology increased by $ 0.1 million related to the acquisition of opennms ( see note 19 to the accompanying consolidated financial statements ) . sequencing and molecular analysis cost of revenue decreased $ 3.5 million , or 77.2 % , from $ 4.5 million in 2019 compared to $ 1.0 million in 2020. the decrease reflected the reduction in gps cost of revenue due to a lower volume of gps test deliveries as a result of lower orders . home health care services cost of revenue decreased $ 1.5 million , or 100.0 % , for the year ended december 31 , 2020 compared to the prior year period . this decrease was due to the sale of our home health care services business in june 2019. selling , general and administrative replace_table_token_6_th comparison of the years ended december 31 , 2020 and 2019 selling , general and administrative expenses decreased $ 7.1 million , or 12.7 % , from $ 55.6 million to $ 48.5 million for the years ended december 31 , 2019 and 2020 , respectively . the decrease was attributable to a $ 2.8 million decline in personnel related costs , a $ 1.2 million decrease from the sale of assisteo in june 2019 , a $ 1.5 million decrease in depreciation and amortization related to less fixed asset additions , a $ 1.5 million decrease in shared services costs , and a $ 0.1 million reduction in other costs related to various cost saving measures . - 92 - research and development replace_table_token_7_th comparison of the years ended december 31 , 2020 and 2019 research and development expenses increased $ 3.3 million , or 24.0 % , from $ 13.9

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cash flows the following table sets forth our primary sources and uses of cash for the periods indicated : replace_table_token_15_th - 98 - to date , our operations have been primarily financed through the proceeds from related party promissory notes , the convertible notes , the sale of components of our business , and through equity issuances , including net cash proceeds from our ipo . in june 2016 , we sold 6,900,000 shares of common stock at a price of $ 14.00 per share , which includes 400,000 shares sold to the underwriter upon exercise of their overallotment option to purchase additional shares of our company . we raised net proceeds of $ 83.6 million from our ipo , after underwriting fees , discounts and commissions of $ 4.9 million and other offering costs of $ 8.1 million . in december 2016 , we issued convertible notes to related party and others for aggregate net proceeds of $ 102.7 million , $ 9.9 million from cambridge , and $ 92.8 million from others , after deducting underwriting discounts and commissions and offering costs of $ 4.3 million . in february 2020 , we received $ 47.3 million in proceeds from the sale of our connected care business . operating activities our cash flows from operating activities have been driven by rate of revenue , billings , and collections , the timing and extent of spending to support product development efforts and enhancements to existing services , the timing of general and administrative expenses , and the continuing market acceptance of our solutions . in addition , our net loss in the year ended december 31 , 2020 has been greater than our use of cash for operating activities due to the inclusion of noncash charges . cash used in operating activities of $ 16.9 million in the year ended december 31 , 2020 was a result of our continued investments in enhancements to current products , research and development , sales and marketing , and expenses incurred as a public company , including costs associated with public company reporting and corporate governance requirements .

our adjusted ebitda increased 25.9 % over 2016 to $ 177.7 million . our adjusted ebitda per worksite employee per month increased 14.1 % from $ 71 in 2016 to $ 81 in 2017 . we ended 2017 with working capital of $ 52.5 million . during 2017 , we paid $ 65.8 million in dividends and repurchased shares of our common stock at a cost of $ 38.7 million . revenues we account for our revenues in accordance with accounting standards codification ( “ asc ” ) 605-45 , revenue recognition . our peo hr outsourcing solutions gross billings to clients include the payroll cost of each worksite employee at the client location and a markup computed as a percentage of each worksite employee 's payroll cost . we invoice the gross billings concurrently with each periodic payroll of our worksite employees . revenues , which exclude the payroll cost component of gross billings , and therefore , consist solely of the markup , are recognized ratably over the payroll period as worksite employees perform their service at the client worksite . this markup includes pricing components associated with our estimates of payroll taxes , benefits and workers ' compensation costs , plus a separate component related to our hr services . we - 31 - include revenues that have been recognized but not invoiced in unbilled accounts receivable on our consolidated balance sheets . our revenues are primarily dependent on the number of clients enrolled , the resulting number of worksite employees paid each period and the number of worksite employees enrolled in our benefit plans . because our total markup is computed as a percentage of payroll cost , certain revenues are also affected by the payroll cost of worksite employees , which may fluctuate based on the composition of the worksite employee base , inflationary effects on wage levels and differences in the local economies of our markets . direct costs the primary direct costs associated with revenue-generating activities for our peo hr outsourcing solutions are : employment-related taxes ( “ payroll taxes ” ) costs of employee benefit plans workers ' compensation costs payroll taxes consist of the employer 's portion of social security and medicare taxes under fica , federal unemployment taxes and state unemployment taxes . payroll taxes are generally paid as a percentage of payroll cost . the federal unemployment tax rates are defined by federal regulations . state unemployment tax rates are subject to claim histories and vary from state to state . employee benefits costs are comprised primarily of health insurance premiums and claims costs ( including dental and pharmacy costs ) , but also include costs of other employee benefits such as life insurance , vision care , disability insurance , education assistance , adoption assistance , a flexible spending account program and a work-life program . workers ' compensation costs include administrative and risk charges paid to the insurance carrier , and claims costs , which are driven primarily by the frequency and severity of claims . gross profit our gross profit per worksite employee is primarily determined by our ability to accurately estimate and control direct costs and our ability to incorporate changes in these costs into the gross billings charged to peo hr outsourcing solutions clients , which are subject to pricing arrangements that are typically renewed annually . we use gross profit per worksite employee per month as our principal measurement of relative performance at the gross profit level . operating expenses salaries , wages and payroll taxes – salaries , wages and payroll taxes are primarily a function of the number of corporate employees , their associated average pay and any additional incentive compensation . our corporate employees include client services , sales and marketing , benefits , legal , finance , information technology , administrative support personnel and those associated with our other products and services . stock-based compensation – our stock-based compensation relates to the recognition of non-cash compensation expense over the vesting period of restricted stock and long-term incentive plan awards . commissions – commissions expense consists primarily of amounts paid to sales managers and bpas . commissions are based on new accounts sold and a percentage of revenue generated by such personnel . advertising – advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets , including the insperity invitational presented by unitedhealthcare ® sponsorship . general and administrative expenses – our general and administrative expenses primarily include : rent expenses related to our service centers and sales offices outside professional service fees related to legal , consulting and accounting services administrative costs , such as postage , printing and supplies employee travel and training expenses - 32 - technology and facility repairs and maintenance costs depreciation and amortization – depreciation and amortization expense is primarily a function of our capital investments in corporate facilities , service centers , sales offices , technology infrastructure and that associated with our acquisitions . impairment charges and other – impairment charges and other consist of non-cash expense associated with the decline in fair value of long-lived and intangible assets , including goodwill . please read note 1 “ accounting policies ” and note 6 “ impairment charges and other , ” to the consolidated financial statements for additional information . other income ( expense ) other income ( expense ) includes interest charges incurred in connection with borrowings under our credit facility and interest income earned on our cash , cash equivalents and marketable securities . please read “ —liquidity and capital resources ” for additional information . income taxes on december 22 , 2017 , the tax cuts and jobs act ( the “ 2017 tax reform act ” ) was signed into law . story_separator_special_tag instead , companies are required to record an impairment charge based on the excess of a reporting unit 's carrying amount over its fair value ( formerly , step 1 ) . the guidance is effective for goodwill impairment tests in fiscal years beginning after december 16 , 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. companies should apply this asu on a prospective basis . we adopted asu no . 2017-04 on january 1 , 2017. in february 2016 , the fasb issued asu no . 2016-02 , leases . the new standard requires recognition of lease assets and lease liabilities for leases previously classified as operating leases . the guidance is effective for fiscal years beginning after december 15 , 2018. we are currently reviewing the guidance and assessing the impact on our consolidated financial statements . in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . asu no . 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and supersedes most current revenue recognition guidance , including industry-specific guidance . under asu no . 2014-09 , an entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services . asu no . 2014-09 is effective for annual reporting periods beginning after december 15 , 2017 , and early adoption is permitted . companies may use either a full retrospective or a modified retrospective approach to adopt asu no . 2014-09. we plan to adopt asu no . 2014-09 effective january 1 , 2018 using the modified retrospective approach . under this method , the guidance is applied only to the most current period presented in the financial statements . while our technical analysis is ongoing , we expect our revenue recognition policies to remain substantially unchanged as a result of adoption asu no . 2014-09. additionally , we do not anticipate any significant changes in our business processes or systems . - 36 - results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 . the following table presents certain information related to our results of operations : replace_table_token_10_th ( 1 ) adjusted to reflect the two-for-one split of our common stock effected on december 18 , 2017 in the form of a stock dividend . ( 2 ) please read “ —non-gaap financial measures ” for a reconciliation of the non-gaap financial measures to their most directly comparable financial measures calculated and presented in accordance with gaap . ( 3 ) gross billings of $ 9,202 and $ 9,011 per worksite employee per month , less payroll cost of $ 7,697 and $ 7,533 per worksite employee per month , respectively . revenues our revenues , which represent gross billings net of worksite employee payroll cost , increased 12.2 % in 2017 compared to 2016 , due to a 10.2 % increase in the average number of worksite employees paid per month and a 1.8 % , or $ 27 increase in revenues per worksite employee per month compared to 2016 . - 37 - we provide our peo hr outsourcing solutions to small and medium-sized businesses in strategically selected markets throughout the united states . by region , our peo hr outsourcing solutions revenue change from 2016 and distribution for the years ended december 31 , 2017 and 2016 were as follows : replace_table_token_11_th ( 1 ) comprised primarily of revenues generated by our other products and services offerings . the percentage of total peo hr outsourcing solutions revenues in our significant markets include the following : replace_table_token_12_th our growth in the number of worksite employees paid is affected by three primary sources : new client sales , client retention and the net change in existing clients through worksite employee new hires and layoffs . during 2017 , new client sales improved over 2016 , client retention declined slightly compared with 2016 , and the net change in existing clients also declined compared with 2016 . as a result , our year-over-year growth in average worksite employees paid per month in 2017 was 10.2 % compared to 13.7 % in 2016 . gross profit gross profit was $ 572.7 million in 2017 , a 16.5 % increase over 2016 . the average gross profit per worksite employee per month was $ 261 in 2017 and $ 247 in 2016 . our pricing objectives attempt to achieve a level of revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses . our revenues per worksite employee per month increased 1.8 % to $ 1,505 in 2017 versus 2016 and our direct costs , which primarily include payroll taxes , benefits and workers ' compensation expenses , increased 1.1 % to $ 1,244 per worksite employee per month . the primary direct cost components changed as follows : benefits costs – the cost of group health insurance and related employee benefits increased $ 4 per worksite employee per month , or 1.2 % , on a per covered employee basis compared to 2016 . included in 2017 benefits costs is a reduction of $ 1.2 million , or $ 1 per worksite employee per month , for changes in estimated claims run-off related to prior periods . included in 2016 is a charge of $ 5.1 million , or $ 3 per worksite employee per month , for changes in estimated claims run-off related to prior periods . the percentage of worksite employees covered under our health insurance plan was 68.8 % in 2017 and 69.2 % in 2016 . please read “ —critical accounting policies and estimates—benefits costs ” for a discussion of our accounting for health

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cash flows from operating activities our net cash flows from operating activities in 2017 were $ 204.4 million . our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our peo hr outsourcing solutions clients . cash and cash equivalents , and thus our reported cash flows from operating activities , are significantly impacted by various external and internal factors , which are reflected in part by the changes in our balance sheet accounts . these include the following : timing of client payments / payroll levels – we typically collect our comprehensive service fee , along with the client 's payroll funding , from clients at least one day prior to the payment of worksite employee payrolls and associated payroll taxes . therefore , the last business day of a reporting period has a substantial impact on our reporting of operating cash flows . for example , many worksite employees are paid on fridays and at month-end ; therefore , operating cash flows decrease in the reporting periods that end on a friday . in the year ended december 31 , 2017 , the last business day of the reporting period ended on a friday , client prepayments were $ 23.6 million and amounts payable for withheld federal and state income taxes , employment taxes and other payroll deductions was $ 271.5 million . in the period ended december 31 , 2016 , which ended on a friday , client prepayments were $ 21.3 million and amounts payable for withheld federal and state income taxes , employment taxes and other payroll deductions was $ 221.7 million .

we planned that fulton would incur operating losses in the first few months after the acquisition as we integrated and began ramping up the operation . in just our first nine months of operating this segment , fulton was able to achieve revenue of $ 22.9 million with continually improving operating results as we continue to integrate the operation , which demonstrates fulton 's growth potential . as part of the acquisition , we were able to hire and retain the majority of fulton 's existing employee base , and we continue to successfully recruit strong industry talent throughout the business to help us implement operational improvements with a focus on improving our quality and project margins . we are seeing increased opportunities in the industry as wireless carriers prepare for the roll out of 5g and the required densification of their networks . we also believe that the recent merger news in the industry will present additional opportunities as networks are rationalized and a new carrier potentially expands their network to gain market share . our continued goal is to solidify our processes and project oversight to successfully and profitably take advantage of new growth opportunities as they present themselves . although there is still much work to do at fulton over the next several quarters , we believe that fulton will continue to provide strong revenue growth and gradually improving margins . telco segment we continue to see efficiencies from the operational restructuring put in place earlier this fiscal year , which has enabled us to focus our core team on sales , procurement and recycling opportunities . we are also ramping up our 11 repair activities to take advantage of our new capabilities as we further expand our business lines . we have recently added new employees to our team across both nave and triton datacom with strong experience in online marketing and sales across both nave and triton . at triton datacom , we are excited about our new facility that we moved into in october 2019. the facility has been designed to streamline and improve our processes including inventory management , shipping and receiving and the refurbishment operations . the added space will allow us to develop the internal systems necessary to expand our refurbishment capabilities and new equipment sales by adding additional product lines and manufacturers . we have also increased our focus on the brokerage business and internet sales by expanding our sales channels . we believe that triton is poised to expand , capture additional market share and develop new customers . while triton 's revenues are ahead of last year , we look forward to seeing triton 's operating results improve as a result of these changes . discontinued operations in december 2018 , the company entered into an agreement for the sale of our cable tv segment business to leveling 8 , inc. , a company controlled by david chymiak , for $ 10.3 million . david chymiak is a member of the company 's board of directors and a substantial shareholder of the company , and he was the chief technology officer and president of tulsat llc until the closing of the sale . this agreement was approved by the company 's strategic direction committee and board of directors . the sale was subject to shareholder approval , and in april 2019 , the company distributed a proxy statement to its shareholders for a special meeting of shareholders on may 29 , 2019. the shareholders approved the sale at the special meeting , and the company then closed the transaction effective as of june 30 , 2019. the $ 10.3 million purchase price consisted of $ 3.9 million of cash at closing ( subject to a working capital adjustment of $ 1.1 million ) , less $ 2.1 million of cash proceeds received from the sale of the sedalia , missouri and warminster , pennsylvania facilities and a $ 6.4 million promissory note to be paid in semi-annual installments over five years with an interest rate of 6.0 % . the sale of the facility in broken arrow , oklahoma for $ 5.0 million was completed prior to entering into the sale agreement , and therefore was not an adjustment to the overall purchase price . in march and june 2019 , we sold the sedalia , missouri and warminster , pennsylvania buildings to david chymiak llc for a cash purchase price of $ 1.4 million and $ 0.7 million , respectively . the proceeds from these sales were a credit to the purchase price and down payment to the proposed cable tv sale as discussed above . therefore , as a result of the sale of the cable tv business to leveling 8 and the three facility sales to david chymiak , we will receive total proceeds of $ 14.2 million . these proceeds consist of $ 7.1 million in cash received from the facility sales , $ 0.7 million received in the fourth quarter of 2019 , and a promissory note of $ 6.4 million to be paid over five years , which is personally guaranteed by david chymiak . taken as a whole , these transactions resulted in a net pretax loss of $ 1.5 million for the year ended september 30 , 2019. the proceeds from these sale transactions were used to pay existing debt as well as to support the company 's strategic growth plans and working capital needs . additional board member in july , we appointed a new independent director , john shelnutt , to our board of directors . mr. shelnutt was appointed due to his extensive experience and contacts in the telecommunications industry as well as his background in business leadership and corporate strategy . mr. shelnutt is currently a vice president of blue danube systems , and previously served in various executive capacities at cisco , including leading their mobility division with global responsibility for mobile product offerings . story_separator_special_tag inbound freight charges are included in cost of sales . purchasing and receiving costs , inspection costs , warehousing costs , internal transfer costs and other inventory expenditures are included in operating expenses , since the amounts involved are not considered a material component of cost of sales . accounts receivable valuation management judgments and estimates are made in connection with establishing the allowance for doubtful accounts . specifically , we analyze the aging of accounts receivable balances , historical bad debts , customer concentrations , customer credit-worthiness , current economic trends and changes in our customer payment terms . significant changes in customer concentration or payment terms , deterioration of customer credit-worthiness , or weakening in economic trends could have a significant impact on the collectability of receivables and our operating results . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , an additional provision to the allowance for doubtful accounts may be required . the reserve for bad debts was $ 0.2 million at september 30 , 2019 and september 30 , 2018. at september 30 , 2019 , accounts receivable , net of allowance for doubtful accounts , was $ 4.8 million . 18 goodwill goodwill represents the excess of purchase price of acquisitions over the acquisition date fair value of the net assets of businesses acquired . goodwill is not amortized and is tested at least annually for impairment . we perform our annual analysis during the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant additional analysis . goodwill is evaluated for impairment by comparing our estimate of the fair value of each reporting unit , or operating segment , with the reporting unit 's carrying value , including goodwill . our reporting units for purposes of the goodwill impairment calculation are aggregated into the wireless operating segment and the telco operating segment . management utilizes a discounted cash flow analysis to determine the estimated fair value of each reporting unit . significant judgments and assumptions including the discount rate , anticipated revenue growth rate , gross margins and operating expenses are inherent in these fair value estimates . as a result , actual results may differ from the estimates utilized in our discounted cash flow analysis . the use of alternate judgments and or assumptions could result in the recognition of different levels of impairment charges in the financial statements . we did not record a goodwill impairment for the wireless or telco segments in the three year period ended september 30 , 2019. in addition , we are implementing strategic plans as discussed in recent business developments to help prevent impairment charges in the future . although we do not anticipate a future impairment charge , certain events could occur that might adversely affect the reported value of goodwill . such events could include , but are not limited to , economic or competitive conditions , a significant change in technology , the economic condition of the customers and industries we serve , a material negative change in the relationships with one or more of our significant customers or equipment suppliers , failure to successfully implement our plan to restructure and expand the telco sales organization , and failure to reduce inventory levels within the telco segment . if our judgments and assumptions change as a result of the occurrence of any of these events or other events that we do not currently anticipate , our expectations as to future results and our estimate of the implied fair value of the wireless segment and telco segment also may change . as a result of the fulton technologies acquisition , the company recorded additional goodwill of $ 57 thousand as the purchase price exceeded the acquisition date fair value of the net assets based on the final purchase price allocation . intangibles intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 years to 10 years . as a result of the fulton technologies acquisition , the company has recorded an additional intangible asset for customer relationships of $ 0.2 million based on the final purchase price allocation . impairment of long-lived assets the company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset 's carrying amount may not be recoverable . the company conducts its long-lived asset impairment analyses in accordance with accounting standards codification ( “ asc ” ) 360-10-15 , “ impairment or disposal of long-lived assets . ” asc 360-10-15 requires the company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows . if the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable , an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals . recently issued accounting standards in february 2016 , the fasb issued asu 2016-02 : “ leases ( topic 842 ) ” which is intended to improve financial reporting about leasing transactions . this asu will require organizations ( “ lessees ” ) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases . organizations that own the assets leased by lessees ( “ lessors ” ) will remain largely unchanged from current gaap . in addition , this asu will require disclosures to help investors and other financial statement users better understand the amount , timing and uncertainty of cash flows arising from leases . the guidance is effective for annual

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liquidity and capital resources cash flows used in operating activities we generally finance our operations primarily through cash flows provided by operations , our quick payment accounts receivable programs in our wireless segment and our line of credit of up to $ 2.5 million . during 2019 , we used $ 6.0 million of cash flows for continuing operations . the cash flows from operations was negatively impacted by a $ 1.4 million net increase in accounts receivable , a $ 2.3 million net increase in unbilled revenue and a $ 1.6 million net increase of inventories . in addition , the cash flows from operations was favorably impacted by $ 0.5 million from a net increase in accrued expenses . net cash provided by operating activities from discontinued operations was $ 1.2 million . 16 cash flows provided by investing activities during 2019 , cash used by investing activities for continuing operations was $ 0.5 million , which primarily related to the purchase of substantially all of the net assets of fulton technologies . the net purchase price was $ 1.3 million . cash received from the sale of the cable tv segment was $ 0.8 million . during 2019 , cash provided by investing activities for discontinued operations of $ 7.1 million was related to the sales of three facilities within the cable tv segment to a company controlled by david chymiak . the sales were our broken arrow , oklahoma facility for $ 5.0 million , our sedalia , missouri facility for $ 1.4 million and our warminster , pennsylvania facility for $ 0.7 million . in addition , we also have a promissory note of $ 6.4 million resulting from the sale of the cable tv segment to leveling 8. these sales are discussed in note 4 of the notes to the consolidated financial statements . subsequent to september 30 , 2019 , the first installment of the promissory note of $ 0.7 million for principal and interest was paid by leveling 8 to the company .

we do , however , remain concerned about the retail climate for apparel and the united states economy in general . raw material prices remain volatile which adds uncertainty to our pricing and production strategies . we have evaluated these heightened risk factors in setting our expectations for the upcoming year , but it is impossible to predict the full impact these conditions may have on our business . earnings guidance for the fiscal year ending june 30 , 2012 , we expect net sales to be in the range of $ 500 to $ 520 million , an increase of 5 % to 9 % from fiscal year 2011 , all of which is expected to be organic growth . earnings are expected to be in the range of $ 2.00 to $ 2.15 per diluted share in fiscal year 2012. our fiscal year 2012 guidance is based on the following assumptions : 1 ) organic sales growth of 5 % to 9 % driven primarily by higher average prices . we expect to achieve sales growth in both our branded and basics segments ; 2 ) decline in gross margins of approximately 150 to 200 basis points for the year driven primarily from higher cotton and other raw material costs , partially offset by improved manufacturing costs as we gain efficiencies and further leverage our fixed expenses . we will be bringing in yarn with the highest cotton cost in our first quarter of fiscal year 2012 , and expect the cotton cost to decline over the remaining quarters . as this yarn flows through our manufacturing process and the finished goods are sold , we expect the highest cost inventory will be in our cost of sales during our second and third quarters of fiscal year 2012 , impacting gross margins most significantly in these quarters . 3 ) selling , general and administration costs are expected to decrease as a percentage of sales , as well as in gross dollars , from fiscal year 2011 due primarily to fiscal year 2011 including some one-time expenses that are not expected to repeat in fiscal year 2012 . 4 ) the effective tax rate for fiscal year 2012 is expected to be approximately 24 % . 5 ) capital expenditures are expected to be approximately $ 10 million for fiscal year 2012 , which includes about $ 4 to $ 5 million 16 to increase our textile and sewing capacity in order to meet expected sales growth . depreciation and amortization , including non-cash compensation , is expected to also be approximately $ 10 million . 6 ) fiscal year 2012 free cash flows are expected to be approximately $ 20 million and are expected to be used to reduce debt obligations and for other corporate purposes . in fiscal year 2012 , we will face challenging market conditions resulting from the volatile cotton market , inflationary pressures and general economic conditions which continue to impact discretionary spending . although we believe we have taken these risks , as well as other factors , into consideration as we determined our guidance for fiscal year 2012 , the significance of the challenges , many of which our outside of our control , creates heightened risk to the volatility of our earnings in the upcoming fiscal year . in addition , although we believe that the assumptions described above are reasonable , if any of the assumptions proves to be incorrect , our results will differ from our expectations . results of operations overview fiscal year 2011 marked another year of growth for delta apparel , inc. and our eighth consecutive year of record revenue . higher selling prices , coupled with continued marketing initiatives to gain new customers and expand business relationships with existing customers , drove organic sales growth of 7.1 % during fiscal year 2011 on top of the 14 % organic growth achieved in fiscal year 2010. the organic sales growth , coupled with the inclusion of revenue from the acquisition of the cotton exchange , resulted in record sales of $ 475.2 million , an increase of $ 50.8 million , or 12.0 % , from the prior year . our operating profit increased $ 5.1 million to $ 25.3 million , or 5.3 % of sales , in fiscal year 2011 , resulting in net income of $ 17.3 million , or $ 1.98 per diluted share . our effective tax rate was 23.6 % in fiscal year 2011 compared to 26.8 % in the prior year as we further developed our tax planning strategies . in addition to growing our top line and expanding our profits , we also continued to focus on managing the capital in the business . the rise of cotton prices during the year and resulting increases in selling prices significantly increased our net working capital requirements . even with the increased investment in working capital , we generated positive cash flows from operations during fiscal year 2011. we continued to invest in the growth of our business through the acquisition of the cotton exchange in july 2011 , and with capital expenditures to further expand our manufacturing capacity , lower our costs and improve our information technology platforms . overall , we believe we have many opportunities to continue our sales growth and further improve our profitability in the upcoming years . in fiscal year 2012 , we will face challenging market conditions resulting from the volatile cotton market , inflationary pressures and general economic conditions which continue to impact discretionary spending . we believe our broad channels of distribution and diversified product offerings , along with our prudent capital management , should serve us well during these more challenging times . quarterly financial data for information regarding quarterly financial data , refer to note 16 - quarterly financial information ( unaudited ) to the consolidated financial statements , which information is incorporated herein by reference . story_separator_special_tag note 2 to our consolidated financial statements includes a summary of the significant accounting policies or methods used in the preparation of our consolidated financial statements . revenue recognition revenues from product sales are recognized when ownership is transfered to the customer , which includes not only the passage of title , but also the transfer of the risk of loss related to the product . at this point , the sales price is fixed and determinable , and we are reasonably assured of the collectibility of the sale . the majority of our sales are shipped fob shipping point and revenue is therefore recognized when the goods are shipped to the customer . for sales that are shipped fob destination point , we do not recognize the revenue until the goods are received by the customer . shipping and handling charges billed to our customers are 21 included in net revenue and the related costs are included in cost of goods sold . revenues are reported on net sales basis , which is computed by deducting product returns , discounts and estimated returns and allowances . we estimate returns and allowances on an ongoing basis by considering historical and current trends . accounts receivable and related reserves in the normal course of business , we extend credit to our customers based upon defined credit criteria . accounts receivable , as shown on our consolidated balance sheet , are net of related reserves . we estimate the net collectibility of our accounts receivable and establish an allowance for doubtful accounts based upon this assessment . in situations where we are aware of a specific customer 's inability to meet its financial obligation , such as in the case of a bankruptcy filing , a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected . for all other customers , reserves are determined through analysis of the aging of accounts receivable balances , historical bad debts , customer concentrations , customer credit-worthiness , current economic trends and changes in customer payment terms . in addition , reserves are established for other concessions that have been extended to customers , including advertising , markdowns and other accommodations , net of historical recoveries . these reserves are determined based upon historical deduction trends and evaluation of current market conditions . significant changes in customer concentration or payment terms , deterioration of customer credit-worthiness or further weakening in economic trends could have a significant impact on the collectibility of receivables and our operating results . inventories and related reserves we state inventories at the lower of cost or market using the first-in , first-out method . inventory cost includes materials , labor and manufacturing overhead on manufactured inventory , and all direct and associated costs , including inbound freight , to acquire sourced products . we regularly review inventory quantities on hand and record reserves for obsolescence , excess quantities , irregulars and slow moving inventory based on historical selling prices , current market conditions , and forecasted product demand to reduce inventory to its net realizable value . if actual market conditions are less favorable than those projected , or if sell-through of the inventory is more difficult than anticipated , additional inventory reserves may be required . goodwill and contingent consideration goodwill and definite-lived intangibles were recorded in conjunction with our acquisitions of junkfood clothing company and art gun . we did not record any indefinite-lived intangibles associated with either of these acquisitions . goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired . goodwill must be tested for impairment at least annually , or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired , and is required to be written down when impaired . the goodwill impairment testing process involves the use of significant assumptions , estimates and judgments with respect to a variety of factors , including sales , gross margins , selling , general and administrative expenses , capital expenditures , cash flows and the selection of an appropriate discount rate , all of which are subject to inherent uncertainties and subjectivity . when we perform goodwill impairment testing , our assumptions are based on annual business plans and other forecasted results . we select a discount rate , which is used to reflect market-based estimates of the risks associated with the projected cash flows , based on the best information available as of the date of the impairment assessment . see note 2 ( m ) - significant accounting policies to the consolidated financial statements for further information regarding our remeasurement of contingent consideration and testing for goodwill impairment , which information is herein incorporated by reference . given the current macro-economic environment and the uncertainties regarding its potential impact on our business , there can be no assurance that our estimates and assumptions used in our impairment tests will prove to be accurate predictions of the future . if our assumptions regarding forecasted cash flows are not achieved , it is possible that an impairment review may be triggered and goodwill may be determined to be impaired . stock-based compensation stock-based compensation cost is accounted for under the provisions of fasb codification no . 718 , compensation – stock compensation ( “ asc 718 ” ) , the securities and exchange commission staff accounting bulletin no . 107 ( `` sab 107 `` ) , and the securities and exchange commission staff accounting bulletin no . 110 ( `` sab 110 `` ) . asc 718 requires all stock-based payments to employees , including grants of employee stock options , to be recognized as expense over the vesting period using a fair value method . we estimate the fair value of stock-based compensation using the black-scholes options pricing model

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liquidity and capital resources credit facility and other financial obligations on may 27 , 2011 , delta apparel , soffe , junkfood , to the game , art gun and tcx entered into a fourth amended and restated loan and security agreement ( the “ amended loan agreement ” ) with the financial institutions named in the amended loan agreement as lenders , wells fargo bank , national association , as administrative agent , bank of america , n.a. , as syndication agent , wells fargo capital finance , llc , as sole lead arranger , and wells fargo capital finance , llc and merrill lynch , pierce , fenner & smith incorporated , as joint bookrunners . in connection with the amended loan agreement , israel discount bank of new york was removed from the syndicate of lenders under the credit facility , and bank of america , n.a . was added to the syndicate of lenders . pursuant to the amended loan agreement , the maturity of the loans under the previously existing credit facility was extended to may 26 , 2016 and the line of credit was increased to $ 145 million ( subject to borrowing base limitations ) , which represents an increase of $ 35 million in the amount that was previously available under the credit facility . under the amended loan agreement , provided that no event of default exists , we have the option to increase the maximum credit available under the facility to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the agent 's ability to secure additional commitments and customary closing conditions . at july 2 , 2011 , we had $ 75.9 million outstanding under our credit facility at an average interest rate of 1.8 % , and had the ability to borrow an additional $ 59.1 million .

in 2019 , we signed an agreement with celebrity cruises as the exclusive operator of health and wellness centers on celebrity 's entire fleet , increasing the celebrity vessels on which we operated in 2020 by nine , extended our current agreement with norwegian cruise lines through 2024 , won a contract with the new lifestyle brand virgin voyages to operate the spa and wellness offerings onboard virgin vessels , and entered into an amended agreement with p & o cruises to extend our operations on p & o 's vessels for the next five years . in december 2019 , covid-19 was initially reported in wuhan , china . shortly thereafter , the world health organization declared covid-19 to be a “ public health emergency of international concern ” affecting all parts of the world on a global-scale . on march 8 , 2020 the u.s. department of state issued a warning for u.s. citizens to not travel by cruise ship , and this was soon followed by stringent restrictions on international travel and immigration by the u.s. and many other countries across asia , europe and south america . on march 14 , 2020 , the u.s. centers for disease control and prevention ( “ cdc ” ) issued a no sail order that was extended serval times until , on october 30 , 2020 , the cdc issued a framework for conditional sailing order , which will remain in effect until the earliest of ( 1 ) the expiration of the secretary of health and human services ' declaration that covid-19 constitutes a public health emergency , ( 2 ) the cdc director rescinds or modifies the order based on specific public health or other considerations , or ( 3 ) 34 november 1 , 2021. pursuant to the framework for conditional sailing order , the no sail order has been lifted and the cru ise industry will work with the cdc on a phased in return-to-service , which will consist of three phases : ( i ) testing and implementing additional safeguards for crew members; ( ii ) conducting simulated voyages to test cruise operators ' ability to mitigate c ovid -19 risk; and ( iii ) providing a certification to ships that meet specified requirements , thereby allowing for a phased return to cruise ship passenger voyages . we are currently reviewing the conditional sailing order and monitoring the actions of our cruise line partners with respect to the status of the voluntary suspension of cruise sailings . the food and drug administration has approved certain vaccines for emergency use authorization . these covid-19 vaccines have been shown to be highly effective in clinical trials and are being distributed to populations in the united states and around the world . while these vaccines are a promising milestone in global efforts to contain and eliminate covid-19 , a number of uncertainties remain , including whether any additional vaccines will receive regulatory approval , the risk of differing interpretations and assessments by the scientific community during the peer review/publication process , widespread adoption of the vaccines by consumers , the availability of the raw materials needed in the quantities required to manufacture the vaccine , pricing and access challenges , storage , distribution and administration requirements , and logistics . recently , new covid-19 variants were recognized in brazil , south africa , and the united kingdom . these variants have the potential to increase the lethality and spread of covid-19 , reduce vaccine effectiveness , and may prolong the pandemic . the global spread of the covid-19 pandemic is complex and rapidly-evolving , with governments , public institutions and other organizations imposing or recommending , and businesses and individuals implementing , restrictions on various activities or other actions to combat its spread , such as restrictions and bans on travel or transportation , limitations on the size of gatherings , closures of work facilities , schools , public buildings and businesses , cancellation of events , including sporting events , conferences and meetings , and quarantines and lock-downs . the covid-19 pandemic is currently impacting global operations in the travel and hospitality industry worldwide by necessitating the closure of destination resorts , travel and hospitality services and significantly reducing demand worldwide for travel and hospitality services . we are unable to predict the course of covid-19 , but it has had , and we anticipate that it will continue to have , a negative impact on our business performance in 2021. matters affecting comparability supply agreement we purchase beauty products for resale from an entity ( the “ supplier entity ” ) that was , during the periods presented , a wholly-owned subsidiary of steiner leisure . osw predecessor and the supplier entity entered into an agreement , effective as of january 1 , 2017 ( subsequently amended in 2018 ) , which established the prices at which beauty products will be purchased by us from the supplier entity for a term of 10 years ( the “ supply agreement ” ) . on march 19 , 2019 , we consummated the previously announced business combination pursuant to the transaction agreement . “ osw predecessor ” is comprised of the net assets and operations of ( i ) the following wholly-owned subsidiaries of steiner leisure : onespaworld llc , steiner spa asia limited , steiner spa limited , and onespaworld marks limited ( formerly known as steiner marks limited ) , ( ii ) the following respective indirect subsidiaries of steiner leisure : mandara pslv , llc ( subsequently dissolved ) , mandara spa ( hawaii ) , llc , florida luxury spa group , llc , steiner transocean u.s. , inc. , steiner spa resorts ( nevada ) , inc. , steiner spa resorts ( connecticut ) , inc. , steiner resort spas ( california ) , inc. , onespaworld resort spas ( north carolina ) , inc. ( formerly known as steiner resort spas story_separator_special_tag the decrease was attributable primarily to the fact that the 2019 predecessor period included extinguishment of debt associated with the payoff of the pre-existing debt by the parent of the company 's predecessor . income tax expense ( benefit ) . income tax expense ( benefit ) for the year ended december 31 , 2020 , the successor 2019 period and predecessor 2019 period were $ 0.8 million , $ ( 0.1 ) million , and $ 0.1 million , respectively . the increase for the year ended december 31 , 2020 compared to the combined successor 2019 period and predecessor 2019 period was $ 0.8 million . the increase was driven primarily by the increase in valuation allowance related to the company 's beginning-of-year deferred tax assets that are not realizable during the year ended december 31 , 2020. net income . net ( loss ) income for the year ended december 31 , 2020 , the successor 2019 period and predecessor 2019 period were $ ( 280.5 ) million , $ ( 12.2 ) million , and $ ( 24.8 ) million , respectively . the decrease for the year ended december 31 , 2020 compared to the combined successor 2019 period and predecessor 2019 period was $ 243.5 million , or 658 % . the decrease was as a result of $ 190.8 million in goodwill and trade name impairment charges recognized during the three months ended march 31 , 2020 and the impact of the covid-19 pandemic in the year ended december 31 , 2020 , partially offset by $ 20.7 million in expenses related to stock-based compensation during the successor 2019 period , and $ 26.6 million in change in control payments earned upon consummation of the business combination during the predecessor 2019 period . comparison of results for the years ended december 31 , 2019 and december 31 , 2018 the following tables present operations for the predecessor and successor periods , which relate to the periods preceding and the periods succeeding the business combination , respectively , and the year ended december 31 , 2018. references to the “ successor 39 2019 period ” in the discussion below refer to the period from march 20 , 2019 to december 31 , 2019. references to the “ pr edecessor 2019 period ” in the discussion below refers to the period from january 1 , 2019 to march 19 , 2019. replace_table_token_8_th revenues . revenues for the successor 2019 period , predecessor 2019 period and for the year ended december 31 , 2018 were $ 443.8 million , $ 118.5 million and $ 540.8 million , respectively . the increase was driven by seven incremental net new shipboard health and wellness centers added to the fleet , a continued trend towards larger and enhanced shipboard health and wellness centers , as well as increased guest spending on higher-priced services , product innovation and improved collaboration with partners , such as the continued rollout of new direct marketing initiatives onboard . this growth was partially offset by the negative impacts of ships temporarily taken out of service : service revenues . service revenues for the successor 2019 period , predecessor 2019 period and the year ended december 31 , 2018 were $ 339.8 million , $ 91.3 million and $ 410.9 million , respectively . product revenues . product revenues for the successor 2019 period , predecessor 2019 period and year ended december 31 , 2018 were $ 104.0 million , $ 27.2 million and $ 129.9 million , respectively . 40 the productivity of shipboard health and wellness centers increased slig htly for the 2019 combined period compared to 2018 , as evidenced by an increase in both average weekly revenues and a small increase in revenues per shipboard staff per day . average weekly revenues increased by 1.9 % to $ 61,561 in 2019 , from $ 60,421 in 2018 , and revenues per shipboard staff per day increased by 0.2 % over the same time period . we had an average of 2,964 shipboard staff members in service in 2019 compared to an average of 2,852 shipboard staff members in service in 2018. the productivity of de stination resort health and wellness centers , measured by average weekly revenues , decreased 12.9 % to $ 12,128 in 2019 , from $ 13,927 in 2018. the decrease in productivity was driven by the closure of two large health and wellness centers in the u.s. and car ibbean . cost of services . cost of services as a percentage of service revenue for the successor 2019 period , predecessor 2019 period , and for the year ended december 31 , 2018 were 86.2 % , 84.2 % and 85.8 % , respectively . cost of products . cost of products as a percentage of product revenue for the successor 2019 period , predecessor 2019 period and for the year ended december 31 , 2018 were 86.9 % , 88.2 % and 85.3 % , respectively . successor 2019 period includes purchase price adjustments concerning the inventory valuations resulting in higher costs , a portion of which are non-cash . administrative . administrative expenses for the successor 2019 period , predecessor 2019 period and for the year ended december 31 , 2018 were $ 14.0 million , $ 2.5 million and $ 9.9 million , respectively . the successor 2019 period had expenses incurred in connection with the business combination and costs associated with being a public company . salary and payroll taxes . salary and payroll taxes for the successor 2019 period , predecessor 2019 period and for the year ended december 31 , 2018 were $ 32.3 million , $ 29.3 million and $ 15.6 million , respectively . the successor 2019 period includes stock-based compensation of $ 20.7 million related to stock options that fully vested upon grant to certain directors and executives . the predecessor 2019 period had change in control payments

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cash flows the following table shows summary cash flow information for the year ended december 31 , 2020 , periods from march 20 , 2019 to december 31 , 2019 ( successor ) , january 1 , 2019 to march 19 , 2019 ( predecessor ) and the year ended december 31 , 2018 ( predecessor ) . replace_table_token_9_th ( 1 ) allocation of parent corporate overhead was paid by steiner leisure on our behalf . the amounts related to the allocation of parent corporate overhead and costs associated with the purchase of products from related parties and forgiven by steiner leisure were considered non-cash contributions and enabled us to make increased cash distributions to steiner leisure , which are classified in financing cash outflows . 43 comparison of results for the year ended decembe r 31 , 2020 to the period s from march 20 , 2019 to december 31 , 2019 ( successor ) and january 1 , 2019 to march 19 , 2019 ( predecessor ) operating activities . our net cash ( used in ) provided by operating activities for the year ended december 31 , 2020 , successor 2019 period , and the predecessor 2019 period were $ ( 36.6 ) million , $ ( 3.2 ) million and $ 3.7 million , respectively . in the year ended december 31 , 2020 , the company ceased meaningful revenue generation at the end of the first quarter , while incurring significant costs related to the housing and repatriation costs of company personnel onboard cruise ships , as well as costs incurred in preparation for cruise ship layups .